Market Report – global stocks retreat on rate hike concerns, CAB Payments a win for London 

by | Jul 7, 2023

Written by Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown 

Global stock markets have entered the end of the week with renewed nervousness. The FTSE 100 fell 2.2% on Thursday, while there were declines of 0.8% on both the S&P 500 and Nasdaq. Subdued sentiment has continued, with the FTSE opening down 32 points.

The sell-off has been triggered by data showing the private sector in the US added around double the number of jobs economists expected last month. The addition of just under half a million roles has heaped fuel on the interest rate fire, with such strong data an indication that the economy will need a heavier hand if inflation is to be brought under control.

Minutes from the latest Federal Reserve meeting also showed that policymakers are more likely to resume interest rate increases, after the decision to pause most recently. There’s growing evidence that interest rate increases up until this point have been more about playing catch up, rather than creating meaningfully tighter conditions, meaning hikes are likely to be coming down the line. There has been a suggestion that interest rates in the UK are heading towards 7%, which led to the FTSE 100 having its worst trading day of the year so far. Futures currently suggest a rate of 6.5% by February.  

Attention now turns to the official non-farm payrolls data in the US, due later today. This could slightly contradict the private sector numbers, with economists predicting that the US added 200,000 jobs last month, down from 339,000 in May. Should this be the case, it would still be indicative of a tight market, and median estimates have underestimated the monthly data for over a year. Early trading indicators show US investors are braced for challenging news. 

Meta’s bold move to step into Twitter’s territory appears to be paying dividends. The new social platform, Threads, is said to have attracted 30m users already. The new app has a major bonus, in that Instagram users are able to port their existing connections, adding a level of ease and instant followership that Twitter can’t replicate. Meta’s share price doesn’t indicate great fear or excitement around this new venture, which is likely linked to the fact investors need proof of better differentiation from Musk’s Twitter. For now, despite subtle differences, both Threads and Twitter are doing ultimately the same thing. It’s not yet clear which platform will win this rivalry, or, indeed, what grander plans Zuckerberg may have up his sleeve. 

In a symbolic win for London, CAB Payments completed a £851m listing in London yesterday. The money transfer company didn’t raise new capital from the move, and was instead a mechanism for its owner to relinquish stock – some more of which may become available in the future. The listing comes at a time when London is struggling to cement itself as the venue of choice for IPOs, with data from EY showing only 18 companies joined the London market since the new-year, raising £593m.

While this deal on its own doesn’t move the dial too much in terms of London’s standing, it does send the right kind of signal. Ultimately, UK investors are cautious and alternative venues offer more attractive terms. This isn’t an irreversible situation, but UK policymakers need to be prepared to grasp the nettle. 

Brent crude is now trading at almost $77 a barrel and is set for weekly gains on supply concerns, as Saudi Arabia announced plans to continue with production cuts. This is outweighing the concerns about what higher interest rates will mean for demand moving forward. Zooming out to a year-long view though and the oil price has been in steady decline because of broader economic and demand concerns, despite falling inventories.

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