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Wall Street slips and Europe rises as US manufacturing grows for second month
A look at how markets are performing on Monday
Wall Street lacked momentum on Monday while the the FTSE 100 (^FTSE) and European stocks continued their climb higher. It came amid news that the US manufacturing sector grew for the second month in a row in June.
According to the S&P Global PMI, the reading expanded to a three-month high of 51.6 in June from 51.3 in May.
It came as French stocks led the way during the session as investors predict a hung parliament in the country after the first round of parliamentary elections. The CAC (^FCHI) index hit its lowest level since January on Friday.
France’s far-right alliance won the first round of the two-stage parliamentary elections, putting Marine Le Pen's party within reach of forming France’s first ever far-right government.
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The euro also climbed against the US dollar on the back of the news. The single currency rose 0.55% to $1.0771, after hitting its highest level in more than two weeks.
London’s benchmark index was 0.3% higher by the end of the session.
Germany's DAX (^GDAXI) rose 0.5% and the CAC in Paris headed 1.5% into the green with strong performances registered across almost all sectors.
The pan-European STOXX 600 (^STOXX) was up 0.5%.
Wall Street was mixed as American factory activity shrank again in June, for the third month in a row
The pound slipped 0.1% against the US dollar (GBPUSD=X) at 1.2639.
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German inflation falls more than expected
Frankfurt, Germany - April 20, 2022: Euro sign sculpture in a park among modern office towers in Frankfurt and Ukrainian flag- Ukraine and Europe concept (Solarysys) German inflation has fallen more than expected to 2.2% in the year to June. This was down from 2.4% in May, and slightly lower than the 2.3% forecast.
It comes as the European Central Bank (ECB) cut borrowing costs last month as inflation nears the 2% target
Carsten Brzeski, global head of macro at ING, a Dutch investment bank, said the reading keeps the door open to further ECB rate cuts, but added that inflation “remains sticky above 2%. He wrote:
"Looking ahead, the stickiness of inflation at slightly too high a level looks set to continue as favourable energy base effects are petering out while, at the same time, wages are increasing. With recent new wage demands, it is hard to see German wage growth coming down in the second half of the year."
Meanwhile, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics said a September cut is likely.
"Looking further ahead for Germany, we see scope for a further decline in headline inflation to below 2% by August, helping to get a 25 basis point rate cut over the line in September, before a rebound to just under 2.5% by the end of the year."
Unite steel workers suspend Tata industrial action
A planned strike by workers at steel giant Tata has been suspended, it has been revealed.
Members of Unite have been taking industrial action are embroiled in a dispute with the company over plans to close the two blast furnaces at its plant in Port Talbot, south Wales and switch to a greener way of steel production, which needs fewer workers.
The union confirmed on Monday that the current industrial action and next week’s strike over job losses had been suspended.
Alun Davies, national officer for Community said:
“With thousands of jobs at stake, we welcome Unite’s decision to withdraw their strike action and get back around the table with their sister steel unions.
Tata confirmed that if the strike was called off, they are ready to resume discussions on a potential MOU (memorandum of understanding) through the Multi-Union Steel Committee which is chaired by Community.
“The truth is Tata never walked away from those discussions, and at our last meeting on 22 May all unions agreed to conclude the negotiations and put the outcome to our members.
“Community will welcome resuming those discussions, but we regret that zero progress has been made since 22 May.”
Boots boss to step down
Front entrance view of a Boots Opticians shop on a high street, (Lee Hudson) The boss of Boots has announced plans to step down from the helm after six years.
Sebastian James, managing director of the UK high street health and beauty chain handed in his notice in a bid to take up a role in the healthcare sector at European eye surgery business.
Boots, which is owned by US-listed giant Walgreens Boots Alliance (WBA), said James will remain with the group until November. The company has meanwhile started the process to find a successor.
He previously headed up the electricals retailer Dixons, which has since been renamed Currys (CURY.L).
James said:
"It has been a pleasure to lead this fantastic company and support its transformation during my time as managing director.
"Now in its 175th year, Boots has shaped how people access health and beauty products on the high street and I am proud to have been part of a business that continues to hold a critical role at the centre of the UK health and beauty sectors."
Euro hits two-week high
French far right leader Marine Le Pen thumbs up as she delivers her speech after the release of projections based on the actual vote count in select constituencies , Sunday, June 30, 2024 in Henin-Beaumont, northern France. French voters propelled the far-right National Rally to a strong lead in first-round legislative elections Sunday and plunged the country into political uncertainty, according to polling projections. (AP Photo/Thibault Camus) (Thibault Camus, Associated Press) French stocks are leading the way today as investors predict a hung parliament in the country after the first round of parliamentary elections. The CAC (^FCHI) index hit its lowest level since January on Friday, and opened more than 2% higher before paring back gains.
France’s far-right alliance won the first round of the two-stage parliamentary elections, putting Marine Le Pen's party within reach of forming France’s first ever far-right government.
Jim Reid at Deutsche Bank said:
"The first round of the French elections perhaps delivered a slightly less convincing victory for the far-right than final polls suggested and with other parties now seemingly open to form alliances in the second round, this is likely to further reduce the far-right’s chance of an overall majority in parliament."
The euro climbed against the US dollar on the back of the news. The single currency rose 0.55% to $1.0771, after hitting its highest level in more than two weeks.
UK house prices rise in June, despite high mortgage rates
The average UK house price continued to tick up in June, despite high mortgage rates, with the annual rate of growth rising from 1.3% in May to 1.5%, according to Nationwide.
Average house prices hit £266,604 in June 2024, up from £264,249 a month before.
The market is heading back towards all-time highs, although prices are still around 3% lower than the peak recorded in summer 2022.
High borrowing costs means cash is king in the current market. Cash transactions were around 5% above pre-pandemic levels.
The total number of transactions was down by around 15% compared with 2019 levels. Transactions involving a mortgage were down by nearly 25%, Nationwide said.
And inflation is still in the Bank of England's crosshairs, despite the fact that a key reading saw it at Threadneedle Street's target rate of 2% earlier in June. Interest rates have been held at 5.25%, a 16-year high, with hints of a summer rate cut continuing to filter into the bank's narrative. Part of the equation has been looking at wage growth fuelling price rises elsewhere in the economy.
“While earnings growth has been much stronger than house price growth in recent years, this hasn’t been enough to offset the impact of higher mortgage rates, which are still well above the record lows prevailing in 2021 in the wake of the pandemic," said Robert Gardner, Nationwide's chief economist.
"For example, the interest rate on a five-year fixed rate mortgage for a borrower with a 25% deposit was 1.3% in late 2021, but in recent months this has been nearer to 4.7%."
As a result, housing affordability is still stretched, Gardner noted.
"Today, a borrower earning the average UK income buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 37% of take-home pay — well above the long run average of 30%."
Watch: How does inflation affect interest rates?
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