European stocks traded in the red at midday on Tuesday as doubts increased as to the pace of rate cuts across the pond.
The FTSE 100 index traded down 57.38 points, 0.7%, at 8,260.86. The FTSE 250 was down 93.94 points, or 0.5%, at 20,812.66, and the AIM All-Share was down 3.70 points, 0.5%, at 731.25.
The Cboe UK 100 was down 0.8% at 826.88, the Cboe UK 250 fell 0.4% to 18,385.87, and the Cboe Small Companies was flat at 16,947.99.
The CAC 40 in Paris was down 0.8%, and Frankfurt’s DAX 40 lost 0.4%.
The dollar returned some progress on Tuesday. The pound slipped to $1.2975 early Tuesday afternoon, from $1.2984 at the London equities close on Monday. The euro was largely unmoved at $1.0826 from $1.0825. Against the yen, the dollar climbed to JP¥150.89 from JP¥150.34.
US Treasury yields spiked to the loftiest level in around three months, on a growing conviction the Federal Reserve may leave rates unmoved next month. Though still unlikely, the odds of one have picked up.
The yield on the 10-year US government bond topped 4.22% on Tuesday, for the first time since late-July.
According to the CME FedWatch Tool, there is an 11% chance the US central banks leaves rates unmoved next month, up markedly from a 3.0% likelihood a week ago. A month earlier, the tool suggested there was no chance that the Fed holds in November.
‘There was trouble in bond-land yesterday. US supply, political uncertainty, fear of extended fiscal accommodation and concern that the rate -cutting cycle will be shallower than expected sent US yields back to levels last seen in July. The Dollar Index, EUR/USD and USD/JPY are back at early-August levels, following the bond market faithfully. This week is bereft of meaningful US data and bond investors are left to worry,’ Societe Generale analyst Kit Juckes commented.
‘The FX market is looking at the bond market and worrying too. The front cover of this week’s Economist magazine is a picture of a roll of dollars with rocket boosters under them, captioned ’The envy of the world’. The contrast between a US economy fuelled by fiscal largesse (or fiscal irresponsibility?) and pressure for more austerity in Europe (including the UK) is hard to ignore.’
Juckes continued: ‘10-year note yields and USD/JPY reached their lows just before the Fed’s mid-September 50 basis point rate cut and we’ve had a month to rethink the US economy, during which time we have had upside surprises in ISM services, non-farm payrolls and CPI data. The manufacturing sector is lagging the services sector, but the market is aware of their relative sizes (and of the political implications of weak manufacturing). The question is how much US exceptionalism is priced in, not whether the economy is exceptional.’
US stocks are called to open lower. The Dow Jones Industrial Average is called down 0.4%, the S&P 500 down 0.5% and the Nasdaq Composite 0.6% lower.
In London, Fresnillo rose 2.7%. The gold miner was the best FTSE 100 performer and one of only a few to trade in the green early Tuesday afternoon.
Gold rose to $2,738.57 an ounce midday Tuesday, from $2,723.74 at the time of the London equities close on Monday. Gold traded just above the $2,739 mark earlier Tuesday, a hair off the record high of around $2,740 it set on Monday.
Scope Markets analyst Joshua Mahony commented: ‘Today sees the Brics summit get underway, with the fresh push higher for gold serving to highlight the ongoing theme around de-dollarisation. The stockpiling seen throughout the Brics group highlights one of the main reasons why we continue to see the precious metals space outperform, with claims of a gold backed Brics currency bringing plenty of speculation over why the metal will be increasingly in demand going forward.’
Hunting plunged 18%. It cut its annual profit guidance, as a recent decline in oil and US natural gas pricing has hit sector sentiment.
The manufacturer of equipment for the energy industry now expects 2024 earnings before interest, tax, depreciation, and amortisation between $123 million and $126 million, its outlook cut from the $134 million and $138 million range.
Insurers traded lower, as a 4.2% fall in Sabre shares dragged larger peers down with it. Admiral lost 2.3% and Direct Line declined 2.6%.
Sabre believes insurance rates will have to increase to reflect current levels of claims inflation, as gross written premiums climbed despite growing price competition.
The motor insurance underwriter says gross written premiums in the nine months to September 30 rose 15% on-year to £186.5 million from £162.2 million. It is on track for ‘record’ gross written premiums this year.
Sabre said it has seen signs of claims inflation cooling. Claims inflation remains ‘at a high single-digit level’, however.
Sabre noted that increasing competition in the insurance mass-market was evident in ‘clear signs of market price reductions.’
Chief Executive Officer Geoff Carter added: ‘We have seen clear signs that market pricing has softened considerably during the summer. Our view is that market price movements outstrip any potential short-term benefits from a slight softening in claims inflation. We remain confident in our view on inflation and that market pricing will have to reflect this in due course.’
Revel Collective fell 15%. The operator of pubs and bars reported a wider loss, a decline in revenue and it warns tough market conditions are to continue in the near term.
The firm, previously known as Revolution Bars, said revenue in the year to June 29 fell 2.0% to £149.5 million from £152.6 million. Its pretax loss widened to £36.7 million from £22.2 million.
‘Despite a particularly wet spring and summer, we are pleased to see Peach Pubs trade remain strong. Bars remain challenged, especially for younger Revolution guests,’ Revel said. ‘The performance across the brands remains broadly consistent with Peach performing better than the bar brands, though we are starting to see some positive signs of improvement in the Revolution brand as the distraction of the last six months is put behind us, and the benefit of some of the trials is starting to be seen. Whilst we anticipate some economic improvement from which we will benefit, the markets in which we operate are expected to remain difficult in the near term.’
A barrel of Brent was up at $74.98 early Tuesday afternoon, from $73.85 late Monday.
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