Stock prices stumbled in London on Monday, echoing the risk-averse mood of global equities peers.
European investors did not have to look far to find reasons to be cautious, as Friday’s sell-off persisted into the new week.
The FTSE 100 index closed down 166.48 points, 2.0%, at 8,008.23. The FTSE 250 dropped 589.61 points, 2.8%, at 20,236.74, and the AIM All-Share closed down 22.65 points, 2.9%, at 748.62.
The Cboe UK 100 ended down 2.0% at 798.69, the Cboe UK 250 closed down 2.8% at 17,741.42, and the Cboe Small Companies ended down 2.7% at 16,531.19.
In European equities on Monday, the CAC 40 in Paris ended down 1.4%, while the DAX 40 in Frankfurt ended down 1.9%.
Fears of a ‘hard landing’ for the US economy took hold, as investors continued to be alarmed at the recent run of data. Analysts pointed to the ‘Sahm rule’, thought by some to be a reliable indicator of a recession.
The rule says that an economy is in the early stages of recession if the three-month moving average of unemployment is 0.5 percentage points above its low over the previous 12 months. This criteria was met in Friday’s data.
Friday’s weak non-farm payrolls figures added to the concerns sparked by soft manufacturing PMI data and higher-than-expected jobless claims on Thursday.
However, Monday’s US services PMIs were slightly more hopeful, suggesting the sector saw growth in July. The S&P Global services PMI was 55.0 points last month, but slowed slightly from 55.3 in June and was lower than the 56.0 flash estimate. Meanwhile, ISM figures indicated the sector swung back to a state of marginal growth, with the PMI rising to 51.4 from 48.8.
‘Amid an equity market sell-off after the downside surprise from Friday’s employment report, which fanned concerns that the Fed is behind the curve and will need to cut rates aggressively at its coming meetings, the ISM services report offers a bit of respite,’ said Capital Economics US economist, Matthew Martin.
It ‘shows an economy cooling, not on verge of collapse’, he maintained.
Stocks in New York were sharply lower at the London equities close, with the DJIA down 2.3%, the S&P 500 index down 2.4%, and the Nasdaq Composite down 2.7%.
Apple was down 3.1%, recovering slightly from a steeper decline at the New York open.
Warren Buffett’s Berkshire Hathaway said the value of its Apple stake fell to $84.2 billion at the half-year end, from the $135.4 billion disclosed at the end of March. It would suggest Berkshire Hathaway sold around 390 million Apple shares during the period.
In London’s FTSE 100, Melrose and Scottish Mortgage Investment Trust plunged 6.4% and 5.6%.
Severn Trent and United Utilities lost 5.8% and 5.3%, respectively, as Barclays cut both of their broker ratings.
Consumer healthcare firm Haleon was the only large-cap that made any headway, edging 0.4%.
In the FTSE 250, John Wood closed down 35%.
Dar Al-Handasah Consultants Shair & Partners, known as Sidara, said it does not intend to make a firm offer for the Aberdeen, Scotland-based John Wood. Sidara had been given multiple extensions by the UK Takeover Panel to the put-up-or-shut-up deadline to give a firm intention to make an offer, the latest deadline was this coming Friday.
Sidara blamed ‘rising geopolitical risks and financial market uncertainty’ for its ultimate decision to not make a takeover offer.
In response to Sidara’s announcement, John Wood reconfirmed the outlook for the rest of 2024 and for 2025 that it had provided in a trading outlook last month. John Wood had reported growth in earnings, margins and its order book in the first half of the year. It will release its full interim results on August 20.
Meanwhile, the latest round of volatility in financial markets led some to advocate for an ‘emergency cut’ from the US Federal Reserve, ahead of the September meeting.
The FT reported that traders in the futures market were pricing in a 27% chance of an interest rate cut in August. It had decided to hold rates at its meeting just last week.
The pound was quoted at $1.2759 at the London equities close Monday, down compared to $1.2803 at the close on Friday.
However, the dollar was largely weaker compared to other currencies.
The euro stood at $1.0967 at the European equities close Monday, up against $1.0919 at the same time on Friday.
Against the yen, the dollar was trading at JP¥143.60 - having dropped below JP¥142 earlier - down sharply compared to JP¥146.53.
Another central reason for the volatility in global markets is the unwinding of Japanese yen carry trade, the consequences of which have extended beyond the currency market. Last week, the Bank of Japan enacted a second rate hike, after an extended period of ultra-loose monetary policy.
Carry trade refers to when an investor borrows money in a currency with a low interest rate - with the yen having been a popular choice - to reinvest in a currency with higher returns.
‘You can’t unwind the biggest carry trade the world has ever seen without breaking a few heads. That is the impression markets give us,’ said Societe Generale’s Kit Juckes.
Japan’s Nikkei 225 index had plunged 12% on Monday, and is down 23% over the past month.
Brent oil was quoted at $76.13 a barrel at the London equities close Monday from $76.88 late Friday, keeping low amid the recent weak factory data from the US and China.
Gold was quoted at $2,408.66 an ounce at the London equities close Monday against $2,425.65 at the close on Friday.
In Tuesday’s UK corporate calendar, there will be half-year numbers from InterContinental Hotels Group, investment company abrdn and builders’ merchant Travis Perkins.
On the global company calendar, there are quarterly results from the likes of Airbnb, Bayer and Uber.
The economic calendar for Tuesday has an Australian interest rate decision overnight, German factory orders at 0700 BST, a UK construction PMI at 0930 BST and EU retail sales half an hour afterwards.
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