HL LIVE
HL commentary as it happens
Thursday 5th December
French borrowing costs edge up after government collapses
While not a shock, the collapse of Michel Barnier’s government after a vote of no-confidence is set to cause fresh jitters about the implications for France’s economy and its large budget deficit. Bond vigilantes are again circling, demanding higher prices to hold French government debt, given the belt-tightening measures have been rejected. Gilt yields on 10-year bonds have risen back up above 2.9%, higher than those for equivalent Greek debt. However, given interest rate cut expectations from the European Central Bank, borrowing costs are still sharply lower than in July.
The political drama may act as a drag on growth given it’s likely to make companies that bit more wary about investment given the stalemate. The uncertainty ahead may also see consumers squirrelling away more cash for emergencies rather than spending on goods and services.
Oil holds steady as OPEC+ decision looms
Brent crude oil is hovering above $72 per barrel, stabilizing after a 2% dip, with traders eyeing OPEC+ talks on delaying output hikes to avoid a supply glut. US crude stockpiles saw their largest drop since August, but record-high production outside OPEC+ balanced the outlook. Geopolitical tensions, from Israel to Syria, are adding a risk premium, keeping markets on edge.
Bitcoin breaks the $100,000 barrier
Bitcoin has rocketed past the once-unthinkable $100,000 milestone, buoyed by news that Paul Atkins is Trump’s pick to replace Gary Gensler as SEC chair - a move seen as a win for crypto advocates. While questions linger over Bitcoin’s role as a reliable store of value, its speculative allure and the pace of crypto innovation are becoming hard to ignore. Institutional interest and regulatory shifts are adding legitimacy, turning what once seemed like a fringe asset into a force reshaping finance. Love it or doubt it, Bitcoin’s climb is rewriting the rulebook for digital assets.
US markets post new all-time highs
The US holiday rally is off to a sparkling start, with the S&P 500 and Nasdaq hitting fresh highs just three trading days into December. But under the surface, weaker economic data - including a softer ADP jobs report and ISM Services hitting its lowest point since June - has traders keeping a close eye on this week’s employment figures. Treasuries rallied as the 10-year yield dropped below its 200-day average, while expectations for a December rate cut rose to 77.5%. Equities gained ground, led by Software and Semis, but broader participation was mixed, with the S&P 500 equal weight index slipping slightly.
FTSE 100 stumbles along with the rest of Europe
The FTSE 100 opens lower this morning, breaking a five-day rally as losses in healthcare and mining dragged the index lower. Gains in financials and airlines provided some support, but it wasn’t enough to offset the broader pressure. The rest of Europe is on a similar path this morning, as turmoil in the French government and question marks around German economic weakness look set to weigh on markets in early trading.
Wednesday 4th December
FTSE reshuffle will be announced today
The FTSE quarterly review will be announced by FTSE Russell later and it’ll include a retail reshuffle, with B&M European Value Retail and Frasers Group set to slide out of the blue-chip index. It will also see fantasy and sci-fi world creator Games Workshop propelled into the big league. Vistry’s budget miscalculations will have cost it a place in the FTSE 100, while a recovery in the share price of wealth manager St James Place thanks to a big shake up is propelling it back up the table. Dundee based Alliance Witan investment trust is also set to leap into the FTSE 100 given the might of the newly merged company. A change in the listing rules will see Deliveroo enter the FTSE 250 for the first time, just months after the company finally turned a profit.
France’s minority government faces a no-confidence vote
Michel Barnier’s belt tightening budget has gone down like a lead balloon with his opponents. Leading a minority government forcing through hugely unpopular measures is a highly precarious position to be in. If he is defeated, which looks likely, France will be weighed down by a burdensome budget deficit while another political vacuum opens. If difficult decisions are put off clouding the economic horizon, it won’t help business confidence and may limit investment and recruitment and could lead to further wariness among consumers. For now, bond vigilantes haven’t put the boot in, but defeat could see French yields rise further. The risk premium over Germany headed to the highest level since 2012 last week but French borrowing costs are lower than they were in July, helped by expectations of interest rate cuts from the European Central Bank.
South Korea’s Kospi and currency stabilises
South Korea’s currency, the won, went into freefall but has stabilised after the about turn from President Yoon Suk Yeol, following mass demonstrations and an emergency vote by politicians. They are now calling for the President’s resignation. The shock moves also led to losses on the main Kospi index, which has recovered some ground, but is set to remain volatile. Samsung shares ended down 3.3%, as investors assessed the potential for further fractious relations ahead. The sharp escalation comes after months of political conflict and the longer Yoon Suk Yeol remains in office, given the turn of events, there will be concerns the further instability could wrack the country which is a key US ally. The central bank’s pledge to provide unlimited liquidity to prop up markets has provided some reassurance but also demonstrates the concern that there could be further trouble ahead.
Tuesday 3rd December
Oil markets on edge ahead of Thursday's OPEC+ meeting
Brent crude oil climbed above $72 per barrel as traders await Thursday's OPEC+ meeting, where a delay in planned production increases is widely expected. Signs of recovery in China's factory activity, coupled with Saudi Arabia's anticipated price cuts for Asian buyers, are supporting prices. Meanwhile, escalating tensions in the Middle East, including Syria and renewed Israel-Hezbollah clashes, add a layer of uncertainty to the supply outlook.
US markets enter December with momentum
December is here, and while the famed "Santa rally" doesn't typically kick in until Christmas week, this remains the most likely month for market gains. For US markets, positive economic data - including strong manufacturing and consumer spending - helped kick things off yesterday evening, though rising yields and tariff uncertainty kept investors on edge. Large-cap techs led the charge, but geopolitical tensions and the new US administration are shaping up to be the real drivers in the weeks ahead.
UK retail sales disappoint
UK blue-chip stocks open flat this morning, following news of a 3.4% drop in November retail sales, which ended a four-month growth streak and missed expectations for a 0.7% increase. A late Black Friday, shaky consumer confidence, and Storm Bert's disruptions kept shoppers at home, with every retail category taking a hit. Wales led the slump with a 7.1% drop, while shopping centres bore the brunt of dwindling footfall.
One bright spot though was spending on blockbuster movies, according to Barclaycard. Fans of blockbuster hits Gladiator II, Wicked and Paddington in Peru snapped up seats, driving up cinema spending by more than 22% year-on-year. It’s evidence that if the hits chime well with audiences, a night out at the movies is still a favourite past-time, despite the streaming competition at home.
Monday 2nd December
Retail to be boosted by late deluge of sales from Black Friday promotions
Emails screaming ‘sale almost over’ are clogging up inboxes on Cyber Monday as retailers make a last-ditch attempt to snag a sale. It’s been a super-tough November for the sector, with a Scrooge-like mentality emerging as cost-of-living pressures and worries about the economy took hold.
Accountancy firm BDO estimated that online sales fell 7.8%, while store sales fell 5.5% during the month. However, with three-quarters of people expected to have put off spending until the Black Friday promotional weekend, the signs are that the month ended with a deluge of spending.
The Mastercard pulse survey shows shoppers in the US kept e-commerce tills rising merrily with online sales up more than 14% on Friday, although in-store sales only rose 0.7%. However, due to the discounts offered, it will mean smaller profit margins for retailers at a crucial time of the year.
IoD report indicates a loss of confidence in UK business community
While business confidence appears to be improving in China, the mood among directors in the UK has headed in the opposite direction. According to the IoD, the UK Budget has led to a fresh fall in optimism among bosses, with concerns that they will hold back from investing to expand their businesses as a result.
Some Bank of England policymakers have already indicated they may be more inclined to reducing interest rates only gradually mindful that prices may be pushed up because of the increase in employers’ National Insurance Contributions. In the IoD survey 44% said they planned to pass on the costs to customers, 43% said their workforces would shrink but 50% said they would be less generous with wage increases.
With stubborn pay growth one of the reasons for reticence about reducing rates among some at the Monetary Policy Committee, this niggling worry could subside. But it’s clear a cautious approach in easing monetary policy will be the order of the day.
FTSE 100 trades flat despite signs of China’s manufacturing recovery
The FTSE 100 is lacking in Monday motivation, despite signs that China’s economy is cranking up a gear. Worries are also swirling about investment being curtailed in the UK amid falling business confidence. The snapshot of factory activity, the Caixin China General Manufacturing PMI, rose to 51.1 in November from October’s 50.3, beating expectations, with 50 indicating expansion.
The acceleration of output, selling prices and the strongest growth in foreign orders since February 2023, has lifted spirits. Hopes have risen that the big stimulus programme which started to be rolled out by authorities in September is showing some signs of bearing fruit. Trump’s tariffs could still upset the apple cart though so there’s still a ‘wait and see mood’ lingering. Brent Crude hasn’t moved much and is hovering around $72 a barrel as traders count down to the delayed OPEC+ meeting this week.