Derren Nathan, head of equity research, Hargreaves Lansdown: “The FTSE 100 has opened down, extending yesterday’s losses. Yesterday’s 161-point drop was largely stock-specific. Centrica closed down 5.2% after moving profit guidance to the low end of its target range in its Retail division, and BAE Systems fell 4.7% after an in-line trading statement proved insufficient to reverse recent downwards momentum in the shares. A handful of companies also went ex-dividend.
With company results thin on the ground, it’s the macro picture that’s likely to dominate today. 10-year gilt yields are up a couple of basis points to within touching distance of 5%. As the local election results roll in, it’s not looking good for Labour, and the potential for a leadership change is undermining confidence in the UK’s fiscal health. While political winds can change on a sixpence, the gilt yield is a decent proxy for risk-free returns, a key technical driver of share prices which, all other things being equal (they rarely are!), should move in the opposite direction of yields. If government borrowing costs rise further, expect more pressure on the London markets. Events in the Middle East are also weighing on sentiment this morning.
Further exchanges of fire in the Strait of Hormuz overnight have sent Brent Crude oil prices up around 1$ to $101 per barrel, with Tehran seemingly in no hurry to make a deal with President Trump. In time, bypasses such as the Israeli Land Bridge and Sharjah–Fujairah Energy Corridor could reduce reliance on this critical energy chokepoint, but none of these are going to be a quick or full fix.
US stock futures are making a little headway this morning, with the tech-heavy NASDAQ leading the charge. That’s despite ARM Holdings’ bull run losing steam in the wake of record results. It wasn’t the numbers that spooked investors but concerns about sourcing manufacturing capacity for its next-gen AI processors, which can be read as yet another signal of white-hot demand for computing power.
US jobs data are the key economic numbers Wall Street will be watching later. Consensus expectations are for a 62k addition to non-farm payrolls and for unemployment to remain steady at 4.3%. With ADP private payrolls coming in better than expected, the numbers could come in a little stronger. That’s a pretty resilient outcome given the geopolitical backdrop. So far, AI is not proving to be the end of the jobs market as we know it, with skilled labour in particularly high demand. With inflationary concerns running high, a strong print could move expectations for rate cuts further out yet.“
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