Market report: Storm of disappointing developments keep investors cautious

LONDON (Capital Markets in Africa) – Investors are searching for a sense of direction amid a cacophony of developments, as harsh geopolitical winds swirl and a fierce storm barrels towards Florida. Oil prices have tracked higher again, as hopes for a ceasefire between Israel and Hezbollah fade, while Hurricane Milton threatens to disrupt energy supplies, with some pipelines and delivery terminals in Tampa already shut. Brent Crude is currently trading around $77.5 a barrel. Prices had dipped sharply yesterday, amid hopes the Hezbollah leadership would not tie negotiations for a ceasefire to what’s happening in Gaza. But given how previous deals in stopping violence in the Middle East have seemed so close, but have ultimately collapsed, it’s not surprising that confidence in agreeing even a limited break in the war is waning, prompting supply concerns to swirl again.

The FTSE 100 is set to gain back a little ground, following yesterday’s losses, but caution is in the air following another highly volatile session for indices in Asia. The wave of enthusiasm which greeted the kitchen sink stimulus from the People’s Bank of China is ebbing away, given the lack of detail for further fiscal stimulus. Banks in China might be ready to lend, with lower rates and deposit requirements on offer, but if the demand isn’t there, it’s still set to hold back an economic rebound. Investors had been hoping for more details on an expected fiscal stimulus, hoping tax breaks would reinvigorate consumers and companies to borrow, but the vague plan put on the table yesterday by authorities disappointed. The Nikkei has climbed higher again, helped by ongoing weakness in the yen, up against the stronger dollar, which has been bolstered by expectations that the next rate cut from the Fed will be smaller than September’s big reduction.

Warniness is set to infiltrate the start of trading on Wall Street, as tomorrow’s inflation number comes into focus. Minutes of the Federal Open Market Committee will be published later, giving more insight to thinking around the table about monetary easing. There have been hopes that a softer CPI reading is incoming, which may incentivise the Fed on its rate cutting path. This helped support a recovery in tech stocks in the last session, but with the jobs market more robust than expected and retail sales also having held up better than forecast, there is still a chance inflation might prove a bit more stubborn in shifting lower.

UK government borrowing costs have retreated a little, but 10-year gilt yields remain at three-month highs, and almost double the rate on German Bund equivalents. It’s partly due to interest rate expectations, with the European Central Bank looking set to go faster in its rate cuts than the Bank of England, to help revitalise Europe’s sagging economy. Bond vigilantes are also on alert ahead of the UK Budget in three weeks. There is intense focus trained on Chancellor Rachel Reeves’ potential plans to tinker with the government’s borrowing rules and unlock more money to invest in infrastructure. There is set to be a lot of soothing words emanating from the Treasury about a highly focused and responsible investment plans, targeted on boosting longer-term growth. But the direction of yields pile the pressure on the Chancellor ahead of the budget, as increasing borrowing costs have the potential to further constrain government spending plans.

There is no respite in sight for strike-wracked Boeing, with the company now withdrawing its offer to workers who’ve left production lines. Union members had rejected the 30% pay offer, over four years, and had been holding out for better conditions. But ongoing negotiations have failed, with Boeing now walking away and management drawing up longer-term contingency plans for industrial action. This includes asking staff to take one week of furlough every four weeks; to try to limit the amount of cash the company will be losing as production is scaled back. Boeing is playing hard ball here, to try to force union members to accept a deal. It’s a risk given that a protracted strike is likely to be a multi-billion dollar hit for the company, its suppliers and its customers. Deliveries are forecast to fall again, which is likely to provoke fresh ire from airlines, like Ryanair, which has already been forced to reduce capacity due to extended wait-time on new deliveries of the 737 Max. Boeing’s shares remain in beaten up territory as the strike swamps the company, and it continues to be mired in serious safety issues.

Susannah Streeter, head of money and markets, Hargreaves Lansdown