Thanksgiving in the US should have teed things up for a quiet end to the week, but European stocks are now taking their cue from a sell-off in the Far East where this week’s strong gains have completely unravelled.
A bond market sell-off is already making traders twitchy, but now they’re scrambling to sell Chinese stocks for fear that a further crackdown on borrowing could affect stock market liquidity.
Meanwhile, in the UK, British Gas owner Centrica (CNA) has collapsed to a fresh 14-year low following a grim profits warning. Centrica is already in a dark place given the exodus of customers from its British Gas business, and the market did not want to hear about a further deterioration both here and in North America. Despite attempts to reassure that the generous dividend is safe, the risk of a cut remains very real as the government continues a crackdown on expensive energy bills.
And traders continue to pore over the fine detail of Philip Hammond’s well-received budget.
Despite forecasts for inflation to peak this quarter and the OBR’s inevitable decision to downgrade UK growth forecasts, sterling made a near-six-week high against the dollar.
Hopes are high that the government has made ‘sufficient progress’ on key issues needed to shift Brexit discussions onto trade at next month’s European Council meeting. Minutes from the Federal Reserve’s last meeting were also more dovish than before, as policymakers admit that lower than expected inflation might mean fewer rate rises in 2018.
Early focus today was on the second estimate of third-quarter GDP number, where there was no change to the ONS’s first guess for three-month growth of 0.4%. That’s respectable for now, but it won’t last as Brexit will continue to subdue both household spending and corporate investment.
Hammond has already admitted spending £750 million on Brexit preparations and has earmarked another £3 billion, but it’s a deal with the EU that’ll be crucial if there is to be a recovery in UK growth after 2019.
Housing was the epicentre of the chancellor’s budget, and £44 billion of capital funding, loans and guarantees over the next five years should, barring a recession, be enough to underpin the UK housebuilding industry for the foreseeable future.
Abolishing stamp duty for first-time buyer purchases up to £300,000 is a small saving, but still a help for those trying to get a foot on the housing ladder. However, a permanent fix for this dysfunctional market will take more time and much more money.
We’re stil seeing follow-up buying of big names like estate agent Foxtons (FOXT) and the major housebuilders Barratt Developments (BDEV), Persimmon (PSN) and Taylor Wimpey (TW.) as markets clearly believe the chancellor has done enough.
Despite share prices for many having risen 50% or more since the post-referendum crash, valuations are still appealing and there are some big dividends to be had. Hammond’s threat to use compulsory purchase powers where builders are believed to be holding land for commercial reasons, appears not to be good enough reason to sell.
Owners of shares in dividend king Vodafone (VOD) are now entitled to the interim payout, worth around 4.3p. Watch out for the cheque early February.
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