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FTSE100 set to close at two-month high as housebuilders aid rebound

European markets have seen another positive session as we come to the end of a solid month of gains, with another new record high for the DAX today, while the CAC 40 has also seen a strong rebound after a sharp two day sell off just under a week ago.

Europe

The momentum appears to have been driven by strong gains in Chinese equity markets against a backdrop of strong indications from Chinese policymakers that they are looking at moves to boost the economy in the coming weeks.

Both the FTSE100 and FTSE250 have fared reasonably well, with the FTSE100 closing at a 2-month high, with house builders seeing a bit of a rebound this month as interest rate rise expectations eased back from the peaks of a few weeks ago.

Persimmon had led the sector rebound, followed by Taylor Wimpey, while the better-than-expected numbers from Rolls-Royce last week catapulted it to the second-best performer this month behind Ocado, which has seen gains in excess of 60% in July, despite being one of the worst performers today.

Other laggards today have been the likes of Coca-Cola HBC and Diageo after Heineken lowered its profit forecasts for this year, after sales fell short on the back of recent increases in prices.  

The appointment of Allison Kirkby from Telia Company as CEO to replace the outgoing Philip Jansen doesn’t appear to have done much to boost BT Group’s share price, with the shares modestly lower.

Specialist bootmaker Dr. Martens is one of the best performers today on reports that Sparta Capital had taken a big stake in the business.

US

US markets opened higher today, looking to post their fifth successive monthly gain and the highest monthly close since December 2021.

Some of the more notable movers today have been Palantir which is extending recent gains after a broker upgrade to outperform from Wedbush on optimism over AI related sales growth.  

Adobe is also higher after Morgan Stanley said that AI-enabled sales growth could see 25% further upside.

Electric truck maker Nikola is also higher after announcing it had received an order for 13 trucks from JB Hunt.     

FX

The Japanese yen has once again been the weakest currency today after the Bank of Japan unexpectedly bought bonds in an attempt to push down yields, after markets pushed the 10-year JGB yield above 0.6%, beyond the central bank's upper target of 0.5%. The slide in the yen pushed it to a three-week low against the US dollar.

The Australian dollar, on the other hand, has pushed sharply higher ahead of tomorrow’s RBA rate meeting, in a short covering move just in case the central bank decides to nudge rates higher by another 25bps. Just over a week ago the consensus was for the central bank to keep rates unchanged, with last week’s weaker than expected Q2 CPI numbers suggesting that the heavy lifting has been done. That said, on an annual basis inflation is much higher and although trending lower, is proving to be sticky, slipping back to 5.4% from 5.5% in the June numbers. With unemployment still low at 3.5% the RBA could be tempted to nudge rates higher from 4.1% to 4.35%, however with PMIs already in contraction there is a risk they might be pushing their luck.

The pound is also in focus this week, ahead of Thursday’s Bank of England rate decision, where we can expect to see another rate hike with the only question being over whether we saw 25bps or 50bps. Today’s mortgage approvals data for June appears to show strong demand, however this could merely be reflecting strong demand for fixed rate rollovers, given that net lending only rose £0.1bn.

Commodities

Crude oil prices have continued to edge higher, coming off the back of another week of gains, and on course for the best monthly performance this year. Fears that Saudi Arabia will go further and extend their production cuts into September is seeing demand return at the same time as the US economy looks to be faring better than expected. With Brent prices back above $85 a barrel the April highs at $87.75 don’t seem that far away.

Gold prices look set to reverse their June losses, although they have remained below the $2,000 an ounce resistance level, with the weakness of the US dollar helping to lift it off its lows. The rebound in the gold price has come about despite firmer long-term yields which would suggest that markets are coming round to the idea that US rates are likely to stay higher for longer.

 


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