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FTSE 100 slips off record highs as borrowing costs rise

London skyline from the South Bank

European markets have taken a step back today as the aftermath of Friday’s bumper US payrolls continues to reverberate through the market.

Europe

There has been talk that escalating geopolitical tensions between China and the US is weighing on sentiment, however that comes across as highly dubious, after all we’re talking about the US shooting down a weather balloon here, it’s not exactly a path towards jeopardy.

The FTSE 100, having hit a new record high last week, has slipped back along with the rest of Europe’s markets, as yields continue to rise, building on the surge we saw on Friday. External MPC member Catherine Mann, who is the main hawk on the Bank of England rate setting committee, has added to the upward pressure on bond yields by saying that rates in the UK will have to continue to rise, and that it is better to lean towards over-tightening than being cautious.

The weakness seen in Asia markets particularly among tech and property stocks has spilled into the European session, with losses for the likes of Ocado, as well as Scottish Mortgage Investment Trust, both of whom are closely aligned with the performance of the tech sector. Other big fallers have been Prudential, Segro and British Land. 

US

US markets have picked up where they left off on Friday, opening lower on the back of the continued rise in US as well as global bond yields, as investors start to wake up to the fact we may not see rate cuts this year.

Only weeks after slashing prices on a number of its models the pricing hokey-cokey continued today after the company announced on Friday that prices on its Model Y SUV in the US would be going up by $1,500 in response to new measures which offered tax relief to all new electric cars costing up to $80,000.

Dell Technologies has become the latest in a line of tech companies announcing layoffs as the hardware maker announced it was cutting 6,650 jobs, following in the footsteps of IBM, Cisco and HP in reducing headcount as demand for PC’s and laptops declines.

US gold miner Newmont is lower after announcing it was looking to pay $17bn for Australia’s Newcrest Mining.        

FX

The US dollar has continued its rebound from the 10-month lows seen last week, rallying strongly across the board, with the most pronounced effects being felt against the Japanese yen, pushing up to four-week highs. Today’s yen declines have been driven predominantly on reports that the Japanese government had spoken to Bank of Japan governor Haruhiko Kuroda’s current deputy Masayoshi Amamiya about replacing him, raising the prospect of continuity on current monetary policy. 

With the departure of Kuroda due April, there had been speculation that we could start to see the removal of yield curve control, as well as slight tightening bias. The appointment of Amamiya would certainly be a case of "here we go again" when it comes to looser monetary policy.

The pound has also been under pressure as well today, although its losses have been mitigated by today’s comments from Bank of England policy hawk Catherine Mann, who said markets needed to consider the possibility that rates are likely to need to go higher, and that a “policy boogie” fine-tuning approach to monetary policy is likely to be hard to communicate to the real economy. Given how difficult the Bank of England struggles when it comes to policy communication at the best of times, this seems eminently sensible, along with kudos to Catherine Mann for introducing the word “boogie” into the lexicon of financial markets terminology. 

Commodities

We’ve seen a bit of a rebound in gold prices after Friday’s sharp sell-off saw the yellow metal slide to a three-week low. We might find some support at the 50-day SMA, but if yields and the US dollar continue to move higher we could see the potential for further losses towards $1,800, if we can’t recover back above the $1,900 an ounce. 

Brent crude oil prices have rebounded from their lowest levels in three weeks today, on supply concerns after Turkey announced the suspension of operations at its main oil terminal in Ceyhan due to the earthquake which hit the region earlier today.

Volatility

With some of the world’s largest companies reporting earnings towards the end of last week, blue chips managed to dominate in terms of single stock price action on Friday. Despite missing expectations on pretty much every metric, Apple’s share price surged into the weekend break, driving daily volatility to 80.17% against a one month print of 47.66%. The picture wasn’t quite as upbeat at Amazon however where predictions of a slow year ahead took a toll on the stock, with the underlying falling more than 8%. One day volatility came in at 96.84% against 65.33% for the month.

Those elevated levels of interest in US tech stocks – Meta was also one of the most active on Friday – unsurprisingly bolstered the NASDAQ, which ended up running something of a turbulent session. One day vol here printed 34.98% against 25.18% for the month.

A bumper increase in the non-farm payroll figure on Friday left precious metals under scrutiny, with pPalladium being a notable stand out. The underlying fell around $60 off the back of the data before settling slightly lower. One day volatility sat at 61.71% against 45.39% for the month.

That bumper non-farm payrolls report gave the US dollar a shot in the arm as it’s precisely the sort of momentum that could leave the Federal Reserve seeking to revisit its monetary policy agenda. EUR/USD was the most active currency pair on the day, posting daily volatility of 14.22% against 9.41% for the month, whilst Cable wasn’t far behind with 15.93% on the day versus 11.37% on the month.


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