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Housebuilders drag on the FTSE 100 as Nasdaq slips to a 10-week low

houses under construction

It’s been a broadly weaker session for European shares today, as we start a new week with higher yields and inflation worries continuing to temper appetite for risk. The prospect of a faster pace of US rate rises has continued to keep markets on edge, with losses accelerating as US markets reopened after the weekend.

European markets

While the Nasdaq 100 has plunged to its lowest levels in 10 weeks, the FTSE 100 appears to be holding up a little better than its peers, helped by outperformance in financials, as well as consumer staples.  

Optimism that there will be no further restrictions imposed over the next few weeks is seeing the likes of British Airways owner IAG continue to build on the gains of last week. Higher yields are also seeing further gains for the likes of Barclays and HSBC, with Barclays shares hitting their highest levels since May 2018. We’re also seeing Tesco and Sainsbury’s outperform ahead of the release of their latest trading updates later this week.

On the downside housebuilders are acting as a drag after weekend reports that the government is looking to compel property developers to bear the cost of fixing the cladding crisis.

Included in the plan, developers must produce a strategy to protect leaseholders from becoming trapped in homes that are currently unsaleable. The costs of any plan could be as high as £4bn with the government warning that any developers that don’t sign up to the scheme by March could be blocked from participating in any future government schemes, as well as running the risk of facing new levies on the industry.

Persimmon and Barratt Developments are amongst the biggest fallers, with Persimmon also on the receiving end of a downgrade from buy to neutral by Citigroup.

Scottish Mortgage Investment Trust is also getting clobbered largely because of its exposure to the US tech space, as the Nasdaq 100 hits ten-week lows. Amongst its top ten holdings Tesla, NIO, Illumina and Nvidia are all sharply lower on the day.    

US markets

US markets have continued to look soft, after last week’s declines with the Nasdaq 100 opening at a ten-week low, as speculation about faster rate hikes continues to put upward pressure on yields, and downward pressure on stocks, with the US 10 year pushing above 1.8%, and above the highs seen in March last year.

With Fed chair Jay Powell due to testify tomorrow to US politicians at his reconfirmation hearing, and a host of FOMC voting members due to speak this week including Loretta Mester and Esther George, also tomorrow, we’ll get to find out how wedded to the rate hike narrative various committee members actually are.

We’ve seen further weakness in high value areas especially with the likes of electric car makers Rivian and Lucid Group coming under pressure, along with the likes of Airbnb, while weakness in bitcoin as it falls below $40k is seeing the likes Coinbase and Robinhood come under pressure too.

In M&A news software Take-Two Interactive which owns Rockstar Games and counts GTA as one of its key titles has seen its shares plunge after announcing it is acquiring mobile gaming company Zynga for $12.7bn. Zynga is the company behind the Farmville series of games and has recently released a Harry Potter Puzzles and Spells game.    

FX

The US dollar is continuing to find support ahead of the release of this week’s December CPI numbers and rising speculation that the Fed may be forced to act faster and harder when it comes to raising rates this year. When sentiment around the pace of rate hikes shifts towards the prospect of 4 rate rises this year as is slowly becoming the consensus then capital flows shift to reflect that change. This appears to be what is happening now, and why the US dollar is edging back up again.

The Japanese yen is also having a good day, rather counterintuitively given the rise we’re currently seeing in US yields. This is being offset by the risk aversion sentiment in stock markets that is attracting an element of haven buying, and thus pushing the yen higher.  

Commodities

Crude oil prices have slipped back from their Friday highs as fears over supply disruption due to unrest in Kazakhstan has started to subside. According to Chevron Kazakhstan’s biggest oil producer is seeing production increase as protests in the region start to drop out of the headlines.

With the rise in yields gold prices have struggled to gain a foothold above the $1,800 level, with the stronger US dollar also not helping. 


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