UK markets pulled back further this week, with the FTSE 100 Index falling by 0.65% to trade at 8,190 points at the time of writing.
The UK property market is showing signs of life following the general election and the Bank of England’s first interest rate cut in four years, with the Royal Institution of Chartered Surveyors saying its monthly survey of estate agents pointed to “a meaningful pick-up in sales volumes going forward” in July.
Respondents are expecting both sales and prices to rise further in the near term and over the year ahead compared with subdued activity in June. However, no such post-election bounce was visible in a separate poll of recruiters, who reported fewer people placed in both permanent and temporary positions in July, with vacancies still in decline and more candidates looking for jobs after being made redundant.
The British pound traded around $1.276 on Friday and is set to decline for the fourth consecutive week, marking its longest losing streak since September. The pound has been pressured by the Bank of England’s recent interest rate cut and the potential for further cuts this year, as the central bank has acted swiftly in response to falling inflation. Weak US economic data and turmoil in Japanese markets have compounded concerns.
Additionally, recent unrest in the UK, including anti-immigration riots and speculation about tax hikes has dampened enthusiasm for the Pound, despite an initial boost following the Labour Party’s election win.
Commodity markets
In the commodity markets, Brent crude futures traded around $79 per barrel on Friday and are set for a weekly rise, as the latest US jobs data calmed demand concerns and fears of a widening Middle East conflict persisted. Israeli forces stepped up airstrikes across the Gaza strip on Thursday, killing at least 40 people, Palestinian medics said, in a further battle with Hamas-led militants as Israel braced for a potential wider war in the region.
The killing of senior militant groups of Hamas and Hezbollah last week has raised the possibility of retaliatory strikes by Iran against Israel, stoking concerns over oil supply from the world’s largest producing region. Iran-aligned Houthi militants continued attacks on international shipping near Yemen this week, in solidarity with Palestinians in the war between Israel and Hamas.
Also lending some support to oil prices, Libya’s National Oil Corp declared force majeure at its Sharara oilfield from Wednesday, adding that the company had gradually reduced the field’s production because of protests. Oil prices increased after data showed the number of Americans filing new applications for unemployment benefits fell more than expected last week. Suggesting fears that the labour market is unravelling were overblown and easing recession concerns.
Gold Prices traded around $2,425 an ounce on Friday and are set for a weekly fall, but recovered strongly from a sell-off earlier this week, supported by firm safe haven demand and growing expectations of a sizeable interest rate cut from the Federal Reserve in September.
Equity markets
US equity futures rose on Friday after rebounding sharply in the previous session, as better than expected labour market data alleviated fears of a significant economic slowdown.
In Thursday’s regular session, the Dow Jones Industrial Average rose 1.76%, the S&P 500 gained 2.30%, while the Nasdaq Composite surged 2.87%. The volatility in global markets continued this week, as investors succumbed to the view that the US economy might be heading for a recession.
The sell-off, which was fuelled by fears that the Federal Reserve has been too slow to react to a slowdown in the world’s strongest economy, was caused by a weaker than expected jobs report last Friday. The report from the Bureau of Labor Statistics showed that the US labour market cooled more than expected in July, adding 114,000 jobs, well below economists’ expectations for 175,000 new positions. The previous month’s figure was also downwardly revised to 179,000. This was far lower than the average monthly gain of 215,000 over the previous 12 months. The unemployment rate in the US also rose to 4.3%, the fourth consecutive monthly increase. This added to investor concerns about the outsized influence of a small number of technology stocks, the US’s ‘Magnificent 7’ which all fell sharply on Monday.
Enthusiasm for an artificial intelligence revolution is also starting to wain as investors have begun to question whether a burst of generative productivity growth is really on the cards. The Federal Reserve kept interest rates on hold last week, but the severity of the reaction to the jobs data suggests that investors believe the central bank may have made a mistake in not announcing a reduction. Despite the initial sell-off, US stocks managed to claw back most of their losses by Friday after fresh data showed weekly initial jobless claims fell more than expected, easing fears of a significant slowdown in the US economy.
Data on Thursday showed that initial jobless claims fell 17,000 to a seasonally adjusted 233,000 last week, posting the biggest drop in 11 months and coming below forecasts of 240,000, prompting investors to rotate back into riskier assets.
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