– European indices lift in early trade as investors cheer debt deal progress through Congress.
– China’s manufacturing snapshot surprises on the upside, helping lift oil prices.
– Lacklustre start trading for UK housebuilders after latest industry reading.
– Dr Martens shares fall more than 10% after it lowers guidance again amid distribution problems.
By Susannah Streeter, head of money and markets, Hargreaves Lansdown:
As the US takes another step away from avoiding a disastrous default, risk sentiment has improved on financial markets with European indices up in early trade. The House of Representatives passed the budget legislation, thrashed out over long talks, despite opposition from more hardline Republicans who were pressing for much deeper spending limits. It still has to pass the hurdle of a vote in the Senate, so the ticker tape isn’t being waved just yet. The background mood music is still discordant given the growing expectation that the Fed might opt for yet another rate hike, with the latest data showing the number of job openings edging back up to 6.1% as retail vacancies rebounded. But sectors where wage growth has been super-strong, like hospitality and leisure, saw job openings fall back to a two-year low. With so much uncertainty there may be a lot riding on the big jobs snapshot from the non-farm payrolls data on tomorrow which could help solidify the markets expectations of hike or hold at meeting in mid-June.
China’s better than expected manufacturing reading measured by the Caixin purchasing managers index was welcomed, showing supply and demand both picked up after a contraction the previous month. However, it underlines the patchiness of the recovery in the world’s second largest economy. Output may have risen the most in 11 months, as supply chain problems eased, but selling prices dropped sharply and sentiment fell to a 7-month low amid uncertain demand from overseas. Nevertheless, the more upbeat headline reading did the job of warming up oil prices a little, helping Brent Crude claw back some losses from previous sessions amid expectations of a bit more demand, although it’s still hovering under $73 a barrel.
UK house builders have largely shrugged off a snapshot indicating the slowly building confidence in the housing market was being chipped away. House prices fell back in May, but there are expectations of sharper falls to come with successive interest rate hikes forecast to tame wild inflation. These expectations have meant the most competitive mortgage deals are being stripped out of the market. The worry is that this will spark a crash in confidence and a sharp slide in prices. But falls from heady heights will help affordability and could see more would be homeowners clamber onto the ladder. Housebuilders had already fallen back following hotter than expected inflation readings, so investors have factored in to some extent potential difficulties to come
Dr Martens woes have been laid bare in its results, with operational difficulties at its LA distribution centre stomping on hopes that the company could kick off a better performance in the US market. The overall economic outlook hasn’t helped with American consumers more cautious about spending big on items they might want but don’t need. The cost of fixing the glitches in Los Angeles have booted profits lower, overshadowing a better showing in the Middle East and Asia Pacific markets. Yet another downgrade was the last update investors wanted to see, but the company has lowered its guidance for pre-tax profits for the coming year and highlighted that recovery in 2025 isn’t going to be as strong as forecast. There are still plenty of problems to fix it seems and it’s going to take a chunk of expenditure to do so, which will eat into profit margins. Dr Martens may have a strong brand with good potential, but it needs to leave the repair shop and shine up its sales to help restore investor confidence.
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