Market movers: global market sell-off extends to European session

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

EUROPEAN MARKETS

Despite some political relief in Europe after Macron’s victory, European markets have been overshadowed by broader macro concerns opening under pressure, taking their cues from the sharp sell-off on Wall Street on Friday and in China overnight. The FTSE 100 has broken below support at 7,400 with China sensitive stocks in the mining sector like Glencore (LSE:GLEN), Anglo American (LSE:AAL), Rio Tinto (LSE:RIO) leading the leg lower.

OIL 

Oil prices have slumped to a two-week low with WTI trading close to support at $98 a barrel, while Brent crude pushes below $103. Fears about Covid lockdowns in China’s economic hub Shanghai as well as the potential for a faster Fed tightening path are weighing on demand expectations. Oil is extending the downtrend having already shed almost 5% last week on similar concerns. However, the prospect of a potential ban of Russian oil by the European Union is providing a floor in the market and stemming more aggressive declines.

CHINA MARKETS

Chinese equities have suffered heavy losses, with the Shenzhen Composite shedding more than 5%, while the yuan hit a one-year low after Beijing reported a jump in Covid cases over the weekend while mainland China grapples, with its worst outbreak since the start of the pandemic in early 2020. Meanwhile, China’s economic hub Shanghai reported growth of 3.1% in the first quarter, sharply slowing year-on-year as the city remains under prolonged lockdown. Authorities have been installing fences without any warning around residential areas to prevent the population’s movement to stop the spread of the virus.

Chinese stock markets have been hit by both negative momentum carrying forward from last week’s slump on Wall Street as well as fears about Beijing’s zero-tolerance approach to fresh Covid outbreaks, which comes at the expense of China’s already fragile economic outlook. Growth looks set to be particularly weak in April this year as China’s main engine of growth, its property market contracts with highly leveraged real estate expansion a thing of the past.

FRENCH ELECTION

Emmanuel Macron is set to be re-elected as French president for a second term, after comfortably defeating far-right Marine Le Pen in Sunday’s second round vote. Projections suggest Macron won around 58% of the vote versus Le Pen’s 42% in a decisive victory that eliminates the tail-risk for markets of an anti-EU, extremist leader with closer ties to Russia. However, Le Pen secured her best score ever and the abstention rate was 28.1%, the lowest turnout in a final French presidential election since 1969, suggesting that Macron still has a long way to go to unite the French electorate and win over the more reluctant left-leaning voter base which disagrees with the President on economic policy.

The market reaction has been mostly muted, with today’s result a confirmation of the consensus base case that Macron would prevail.  Equities including the CAC 40 are being overshadowed by broader macro risks and, while there was a small relief rally with euro zone yields softening and gains for the euro, the upside for EURUSD have been capped by US dollar strength, driven by risk-off sentiment amid nervousness about China’s growth outlook and the possibility of faster Fed tightening.

TWITTER

Twitter Inc (NYSE:TWTR) and Elon Musk reportedly held a meeting on Sunday to kick off negotiations over the billionaire’s $43 billion bid. It is understood that the Board has decided to re-examine the hostile takeover bid of $54.20 a share for Twitter. Although Twitter initially rebuffed Musk’s first takeover attempt with its poison pill strategy designed to dilute Musk’s stake, the company’s icy stance started to thaw after Musk said he had secured funding for a sweetened $46.5 billion bid.

Despite the hopes of most Twitter employees, there does not appear to be any other notable rival bids so far which could be more aligned with the company’s own vision for Twitter and its focus on content moderation, rather than absolute free speech. With Twitter now conceding to talks, for the first time it looks like a Musk acquisition of Twitter is a serious possibility as the Tesla chief’s threat to sell his 9.2% stake subsides. If chances of an acquisition remain high, shares in Twitter should remain well supported.

MORRISONS

Morrisons said it plans to cut prices by an average of 13% on more than 500 items including bread, chicken and rice as the supermarket looks to help with the cost-of-living crisis. It is also part of its strategy to remain competitive within the highly price sensitive sector with the likes of the German discounters Aldi and Lidl often undercutting the big four.

Despite rising cost inflation with fuel, wages and food prices on the rise, Morrisons is attempting to attract more customers and achieve stronger sales, hoping that this more than offsets its lower margins. This is one of the latest changes taking place at the supermarket under its new private equity ownership after it was acquired by CD&R last year. Earlier this month it was reported that the company was planning to sell off a £500 million property portfolio as part of the overhaul.