Market movers: US sell-off, IAG, UK house prices

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

European markets have opened the final session of the week down, taking their cues from the sharp sell-off on Wall Street overnight. Earnings continue to be front-and-centre with International Consolidated Airlines (LSE:IAG) slumping 7% to the bottom of the FTSE 100. Only a handful of stocks in the UK index are in the green with BAE Systems (LSE:BA.) as well as the oil majors Shell (LSE:SHEL) and BP (LSE:BP.) outperforming as crude prices push higher.

US SELL-OFF

The Nasdaq slumped 5% on Thursday amid a sell-off across US markets, which saw the tech-heavy index as well as the Dow post their biggest one-day drops since June 2020. US equities staged a sharp reversal after the Fed-driven rally in the previous session, highlighting the current market volatility which saw the VIX jump almost 23% in yesterday’s trade. 

The pain was felt most acutely in the consumer discretionary and tech sectors as the initial relief that Powell wasn’t planning to get more aggressive on interest rates faded. Reality began to set in that inflation and interest rates are both moving in an unfavourable direction for markets, which have been underpinned by cheap money for many years.

Focus now shifts to the US non-farm payrolls report at lunchtime with Wednesday’s miss on the ADP private employment report potentially paving the way for a softer headline reading. Expectations are for a slight deterioration from 431,000 last month to 391,000 this month while the unemployment rate is expected to improve to 3.5% in April from 3.6% in March as the labour market continues to tighten, another possible inflationary pressure.

IAG

British Airways’ parent company IAG reported a first quarter operating loss of €731 million versus €1.07 billion in the same period last year, sending its share sharply lower to the bottom of the FTSE 100. But the group says it expects to turn a profit in the current quarter and in the full year with demand ‘recovering strong in line’ with previous expectations.

After an unprecedented period of difficulty during the pandemic, IAG has come up against fresh challenges this year with technical issues, a spike in fuel costs, staffing shortages and the fallout from the war in Ukraine with Russia’s initial invasion weighing heavily on its share price. However, despite the cost-of-living crisis, demand appears to be strong including for business travel which has helped lift forward bookings as the airline group looks to rebuild its capacity.

Despite the ups and downs, shares in IAG are almost only modestly lower year-to-date, even though the stock shed more than 30% from the February peak to the March trough. Today shares are sharply under pressure spooked by its operating loss as well as being caught up in the broader market sell-off which has seen the US suffer sharply last night, dragging Europe down with it.

UK HALIFAX HOUSE PRICE INDEX

UK house prices grew by 1.1% in April, marking the 10th consecutive monthly rise and the longest run since 2016. According to the Halifax house price index, house prices are up by an average of £47,568 over the last two years, pushing average property prices to a fresh record high of £286,079.

Demand is sharply outstripping supply in the UK housing market, sending average prices to new highs in yet another contributor to inflation that the Bank of England so desperately wants to tackle. Mortgage data this week from the central bank saw lending rebound to a six-month high, driven by the robust housing market and perhaps as individuals and families try to lock in more favourable mortgage rates before rates push even higher. However with dark clouds on the horizon with the cost-of-living crisis, an anticipated recession, interest rates marching higher and inflation to breach 10%, the housing market could be nearing its peak.