Market snapshot: stocks struggling for direction

With no help from the US, shut for a holiday, moves on financial markets in Asia and Europe lack conviction. Our head of markets explains what's going on. 

In the absence of a cue from a closed Wall Street and with Asian markets drifting lower overnight, UK markets struggled for direction in muted early trade.

US markets were closed Monday for the Juneteenth holiday, leaving Asian investors to their own devices. The result was a dip in most major indices across the continent, with Chinese investors unable to muster much enthusiasm despite further interest rate cuts from the People’s Bank of China. 

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Rates which affect corporate loans and the mortgage rate were cut, but had already been priced in by markets, where there were some disappointment that the reductions were not more aggressive. On top of the easing measures taken by the central bank over the last week, there is clear recognition that the Chinese economic rebound is struggling to maintain momentum, and a number of economists have also lowered their outlook for the region.

A wider stimulus package is now seemingly required to rescue sentiment and boost economic growth, as the headwinds of high youth unemployment, an ailing property sector and an uncommitted consumer continue to weigh on markets across the region.

The main UK markets took their lead from Asia and drifted in early exchanges. Domestically, the highlight and to some extent main concern of the week will be the Bank of England’s interest rate decision on Thursday, where another hike is widely expected. The Bank finds itself between a rock and a hard place, with marginal growth being offset by persistent inflation and widespread wage increases, which themselves are inflationary.

Coupled with a tightening mortgage market where affordability and availability are increasingly dual concerns, and with consumer sentiment fragile against generally rising household costs, sentiment remains subdued. The FTSE250, often seen as something of a barometer for the UK economy, has once more surrendered any gains for the year and is now barely changed since the start of 2023.

The premier index has fared little better and remains some way off the earlier record highs of February. An oil price decline and the possibility of lower demand from China have weighed on the oil and mining sectors, which are significant constituents of the index.

The banks have also posted mild declines for the most part, with the spectre of rising bad debts dragging against a sector which should benefit from rising interest rates in terms of Net Interest Margins, and with the recent banking turmoil elsewhere still fresh in investors’ minds.

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The cocktail of a weak Asian lead, domestic economic concerns and listless sentiment combined to drive the FTSE100 lower at the open. China exposed stocks were again weaker, with a broker downgrade weighing on Ocado Group (LSE:OCDO) shares.

Despite a number of upgrades following its surprise and positive update yesterday, Next (LSE:NXT) shares could make little progress, reflecting the more sombre mood and the general decline leaves the FTSE100 ahead by just 1.7% in the year to date.