Must read: China, stock market sell-off, oil, Superdry, Cerillion 

After a six-week rally, UK markets are experiencing a rare session of weakness. Our head of investment explains what's moving financial markets on Monday.

GLOBAL MARKETS 

European markets have opened lower, with the FTSE 100 leading the declines heading down towards support at 7,400. Unrest in major cities in China has destabilised risk-on markets including oil which is under pressure, pushing BP (LSE:BP.) and Shell (LSE:SHEL) towards the bottom of the UK index.

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Persimmon (LSE:PSN) is also under pressure after property website Zoopla said the housing market is slowing, with 44% less demand for homes post mini-budget, while sellers are being forced to accept below asking price offers. Zoopla forecasts house prices will fall by around 5% next year. 

Risk-off sentiment that is pushing investors away from equities is driving demand for some safe-havens like the US dollar and the Japanese yen.

CHINA PROTESTS 

Rare protests have broken out across major Chinese cities in a backlash against the ongoing draconian zero-tolerance to Covid approach from the authorities, which has inhibited the freedoms of Chinese citizens since the start of 2020 and has sharply damaged China’s economy. As a result, international investors have become a lot more cautious towards China, with the unrest weighing on the Shanghai Composite, the Hang Seng Index and the Chinese yuan in today’s trade. 

In mid-November China reduced its quarantine time for international travel by two days, suggesting that Beijing was finally starting to ease its strict lockdown measures, lifting travel and casino stocks amid optimism towards the potential economic reopening. However, that optimism has faded fast, with China recording another record high level of Covid infections on Monday, adding to the sense of frustration driving this weekend’s protests.

While most other nations have reopened their economies with life returning to normal, China is left facing heavy-handed restrictions prompting unrest across the country. The expectation is that Beijing will continue with its tough measures until March or April, resulting in more lockdowns and more pressure on growth. 

Last week, China cut the reserve requirement ratio (RRR) by 25 basis points to kick start its economy. However, this is unlikely to be enough to offset headwinds from Beijing’s harsh Covid lockdowns.

OIL

Oil prices are trading sharply lower, with WTI and Brent both shedding more than 2.5% after protests in China sparked concerns about weakening demand from the world’s second largest economy. Oil slid almost 5% last week, logging three consecutive weekly losses. OPEC+ gets set to meet on 4th December after agreeing to reduce its output target by 2 million barrels per day at its last meeting in October. Last week Saudi Arabia denied a report that the cartel was considering a 500,000 barrels per day output increase, saying it is sticking with output cuts and could go further to offset the recent market declines. 

Meanwhile, the EU has pushed back talks on the potential Russian oil price cap, a measure designed to hurt Russia economically and therefore in terms of its military spending power.

Since the June high, Brent crude has shed around a third of its value from triple digits down to just above $80 a barrel.

BLACK FRIDAY / CYBER MONDAY 

Early indications of the performance of spending around Black Friday suggest that sales bounced back this year. With consumers hungrier than ever for a bargain, given the cost-of-living pressures, individuals have brought forward their Christmas shopping decisions to Black Friday and Cyber Monday to make the most of the sales on offer.

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Although this may provide a boost to spending now, it could mean a more subdued December for retail sales than previous years as consumers wrap up their Christmas shopping early. 

SUPERDRY 

Following a report in the Telegraph over the weekend, Superdry (LSE:SDRY) confirmed it is in negotiations with Bantry Bay Capital, which is backed by Elliott Advisers to replace an existing up to £70 million asset-backed lending facility. The retailer also remains in discussions with other lenders. In October, Superdry said its asset backed lending facility was due to expire in January 2023, highlighting the need to refinance its borrowings. Superdry issued a going concern warning last month.

Although Superdry swung from a full-year loss of £12.6 million last year to a profit of £21.9 million in the year to 30 April, shares have had a rough ride this year, shedding more than 50% year-to-date. This morning’s update comes as a welcome reprieve for investors, easing some concerns about January’s looming deadline as the need for a deal becomes increasingly pressing. However,shares are struggling to get excited today, caught up in the broader negative market sentiment. Meanwhile, pressures on the high street show no signs of abating as the macroeconomic headwinds from slowing growth and rising inflation continue to weigh.

CERILLION 

Cerillion (LSE:CER) reported a 26% increase in full-year revenue to £32.7 million, while operating profit rose by 42% to £10.7 million. As a result, Canaccord Genuity raised its price target on the stop from 1,100p to 1,340p. 

Strong demand for 5G and digitisation from new and existing customers has helped drive the software company’s strong performance. Cerillion has secured some big wins this year with demand from telecoms companies for investment set to continue to act as a tailwind for the business. 

Shares have been a stock market winner this year against a backdrop of doom and gloom, gaining more almost 30% year-to-date and over 40% over a one-year period. The stock is trading modestly higher this morning, extending recent gains. There is an optimistic outlook on the stock from the analyst community with six buy recommendations and zero sells.