Must read: FTSE 100 higher, bond sell-off, UK borrowing, Microsoft

GLOBAL MARKETS

European markets have opened higher with the FTSE 100 logging more tempered gains than the DAX and CAC. Shares in Ubisoft Entertainment (EURONEXT:UBI) are outperforming on its streaming rights deal with Activision Blizzard Inc (NASDAQ:ATVI).

Bond markets are under pressure with the 10-year US Treasury yield hitting a 16-year high and Japan’s 10-year yield hitting a more than nine-year high. Prolonged inflation and a resilient US economy have pushed up yields amid the expectation that interest rates could remain elevated for some time.

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HALIFAX

According to Halifax, the average 25-year fixed rate mortgage deal with the first five years fixed and a 25% deposit costs 35% of a single average full-time salary, up sharply from 30% last year. Kim Kinnaird, mortgages director at Halifax, said “typical monthly mortgage payments are up by around a fifth”. Partially offsetting this is the fall in house prices, with a typical home costing 6.7 times average earnings versus 7.1 times in June 2022, but remaining higher than at the start of 2020.

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The rising cost of borrowing is making life more difficult for potential homeowners, as monthly repayments surge on the back of the Bank of England’s aggressive stream of rate hikes. Despite falling house prices, there is still an affordability crisis in the housing market, affecting both homeowners, first-time buyers and renters. Rising monthly mortgage payments have prompted more households to head to the lettings market instead where surging demand has pushed rents to their highest levels since 2016. But Zoopla says renting is cheaper than buying now for the first time since 2010 with London and the South East worst affected by higher mortgage costs.

UK PUBLIC SECTOR NET BORROWING

According to the Office for National Statistics (ONS), UK public sector net borrowing (excluding public sector banks) hit £4.3 billion in July, less than analysts’ expectations for £5 billion and below the OBR’s forecast for £6 billion. However, it still came in at £3.4 billion higher than in July last year and is the fifth-highest July borrowing since monthly records began in 1993.

Public sector debt excluding public sector banks was £2,578.9 billion at the end of July, or around 98.5% of UK annual GDP. Net debt as a percentage of GDP is at levels last seen in the early 1960s.

The government recorded a lower-than-expected budget deficit and net borrowing, partly due to increased self-assessed income tax receipts which tend to be stronger around this time of year. This could potentially provide Chancellor Jeremy Hunt with some wiggle room to cut taxes ahead of the next general election in an attempt to win back some votes. 

After the government’s expensive energy crisis support on top of heavy spending during the pandemic, the Treasury has been trying to focus on fiscal prudence, limiting spending and refraining from tax cuts to prop up the public purse and balance the books. Plus, it is trying to steer clear of taking an expansional fiscal stance at a time of high inflation as this could work against what the Bank of England has been doing in terms of tightening monetary policy to curtail price pressures.

MICROSOFT

Microsoft Corp (NASDAQ:MSFT) has submitted a restructured proposal to the CMA for approval of its Activision Blizzard deal under UK law after its original $69 billion deal was rejected by the competition authorities. In its new proposals, Microsoft will no longer buy the rights to Activision’s games stored in the cloud, to address the CMA’s concerns about the impact of the deal on cloud game streaming. Instead, Activision’s games such as Candy Crush will be sold to games publisher Ubisoft, which will supply the content to Microsoft and its competitors. That means that under the new deal, Microsoft won’t be able to release Activision Blizzard’s games exclusively on its own cloud streaming service – Xbox Cloud Gaming, opening up this offering to the wider market.

By no longer purchasing the rights to Activision’s cloud games, Microsoft is hoping this will appease the CMA and address its concerns over competition, potentially allowing the tie-up to cross the line this time. The deal has divided regulators globally, with Microsoft winning the antitrust greenlight in the EU, while facing hurdles in the US and the UK. When the CMA blocked the deal in April, Microsoft’s president Brad Smith described it as the tech giant’s “darkest days” of working with the UK and said the decision was “bad for Britain”. While today’s update is a step in the right direction towards regulatory approval, it is not a done deal just yet. Next, the CMA said it will “carefully and objectively assess the details”.

Shares in Ubisoft are trading sharply higher today.