Must read: FTSE 100 on Monday, US/China, oil price, UK car data

Global equities are under pressure Monday morning following US data and increasing tensions between the US and China. Our head of investment talks us through the big news and impact on markets.

GLOBAL MARKETS 

The cancellation of US secretary of state Antony Blinken’s visit to China has put pressure on markets overnight in Asia, with the Hang Seng shedding more than 2%. European equities have taken their cues from the weakness in the US and Asia with almost all sectors trading in the red this morning. Safe-haven assets such as precious metals like gold and silver are staging gains as investors look for a place to hide from the uncertainty.

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Focus today is on the latest European construction PMI figures as well as euro area retail sales data. Investors are also bracing for another busy week for corporate earnings. In the UK, health workers prepare to stage their biggest ever strike amid a dispute over pay as inflation erodes real wages.

FTSE 100 

The FTSE 100 is giving back some of Friday’s gains after the US downed an alleged Chinese spying balloon, putting a strain on US-China relations, and raising concerns about geopolitical instability. Plus, a strong US jobs report on Friday has indicated that the Federal Reserve may have more work to do on interest rates, pressurising global equity markets. 

Most FTSE 100 stocks are in the red but safe-haven play, silver miner Fresnillo (LSE:FRES) is outperforming alongside Lloyds Banking Group (LSE:LLOY) and HSBC Holdings (LSE:HSBA) which benefit from more hawkish monetary policy. BP (LSE:BP.) is also in the green on the back of rising oil prices. China sensitive stocks like Prudential (LSE:PRU) and Burberry Group (LSE:BRBY) are trading near the bottom of the FTSE 100.

The FTSE 100 closed at a record high on Friday driven by expectations of a dovish tilt from the Bank of England, a weaker pound after a very strong US jobs report and its favourable sectoral mix, which provided a tailwind to the index over the last year. Its lack of tech heavyweights allowed the FTSE 100 to avoid last year’s ‘tech wreck’ and a high amount of oil and mining giants benefited from 2022’s commodity boom. Plus, banks like Standard Chartered (LSE:STAN) have logged strong share price performances on the back of the rising rate environment.

So far in 2023, the FTSE 100 is up by just over 5% versus the DAX, CAC and FTSE MIB which have logged double-digit percentage recoveries.

OIL 

Oil prices are attempting to claw back some of their previous losses after declining nearly 8% last week. A strong US jobs report added to downside pressure on Friday, with West Texas shedding more than 3%. The nonfarm payrolls data indicated that the US jobs market remains resilient, suggesting that the Fed may need to remain hawkish for longer. Higher interest rates could lead to weaker oil demand this year, particularly when combined with a slowing economic backdrop.

UK NEW CAR REGISTRATIONS 

UK new car registrations jumped by 14% in January year-on-year, rising for the sixth month in a row. According to the Society of Motor Manufacturers and Traders (SMMT), in 2023 registrations are expected to increase by 11% to 1.79 million. 

The auto industry has been dealing with pressures from inflation, the global chip shortage and post-pandemic snarled up supply chains, resulting in long delivery wait times for consumers and delays to production. However as Covid shifts to the rear view mirror, supply chain bottlenecks are starting to ease with a pick-up in new car registrations year-on-year. The auto industry is nonetheless still dealing with the macroeconomic headwinds from elevated inflation and slowing growth, with the cost-of-living crisis a potential threat to new car demand ahead.