European markets continue their upward climb this morning, driven by basic resources as well as oil and gas. Oil prices are also trading higher but remain sharply below recent highs. This has lifted BP (LSE:BP.) and Shell (LSE:SHEL) towards the top of the FTSE 100 while Taylor Wimpey (LSE:TW.) is at the bottom on ex-dividend day.
After US annual PPI rose by 2.2% in September, above expectations for 1.6%, all eyes are on US CPI figures today for clues into the outlook for inflation and the Federal Reserve's next move. Minutes from the central bank’s latest meetings suggested that interest rates look set to remain high for ‘some time.’
UK GDP rebounded slightly in August, increasing by 0.2%, in line with economists’ expectations. However, July’s reading was revised lower from -0.5% to -0.6%. Across the last three months, the economy grew modestly by 0.3% driven by car manufacturing and sales, and construction.
August’s reading enjoyed a boost from the service sector with an improvement in education after July’s strike action as well as a pickup in professional, scientific, and technical activities. This helped to offset weakness in manufacturing and construction.
This comes after some disappointing forecasts from the IMF – the fund anticipates growth in the UK will come in at the bottom of the G7 leaderboard next year and in penultimate place after Germany this year. However, these figures fail to account for recent statistical revisions from the ONS which show that the UK economy recovered much quicker than previously estimated from the pandemic, broadly in line with other European countries. The IMF also said longer term UK growth is likely to outpace that of France, Germany, or Italy.
With a sluggish UK growth backdrop, inflation coming down, and signs of slack emerging in the labour market, the Bank of England is likely to keep rates on hold again at its next meeting in November.
RICS HOUSE PRICE BALANCE
The UK September RICS house price balance, which measures the difference between the percentage of surveyors seeing increases versus decreases in house prices, dropped to -69, down from -68 in the previous month and below forecasts for -63. However, RICS said that 12-month sales expectations turned positive for the first time since May.
The RICS house price balance weakness echoes similar figures on the dire state of the housing market from mortgage lenders. Most recently, Halifax said house prices suffered their steepest drop since 2009 in September. This comes as 14 consecutive rate increases from the Bank of England take their toll on mortgage demand, in turn weighing on house prices. Sellers are less incentivised to list their properties too with house prices coming down.
With interest rates set to remain higher for longer, there’s likely to be ongoing pressure on house prices ahead. However, with the Bank of England keeping rates on hold at its most recent decision, strong wage growth and recent cuts to fixed rate mortgage deals, conditions have been improving slightly this month. And a shortage of housing supply in the UK is likely to stem an even steeper downturn in property prices.
Shares in Birkenstock Holding (NYSE:BIRK) ended their first day of trade as public company down by more than 12%. It started trading at $41 a share, below its IPO price of $46 a share, ending the session at $40.20. That makes it the worst US stock market flotation in nearly two years.
Birkenstock has struggled to translate its Barbie bounce in sales into bullish price action on day one of trade. It has floated at a challenging time for equities with higher for longer interest rates sending bond yields higher lately and sparking nervousness across stock markets.
While the first day of trade provides a good indication into a company’s stock market potential, it doesn’t tell the full story, with the coming days of price action critical in terms of gauging investor appetite.
IPO activity has been in the doldrums over the last year and a half with hopes that a recent flurry of flotations would breathe life back into the market. However, disappointing performances for Arm and Birkenstock could deter more private companies from pursuing the IPO exit route at the time.
Birkenstock was once a supremely uncool brand focused on orthotics, comfort and wellness over style. However, it has managed to revamp its image, appealing to fashionistas globally. Its brand recognition could help spur interest from retail investors. However, with any fashionable brand, the big question is whether it can sustain its popularity as trends come and go. Birkenstock has been trying to proactively respond to this by diversifying into bags on top.
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