Must read: oil, UK GDP, LSE/Microsoft, mortgage lending, Heathrow

It's a busy Monday morning, but European stock markets are trading lower. Our head of investment covers all the big news.

GLOBAL MARKETS 

Following a softer session in Asia, European markets are on edge, opening the week lower ahead of a critical few days for central bank action. The European Central Bank, the Federal Reserve and the Bank of England are expected to raise rates by 50 basis points each as the pace of tightening looks set to slow. 

The FTSE 100’s declines are being offset by gains for the London Stock Exchange Group (LSE:LSEG) after a deal with Microsoft Corp (NASDAQ:MSFT) lifted the stock to the top of the UK index, bucking the broader negativity. 

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OIL 

Oil prices are trading slightly higher after Brent crude and WTI shed over 10% each last week. The market has fallen into contango in which long-term contracts become more expensive than their short-term equivalents in a sign of slowing demand and less concern about supply. 

The last week has seen concerns about a global slowdown in demand more than offsetting the loosening of Covid restrictions in China. However, a threat from Russian President Vladimir Putin that he could cut output following the G7’s price cap on Russian crude has provided some support to the market so far today.

UK GDP 

UK monthly real GDP rebounded by 0.5% in October, ahead of expectations for 0.4%, and swinging from a decline of 0.6% in September which was negatively impacted by the extra bank holiday for the Queen’s funeral. 

Strength in October came from the services sector which grew by 0.6%, beating analysts’ forecasts thanks to car and motorbike repairs and human health activities. With the cost-of-living crisis and a looming recession, fewer consumers are purchasing new vehicles, pushing up demand for repair services. Meanwhile, the autumn booster campaign strengthened demand for Covid testing and vaccinations. Elsewhere, construction output grew by 0.8%, its fourth consecutive increase with the biggest contribution to demand coming from repair and maintenance.

Taking a step back, although growth picked up in October, on a three-month basis the UK economy has shrunk by 0.3%, with falls in the manufacturing and services sectors. 

The pound is trading lower against the greenback this morning, but it has pared some of its earlier losses with most weakness coming from a stronger US dollar.

UK FINANCE REPORT 

The trade body UK Finance said mortgage lending by banks and building societies in the UK will fall by 23% to £131 billion in 2023 versus £171 billion this year. It comes ahead of the Bank of England’s final rate decision of the year on Thursday in which it is expected to increase interest rates by a further 50 basis points to 3.5% following a 75 basis point hike at its previous meeting. 

Rising interest rates have already been adding to costs for those with variable rate mortgages. However, it is estimated that there are millions with fixed-rate mortgages which will need refinancing in the year ahead, suggesting many more will soon be grappling with higher borrowing costs on their properties. Lending rates have been on the rise since last December, with the fiscal fiasco around the mini-budget adding to the upward pressures. This is already starting to weigh on the housing market with several data points confirming it is cooling with a further slowdown forecast for 2023.

LSE / MICROSOFT 

Microsoft is purchasing a 4% equity stake in the London Stock Exchange group through an acquisition of shares from a Blackstone/Thomson Reuters consortium. The tech giant is entering into a 10-year strategic partnership to migrate LSEG’s data platform and other key technology infrastructure into the Microsoft Cloud. The tie-up will ‘meaningfully’ increase the stock exchange’s revenue growth over time. In return, LSEG has agreed to a minimum spend on Microsoft’s cloud services of $2.8 billion over the decade. 

Investors in LSEG are cheering the stake build by the tech giant. It complements the LSE’s cloud-centric aspirations, which it has been working on delivering since the $27 billion acquisition of financial data company Refinitiv in January 2021. 

Shares in LSEG have outperformed over a one-year period rallying more than 10% to Friday’s close. The partnership with Microsoft has further boosted its stock price with investors enjoying a pick-up today.

HEATHROW 

Heathrow said 5.6 million people travelled through the London airport in November, falling from 5.9 million in October. It said that most travellers will be unaffected by border force strikes with December expected to be busy. 

Although November international travel slowed, the festive season is expected to provide a seasonal pick-up in passengers around the Christmas holidays. While British Border Force workers are due to strike for a number of days from 23 December, Heathrow said ‘departing passengers should expect to travel as normal.’ 

Heathrow travel is struggling to push back up to its pre-pandemic numbers with passengers stuck at 70% of 2019 levels. The shift towards online business meetings and remote working has dampened demand for business travel even in the post-Covid era. Plus the cost-of-living crisis means belts are tightening with less consumer spending available for holidays.