Must read: US debt ceiling, Micron, UK house prices, NatWest

Our head of investment rounds up the morning's big news.

GLOBAL MARKETS 

It is a mixed start to trade across Europe with the FTSE 100 extending Friday’s gains, outperforming to log a slim gain. China-linked stocks like Burberry Group (LSE:BRBY) and Standard Chartered (LSE:STAN) are at the top of the large-cap index following positive price action overnight from the Shanghai Composite and the Hang Seng. 

As the US debt ceiling deadline draws closer, President Biden and House Republican speaker Kevin McCarthy are expected to hold further talks today following a phone call on Sunday as investors pray that a US default will be averted. 

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Meanwhile, US-Sino trade tensions are escalating after Beijing banned Micron Technology Inc (NASDAQ:MU) from selling semiconductors to key industries in China, a move strongly opposed by Washington. Shares in Micron are trading lower by more than 5% in Frankfurt, while the Hang Seng Technology index rallied sharply. 

Overnight, the People’s Bank of China kept its loan prime rate unchanged for a ninth consecutive month in May. Central bank policymakers clearly judged that loosening monetary policy would exacerbate the yuan’s weakness and interest rate differentials, despite China’s shaky path to recovery out of the pandemic. 

Japan’s rally continues with the Nikkei trading in the green again, lifting stocks to the highest level since the 1990s.

RIGHTMOVE HOUSE PRICE INDEX

The average house price in May hit a record high of £372,894.  According to Rightmove, the average new seller asking price rose by 1.8% month-on-month or £6,647. Buyer demand is now 3% higher than the same month in 2019, before the onset of the pandemic. 

The UK housing market appears to be benefitting from the recent peak up in consumer confidence, helping to offset a slew of headwinds including rising interest rates, falling real wages, sluggish economic growth, and mortgage market volatility in the aftermath of September’s mini budget. 

With the latest UK inflation data this week expected to show a drop into single digits, the hope is that price pressures will continue to ease this year. This could allow the Bank of England to think about shifting towards a less hawkish phase of the rate hiking cycle, a central bank move in the right direction for those looking to acquire a mortgage.

NATWEST

The UK government sold almost £1.26 billion of shares in NatWest Group (LSE:NWG), reducing its stake to approximately 38.69%. According to a regulatory finding, NatWest made an off-market purchase from the Treasury of 469,200,081 ordinary shares at a price of 268.4p each, equivalent to 4.95% of the company’s issued ordinary share capital, which is expected to settle on 24 May. 

Last month, the government announced a two-year extension to its trading plan. The Treasury is aiming to return NatWest to private ownership by 2025-2026 while attempting to ‘achieve the best value for the taxpayer’. In April, the government’s shareholding stood at 42%, down from a peak of 84%, falling further again this week. 

Shares in NatWest have struggled this year, caught up in the banking sector turmoil, with the collapse of SVB and the rescue deal for Credit Suisse. However, with shares up almost 15% year-on-year to Friday’s close, the government clearly decided that now is a good moment to sell some shares. The UK government became a majority shareholder in the lender, formerly known as RBS, back in November 2008 at the height of the global financial crisis when the bank was on the brink of collapse.

RYANAIR 

Ryanair reported a full-year profit of 1.43 billion euros, closing in on its 2018 record of 1.45 billion euros. It flew 168.6 million passengers, up 74% to an all-time high, breaking its pre-pandemic record of 149 million. The low-cost carrier is aiming to get to 225 million passengers by 2026 and becoming debt free in the next three to four years. 

Ryanair is expecting a strong summer for bookings but thinks winter could be more challenging with consumer spending under strain. European short-haul summer capacity is expected to hit 90-95% of pre-Covid levels with CEO Michael O’Leary commenting that there is no sign yet that inflation is hitting demand, even though its airfares are up 10% on pre-Covid levels. 

After the challenges of the pandemic and Russia’s invasion of Ukraine which both heavily weighed on passenger traffic, Ryanair has enjoyed an impressive annual performance thanks to a recovery in demand and ‘fortuitous fuel hedging’. Despite cost-of-living pressures, which have hurt discretionary spending, individuals and households appear to be prioritising their summer holidays where possible with demand still ‘robust’ for Ryanair’s European short-haul routes. Travel throughout the rest of the year however looks could remain subdued amid the squeeze on budgets. 

Shares in Ryanair are up around 30% so far this year, recovering from the lows in the final quarter of last year, as investors anticipate that inflation will finally start to cool and interest rates are nearing the peak.