Markets have lost their foothold after several weeks when it appeared they were successfully climbing the wall of worry.
Weakened sentiment is emerging as the US-Iran impasse continues and concerns about government debt mount.
Dismissed colourfully as a ‘band-aid on a bullet hole’ in some quarters, the relief offered by the US Treasury’s intervention in longer-dated US government bonds this week has proved short-lived.
Underlying factors, like the sheer scale of US government borrowings, having crossed the $40 trillion threshold, the size of deficits across the West, and the ongoing push higher in oil prices, mean yields have ticked up once more.
This spelled trouble for Wall Street, as US stocks endured a rocky session, and led to a lukewarm start in Europe after mixed trading in Asia.
The FTSE 100 did better than most, supported by its plethora of resources stocks. Gold prices pushed through the $4,500 mark as its safe-haven and inflation hedging credentials come to the fore.
Next week’s results from Nvidia could put some of the focus back on corporate earnings but, as we head towards the autumn, a chill has started to descend for markets. Investors will be looking for a comfort blanket when Federal Reserve chair Kevin Warsh addresses the Jackson Hole meeting at the end of this month.
Red Flag Report
A growing number of UK companies are at breaking point as they struggle in an uncertain world. The combination of lacklustre economic growth, pressures linked to higher costs of employment, energy and raw materials, and cautious spending by businesses and consumers are an accident waiting to happen.
Companies are doing everything they can to muddle through, but the weak are being pushed to the edge.
Begbies Traynor’s latest Red Flag report paints a worrying picture for the state of UK business. The number of companies in critical financial distress rose by 9% to 53,756 in the second quarter, year-on-year.
The pressure is on chancellor John Healey to do more for UK business when he unveils his first Budget in October.
New prime minister Andy Burnham has already shown support for parts of the hospitality and leisure sectors through lower business rates, but it’s not an all-encompassing strategy. Companies are looking for any support they can get.
Oil prices at their current levels are unhelpful and short of a quick resolution to the Iran war, it’s impossible to say with any certainty when associated pressures of high energy costs will ease. Higher oil prices threaten to dampen economic growth – not just in the UK, but around the world.
Andy Burnham doesn’t want UK business floundering just as he’s trying to pull together a strategy to reinvigorate the country.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
