Daily market update: public sector finances, UK retail sales, TikTok, Live Nation

The FTSE 100 was steady on Friday morning as US indices reached record highs overnight before news from Japan inspired some modest selling in Asia, says AJ Bell Investment Director Russ Mould.

While the Bank of Japan kept rates on hold last night there were two dissenters pushing for a hike and this offered a hint the central bank might phase out its substantial programme of monetary stimulus earlier than expected.

Notably, a decision was taken to sell off its holding of exchange-traded funds – given the size of the Bank’s holdings this could have an impact on financial markets.

For now, a pace of selling which would see it take more than a century to offload its entire ETF position, suggests a wish to avoid doing anything which would result in too much disruption. However, investors will likely be watchful for any indication of selling ramping up.

Sterling weakness off the back of higher than anticipated UK public borrowing helped the FTSE 100, given the dominance of overseas earners in the index, with precious metal miners leading the way. Retailers and banks were among those under pressure in early trading.

Public sector finances

Alarm bells are ringing in the Treasury after new figures showed public finances to be in a worse state than expected. That’s saying something, given expectations were already rock bottom.

UK government borrowing in August hit the highest level for the month in five years. Borrowing for the first five months of the financial year now stands at £83.8 billion, a rise of £16.2 billion year-on-year.

It makes Chancellor Rachel Reeves’ job of plugging the black hole even harder and raises the likelihood of a swathe of uncomfortable decisions at November’s Budget. A drop in the pound and a spike in gilt yields was the financial markets’ way of saying that the latest government borrowing figures make for grim reading.

The government continues to say it will get its finances under control, but the clock is ticking to convince the nation that the plan is the right one.

Businesses are already showing signs of nervousness around potential tax changes at the Budget, and that’s causing many to delay investment or halt recruitment activity. The latest government figures will add to corporate uncertainty, and consumer confidence may also deteriorate.

There is still another two months before the Budget which is a long time to wait. The UK economy isn’t exactly thriving at present and there is a real risk that activity weakens in the run-up to the big day on 26 November.

GFK consumer confidence / UK retail sales

Any glow the retail sector enjoyed from the warm weather sales boost seen in August will have been almost immediately washed away like falling leaves on a wet autumn day as consumer confidence in the UK softens.

People shopping for late summer outfits appear to have helped retail sales increase more than expected in August but there is still significant pressure on household budgets – with food price inflation at its highest levels in more than a year.

Spending more on these staples leaves less room to splash out on discretionary items and the timing of the Budget so late in the year does not help either as consumers and businesses nervously await potential tax increases.

In this context it is no surprise that consumer confidence has weakened materially, and it is hard to see reasons why it might improve in the near term. This creates a negative backdrop of retailers heading into their so-called ‘golden quarter’, during which many companies may struggle to shine.

TikTok

American vloggers and social media fans are waiting with bated breath for an update on TikTok’s future in the US.

Donald Trump is expected to talk with China’s President Xi Jinping on Friday about TikTok and trade relations between the two countries more broadly.

Trump said earlier this week that a deal has been reached to keep TikTok operational in the US, but there haven’t been any concrete details on the structure and terms of the agreement.

Reports suggest TikTok’s US operations will be controlled by a consortium including tech firm Oracle, and that US users will move to a new app.

Getting an agreement over the line is important to the future of trade and political relations between the US and China. They’ve been at loggerheads for years, and there was a point earlier this year where it looked like the relationship was in tatters.

Coming to a mutual agreement on the TikTok issue would be seen as a major step forward in repairing this relationship, thereby creating a calmer atmosphere by which to negotiate on other issues.

Live Nation / Ticketmaster

Music fans are royally fed up with tickets for big events appearing on resale sites at a large mark-up seconds after they go on sale. The speed at which these pricey tickets appear has fuelled a theory that ticket companies have struck deals with resale agents and have engaged in unscrupulous behaviour.

Consumers have been banging the drum about this situation for years, and now it’s top of the agenda for the authorities to investigate. The US Federal Trade Commission and seven states have accused Live Nation and its subsidiary Ticketmaster of illegal ticket resale tactics. Music fans will be hoping the regulator comes down hard and stamps out bad practice.