Daily market update: tariffs, global stocks, Persimmon

“Animal spirits are definitely in charge of the market right now, as investors embrace the potential for the Fed to cut interest rates in the wake of what was seen as a soft inflation reading in the US,” says Russ Mould, Investment Director at AJ Bell.

“The US central bank still remains in cautious mode, waiting to observe if tariffs stoke a pick up in prices for US consumers. While that might be a prudent approach, the longer tariffs don’t show up in the inflation data, the greater the pressure grows on Jerome Powell and the interest rate committee to cut rates.

“While there are only tentative signs of tariffs showing up in US consumer prices, they may be more of a subtle, slow burn which aren’t immediately apparent in the headline rate right now. Trump thinks foreign exporters will take the hit rather than passing tariffs onto US consumers. Only time will tell whether he’s right about that, but it’s at least plausible that companies might accept lower profit margins only temporarily, especially while there is so much tariff uncertainty. Policymakers and consumers outside the US might also take note there is nothing stopping global companies from seeking to defray the cost of tariffs by ultimately raising prices outside the US, as well as within it.

“Global stocks are at record highs, so anyone who has taken on equity risk with their savings will see plump valuations in their investment accounts right now. Long may that continue, though of course the volatility of the market means at some point there will be a slide, the question is: how much higher will markets be before that happens?

“The relief rally from tariffs being less bad than expected has propelled stock markets far beyond where they were before Liberation Day, which does set some alarm bells ringing. But when markets are in this kind of mood, sitting on the sidelines can be extremely painful. The important thing is that over the long term, an investment in shares has historically shown a very clean set of heels to cash savings. Those who are concerned about current market levels might think about investing regularly, to smooth out the journey and protect themselves from any nasty downdrafts in the short term.

“The FTSE 100 is still on a roll as it continues to clock up gains, as the index was lifted by defensive sectors like pharmaceuticals, defence and utilities. It wasn’t a universally positive picture though. Beazley saw its shares market down substantially after the insurance firm reported lower pre-tax profits and lowered its guidance. The firm highlighted climate change and technology as two key issues that are undermining predictability for the insurance industry, and which undoubtedly make things tricky for any company which is in the business of pricing risk.”

Persimmon trading looks resilient but CMA investigation hits the bottom line

“Results from Persimmon suggest the UK housebuilding sector is not a total lemon, and at their current low ebb, these stocks might pique the interest of contrarian, value investors. Completions were up at Persimmon, likewise average selling prices, which were 8% up on last year. Not too bad in what is perceived to be a stagnant housing market. All of that has fed through into an 11% rise in underlying operating pre-tax profit.

“However under the bonnet things don’t look quite so rosy, thanks to some rather chunky exceptional items which mean earnings per share is actually down by 10%. Seven housebuilders have agreed to pay £100 million into affordable housing programmes following a Competition & Markets Authority (CMA) investigation into price collusion, and Persimmon’s contribution adds up to a £15.2 million hit to its income statement.

“The payments made by the seven housebuilders are proposed in exchange for the CMA dropping its investigation, and won’t constitute any admission of wrongdoing. Then again, £100 million sounds like a lot of money to shell out just out of the goodness of your heart, funded by the largesse of shareholder funds. The CMA is yet to confirm whether it will except the proposal, but it sounds like a done deal. This will no doubt lead to some understandably calling this out as a whitewash which ultimately undermines the integrity of the market.

“Some resilient trading performance from Persimmon failed to spark any interest from the market, with shares trading in the red at the opening bell. The stock is now down 5% this year amongst strong gains from the market at large, and at £11, shares are changing hands well below the £30 they traded at not so long ago. Persimmon was also clear in pointing to macroeconomic concerns and this Autumn’s budget as things which could pose a risk to the outlook.

“Stocks in the housebuilding sector look attractively valued and the sector sits at the centre of the government’s plans to build 1.5 million homes by the end of this parliament. Looser mortgage rules will help boost demand too. However the sector hasn’t covered itself in glory in recent times in terms of its behaviour, and regulatory costs remain a key risk for investors.”