Markets have started the week on a softer note with stocks lower, yields streaking higher and havens including gold and the Japanese yen in demand.
Reports of divisions between Chancellor Philip Hammond and the rest of Theresa May’s cabinet over Brexit have caused investors to sell UK assets across the board. UK stocks, bonds and the pound were all lower on Monday.
Over the weekend Mr Hammond was rumoured as preparing to quit over the divisions, though the Treasury has since denied this is the case. In a cabinet with some hot-headed opinions on Brexit, Mr Hammond is viewed by markets as a cooler cucumber. His departure and the resulting political uncertainty would likely see another nose-dive in the pound and exacerbate the rise in gilt yields.
Mr Hammond is thought to prefer a plan in which migration curbs are delayed and Britain would pay into the EU budget for single market access. It’s a stance that would be welcomed by markets but he has been described as “arguing like an account” and “only seeing the risks” by fellow MPs.
The EY Item Club calling the economic stability in the UK since the Brexit vote “deceptive” and Open Europe suggesting banks could shift operations to Europe in 2017 without passporting rights are doing little to remedy shaken sentiment.
The government bond sell-off has sent UK 10yr Gilt yields to the highest since the EU referendum, putting them on course for one of the biggest monthly rises in 20 years.
Homebuilders are feeling the brunt of Brexit tensions and higher yields despite rising house prices in the last month according to Rightmove. Barratt Developments (LON:BDEV) is one of the biggest decliners on the FTSE 100. Higher interest rates lead to higher mortgages, which is typically not good for the housing market since it makes borrowing to buy a house more expensive.
Shares of Pearson (LON:PSON) have fallen as much as 6% after it reported falling sales despite the positive currency effect of a falling pound.
Shares of Paddy Power Betfair dropped after the soon-to-be-combined Ladbrokes-Coral sold over 300 betting shops to gambling rivals BetFred and Stan James.
Two straight weeks of declines in US stocks has weighed on sentiment at the start of the week with a lower US open expected. The fall comes despite smaller than expected profit declines at big US banks last week.
USA pre-opening levels
S&P 500: 7 points lower at 2,125
Dow Jones: 54 points lower at 18,084
Nasdaq 100: 21 points lower at 4,787
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