European equity markets were showing signs of fatigue amid the ‘will they, won’t they’ back and forth in expectations around whether major central banks will cut rates in the early months of 2024.
After a sharp rally in stocks based on expectations of US rate cuts as early as March 2024, several Fed officials have moved to dampen enthusiasm around lower borrowing costs, and famous investors have highlighted the risks to equities if the Fed doesn’t cut rates.
Markets initially shrugged these comments off, but with an ECB official joining the growing chorus of caution, European stocks fell yesterday and started Tuesday on the backfoot.
“The FTSE 100 slipped to a one-month low, dragged down by healthcare and financial stocks. Part of the problem is central banks constantly teasing the prospect of rate cuts but then refusing to commit, which is causing unease among investors. There are plenty of signs that inflation is coming down and this is fuelling the rate cut expectations on the market, yet central banks are being spectacularly stubborn,” said Russ Mould, investment director at AJ Bell.
“To stir the pot, UK wages grew at their slowest pace in almost a year, extending the view that inflationary pressures are easing. Data points like these don’t seem enough to put central banks on a different path and we’re facing the risk that the likes of the Bank of England and European Central Bank will act too late to avoid a sharp economic slowdown.
As Mould alludes to, there is a careful balance between acting to control inflation and pushing an economy into recession. The longer rates remain elevated, the risk of economic deterioration increases, risking fallout in stocks.
Ocado’s bumper Christmas
Over the past two years, Ocado has increasingly traded like a US technology share rather than a UK premium food retailer. Speculation that Amazon could swoop in for their solutions business demonstrates that the food retail business plays second fiddle in some investors’ minds.
That said, Tuesday saw Ocado shares jump after a strong performance in their retail partnership with Marks & Spencer.
“Ocado retail has delivered a robust end to its financial year. The instantly-recognisable delivery vans have been scurrying all over the country, delivering a higher volume of items than last year as the number of active customers brushes one million,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
“Keeping the top of the revenue funnel filled with more customers is crucial because shoppers are buying less per-shop on average. This could be a function of pressure on incomes. Price growth is also slowing as inflation comes off the boil, which is another reason volumes need to stay propped up overall.”
Ocado shares were over 3% higher at the time of writing.
Rightmove sinks
Rightmove was the FTSE 100’s big casualty on Tuesday after being downgraded by analysts at JP Morgan. Rightmove’s position as the most used and trusted property portal in the UK may be under threat from increased competition.
“Rightmove was the biggest faller on the FTSE 100 after a rating downgrade from JPMorgan, sliding 4%. US group CoStar recently bought property portal OnTheMarket to enter the UK market and that has raised fears among investors and analysts that Rightmove’s dominance could finally be challenged. CoStar is a big player in the States and has the muscle to really upset Rightmove’s long-standing market position,” Russ Mould said.
