UK’s blue-chip index held steady in early deals on Monday as banking shares extended a rally on expectations of interest rate hikes, while homebuilders were hit by $5.4 billion (€4.8 billion) in costs to remove cladding from buildings.
The FTSE 100 was flat following weekly gains spurred by a rotation into sectors such as banks, oil and gas, and mining as investors priced in interest rate hikes by major central banks.
Shares of Berkeley Group, Barratt Developments , Persimmon and Taylor Wimpey were down between 2 per cent and 2.5 per cent after Britain ordered housebuilders to pay around $5.4 billion to help remove dangerous cladding from buildings following a deadly 2017 London fire.
Citi also downgraded Persimmon to “neutral” from “buy”.
The domestically focused FTSE mid-cap index was also flat, following weekly losses as a surge in Covid-19 cases due to the Omicron variant hit sentiment.
Plus500 rose 2.5 per cent after the online trading platform said it expects annual results to exceed market expectations, even as it reported slower fourth-quarter growth.
Spire Healthcare gained 1 per cent after England’s health service said it had struck a deal with private health firms to provide crucial treatments should Omicron overwhelm the National Health Service.
Stocks in Asia nudged higher as investors brace for bond-market volatility and stimulus withdrawal. The dollar rose.
Shares in Hong Kong advanced as technology stocks rebounded. They fell in South Korea, while China edged higher.
US futures inched upward after the S&P 500 posted the worst start to a year since 2016, as expectations of faster-than-anticipated US interest-rate increases roiled bond markets and sparked a rotation out of high-growth equities. Japan is shut for a holiday Monday. European futures gained.
Treasury yields climbed, after advancing across the board last week in a selloff sparked by Federal Reserve minutes signalling a willingness to start hiking rates as soon as March. Cash Treasuries didn't trade in Asia because of the Japan holiday. Australia's 10-year bonds tumbled.
US inflation data this week will be keenly watched as concerns grow the Fed is behind the curve in tackling elevated price pressures. US employers added fewer staff than expected in December, but wages rose more than forecast, boosting the Fed’s case to tighten liquidity.
Markets face increasing volatility as investors grapple with how to reprice assets as the pandemic liquidity that helped drive equities to record highs is withdrawn. Goldman Sachs Group now expects the Fed to raise rates four times this year and start its balance sheet runoff process in July, if not earlier.
“The US Fed needs to tread carefully in removing policy accommodation – it should not happen too fast otherwise it risks a disruption to the rebound in economic growth and could lead to another ‘taper tantrum,’” Diana Mousina, senior economic in the multi-asset group at AMP Capital, said in a note.
She sees more volatility this year from inflation, Fed rate hikes and geopolitics as well as US mid-term elections.
Comments from a host of Fed speakers this week will be scrutinized for clues on the central bank’s schedule to trim accommodative monetary policy.
“Inflation is the biggest concern and that’s why you have to brace yourself,” Al Lord, Lexerd Capital Management founder and chief executive officer, said on Bloomberg Television.
“Rates are going higher, there is no doubt here. The Fed is behind the curve. We certainly have to brace ourselves for volatility here.”
At the same time, the spread of omicron is posing a fresh test for economic activity. China is seeing its first omicron cases in the community, and as the Lunar New Year festivities approach, governments in Taiwan and Vietnam prepared to intensify curbs.
Elsewhere, Bitcoin traded around $42,000 as cryptocurrencies continue to struggle. Crude oil steadied around $79 a barrel after recording the biggest weekly gain in a month. – Agencies
