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Today's markets: Weak open, house price high, consumer rebound, bitcoin as a legal tender & more

Is there a risk indices are becoming rangebound?
September 7, 2021

Markets start the day weakly

Stocks in Europe were a tad weaker at the open after Monday’s rally, sticking to the recent well-worn ranges. US trading returns today with futures indicating a flattish open. There was a decent session in Asia overnight spurred on by strong data from China with the Nikkei 225 touching 30,000 for the first time since April, and the Topix hitting a 31-year high as the technical breakout from last week continues. Stocks in Shanghai and Shenzen were also up +1 per cent. Despite all the worries about supply chains and Delta, Chinese exports surged in August by 25.6 per cent year-on-year, up from the 19.3. per cent increase in July and beating the forecast of 17.1 per cent. Sticking with China for a moment, shares in Evergrande, the indebted real estate giant, sank further to the weakest since 2015 as the fallout from its default risk continues to ripple through the property sector, where bond yields are rising fast. 

With stock futures doing little in the US and coming off the back of a three-day weekend, the focus will be on the cash equity open later on Wall Street in the wake of Friday’s disappointing jobs report and the lapsing of those last $300 stimulus cheques.  Still the relentless low-vol grind up is holding and Barclays today has lifted its S&P 500 price target to 4600 from 4400. Question is whether Sep/Oct produces a spike in volatility. A 3 per cent drawdown – mild by anyone’s standards - takes you back to the 50-day SMA support that has held up so well this year, while a 10 per cent correction tests the 200-day SMA. Technicals at the moment indicate sideways action and a loss of upwards momentum – merely a question of timing as to when we get a rollover. NW

Neil Wilson is chief market analyst at Markets.com

For Neil's full market report, click here

House prices hit another record high

House price growth in the UK may be abating, but continues to hit new records nonetheless. The latest House Price Index from the Halifax showed 0.7 per cent overall growth month on month in August with the average UK house price hitting £262,954, a new record high. 

Annual growth was 7.1 per cent, down from 7.6 per cent in July, with the strongest demand coming from first time buyers and those buying in the bracket under £250,000 where the stamp duty holiday was still in place. The regions also remained strong with house prices in Wales rising 11.6 per cent and by 9.6 per cent in the South West compared with growth of just 1.3 per cent in the more expensive London market. 

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Retail sales rise

The UK consumer continues to enjoy the reopening of the economy. August retail sales figures from the BRC-KPMG monitor showed total sales growth of 3 per cent. Non-food sales led the way with growth of 10.3 per cent in August even against strong comparators from last year when non-food retail was opening up properly after the first lockdown. Meanwhile, grocers have continued their solid performance with food sales rising 2.9 per cent, although eyes will be on this sector in particular in the context of the supply chain issues which have been highlighted recently. 

One retailer whose fortunes have enjoyed a rapid about turn is Ted Baker (TED) which today reported second quarter revenue growth of 50 per cent as it enjoyed the return of shoppers to the high street. The company also benefited from being able to return to more full priced sales after the heavy discounting of the previous year as the pandemic threatened to leave retailers sitting on unsold stock. Ted has concentrated its firepower, marketing wise, on encouraging in person sales during recent months and was rewarded with a rise in store sales of 142 per cent, albeit against a lockdown-affected period last year. Conversely, e-commerce sales dipped by a quarter. Total sales still tracked some 45 per cent below pre-pandemic levels. 

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But are consumers storing up trouble for later? Data out this morning from Barclaycard showed consumer spending on credit cards rose by 15.4 per cent in August when compared with the same month in 2019. UK consumers appear to have been enjoying the relative freedom and spending while holidaying in the UK with spending in restaurants and bars and on entertainment such as theatre and theme park tickets leading the way.

Bitcoin becomes legal tender - in El Salvador

Today is bitcoin day in the Central American country of El Salvador with the cryptocurrency becoming legal tender - a first worldwide. Salvadorans have some experience in this field given that the US dollar has been legal tender there for two decades but nonetheless, the move to adopt bitcoin has excited crypto enthusiasts worldwide. From today bitcoin will be accepted for day to day payments from shopping to buying property with the government proposing handing out a digital wallet to all citizens with $30 worth of bitcoin in. 

Supporters of the move say that it will make sending money home easier for Salvadorans working abroad while also injection more liquidity into the economy and potentially creating an alternative to a weakening dollar but critics warn that it could put the economy, and the government’s finances, under extreme pressure should the value of bitcoin fall heavily again - a warning which the International Monetary Fund made in general terms in July when it said cryptocurrencies could threaten ‘macroeconomic stability’.