Today’s markets: London steady as Europe struggles

Shares in London are up this morning but mainland peers are struggling as Eurozone bond yields rise and inflation shows signs of picking up – less than ideal considering the European Central Bank has committed to cutting rates next week.

The FTSE 100 is up 0.25 per cent, bucking the trend from weak sessions across the US and most of Asia. Japan was another outlier with the Topix index adding 1.6 per cent as rising inflation figures bolstered the expectations of higher interest rates. Japan of course operating on a slightly different schedule to the US, UK and Eurozone, where that’s the kind of news that would send shares down. Always worth remembering that markets react to changing expectations, not always hard facts. The S&P 500 dropped 0.6 per cent and the Dow 0.9 per cent, potentially some reaction to the presidential hopeful Donald Trump’s conviction and what that means for November’s election, but how that turns out is anyone’s guess at the moment. Tech also struggled after some weak US growth data.

In Europe this morning, shares in Frankfurt are down 0.1 per cent and in Paris, 0.15 per cent. It’s French inflation that’s causing bother with it rising for the first time this year. CPI came in at 2.7 per cent for the 12 months to May, up from 2.4 per cent in April. Economists had expected 2.5 per cent. Eurozone inflation also came in higher at 2.6 per cent, up from 2.4 per cent in April, but this was in line with expectations. No change to what’s expected at next week’s central bank meeting, where rates will be cut by 0.25 percentage points, but that hasn’t stopped yields ticking up. The 10-year German Bund yield was up 4 basis points, hitting 2.69 per cent.

Closer to home, it’s another week and another house price index, today’s from Nationwide. The lender tracks house prices based on agreed mortgage deals, so it has accurate pricing, but it misses a lot of the market that either don’t need a mortgage or don’t use Nationwide. Nonetheless, house prices were up 0.4 per cent between April and May after two months of contraction, showing consumer confidence is improving. Mortgage rates have ticked down recently ahead of expectations the Bank of England would cut rates this month, but that has since plateaued. Separate data from the Bank of England showed mortgage take-up was steady, supporting the improving sentiment narrative. For more on what happens with house prices given rate cuts and the election, read Hermione Taylor’s latest analysis here.

The Trader is written by Taha Lokhandwala