London Open: Stocks Nudge Lower as Investors Keep an Eye on Bond Yields

Stocks

Summary:

London stocks edged lower Tuesday as rising UK bond yields weighed on sentiment ahead of US inflation data. JD Sports and BP fell on profit warnings, while Persimmon and Ocado gained on strong updates.

London stocks nudged lower in early trade on Tuesday as investors kept an eye on UK bond yields and ahead of the release of the latest US inflation reading.

At 0840 GMT, the FTSE 100 was down 0.1% at 8,215.79.

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "UK markets opened broadly flat this morning, feeling continued pressure from rising UK bond yields (gilts) and shifting rate expectations as investors grappled with persistent inflation concerns.

"The yield on the UK 10-year gilt climbed to 4.9%, its highest since July 2008, as traders once again pared back expectations for Bank of England rate cuts in 2025. With inflation data looming and markets anticipating steady annual inflation at 2.6%, but a slight dip in the core rate to 3.4%, the focus remains on how stubborn price pressures will influence monetary policy and broader economic sentiment."

There are no major UK data points due, but the US producer price index for December is scheduled for release at 1330 GMT.

In equity markets, JD Sports tumbled as it downgraded its full-year profit forecast, posting a drop in revenue for November and December in challenging markets.

The group now expects full-year pre-tax profit of between £915m and £935m, down from previous guidance of £955m to £1.035bn.

BP was in the red as the energy major said it now expects to report lower upstream production for the fourth quarter, while tax charges and foreign exchange losses for the full year will be greater than previously expected.

British American Tobacco retreated on news that Reinet Investments SCA is offering to sell its 2% stake in the company in a placing.

Crest Nicholson lost ground as the housebuilder delayed the publication of its 2024 results and said it expects the total fire remediation provision at the year-end to be about £245m to £255m, compared to £145m at the half year.

On the upside, Persimmon jumped as the housebuilder said full-year underlying pre-tax profit was set to be around the upper end of market expectations as completions were ahead of market forecasts.

Barratt Redrow and Taylor Wimpey also gained.

Ocado surged as Ocado Retail delivered a strong finish to its financial year, with sales growth accelerating in the fourth quarter as weekly orders reached a milestone of 500,000 for the first time.

The company, which is the grocery joint venture between Ocado Group and Marks & Spencer, reported retail revenues of £715.8m for the 13 weeks to 1 December, up 17.5% year-on-year and a pick-up from the 15.5% growth seen in the third quarter. That was followed by a record performance over the key Christmas trading period, Ocado Retail said.

Source: Sharecast

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Glendon

Economic

Forex

The EUR/JPY cross builds on the overnight recovery from the 160.00 psychological mark, or a nearly one-month low and attracts some follow-through buyers on Tuesday. Spot prices stick to positive bias through the first half of the European session and currently trade around the 161.75-161.80 region, up nearly 0.45% for the day.

Against the backdrop of the uncertainty surrounding the likely timing of the next rate hike by the Bank of Japan (BoJ), the risk-on mood undermines the safe-haven Japanese Yen (JPY) and lends support to the EUR/JPY cross. Apart from this, a modest US Dollar (USD) downtick benefits the shared currency and contributes to the intraday move up. That said, the European Central Bank's (ECB) dovish bias might cap the Euro and the currency pair.

From a technical perspective, strength beyond the 50-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement level of the downfall witnessed over the past week or so favors bullish traders. Moreover, positive oscillators on the 1-hour chart support prospects for additional intraday gains. Hence, a move beyond the 162.00 mark, towards testing the 100-hour SMA and the 50% Fibo. level confluence near the 162.25 area, looks like a distinct possibility.

On the flip side, weakness below the 161.50 area, or the 50-hour SMA, could be seen as a buying opportunity and remain limited near the 161.00 round-figure mark (23.6% Fibo. level). A convincing break below the latter could make the EUR/JPY cross vulnerable to accelerate the slide back towards the 160.00 mark, with some intermediate support near the 160.60-160.55 region. The downfall could extend further towards the 159.50 support zone.

EUR/JPY 1-hour chart

Source: FXSTREET

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Warren Takunda

Economic

Both crude oil and natural gas prices saw a sharp increase in January amid increasing energy demands and new US sanctions on Russia. Benchmark natural gas futures at NYMEX rose to $4.37 (€4.280) per million British thermal units (MMBtu) briefly before retreating on Monday, a level last seen in December 2022. Meanwhile, crude oil futures, including WTI and Brent, surged to their highest levels since August 2024.

The price surge in natural gas was primarily caused by soaring demands amid cold weather in the northern hemisphere, while the jump in crude prices was triggered by new sanctions imposed by the outgoing Biden administration.

Natural gas prices double

Natural gas prices have doubled since October 2024 from under $2 per MMBtu to just under $4 per MMBtu as of Tuesday in the Asian session. According to the US Energy Information Administration, natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands increased to a weekly average of $14.55 per MMBtu by the week ending 8 January, 27% higher than the same period last year.

The WTI futures surged by 17% and the Brent futures have jumped 14% since early December, reaching thresholds of $78 and $80 per barrel respectively.

Data from the American Petroleum Institute (API) showed that the US oil inventory has fallen for the seventh consecutive week ending 5 January. Last Friday, the US announced wider sanctions on Russia's oil exports, targeting producers Gazprom Neft and Surgutneftegaz, as well as 183 vessels that have shipped Russian oil.

The elevated energy prices post significant risks to the eurozone's economy, particularly affecting manufacturing activities as the European nations grapple with political uncertainties, one week ahead of Donald Trump's inauguration.

Stagflation risks ahead in the Eurozone

Surging energy prices could complicate the inflation outlook in the Euro area, echoing the crisis experienced when Russia launched aggression against Ukraine in 2022. The European Central Bank (ECB) is likely to face the challenges in balancing economic growth with mounting inflationary pressures this year.

"We'd have to see prices rise a bit higher from here but there is the risk that stronger energy prices lead to a stagflationary mix in Europe, which obviously can't sort out its energy policy and is dealing with typically moribund growth", Kyle Rodda, a senior market analyst at Compital.com Australia, said.

Stagflation refers to an economy characterised by high inflation, stagnant economic growth, and elevated unemployment – a scenario the eurozone appears increasingly at risk of meeting.

S&P Global projected in November that the eurozone GDP growth will reach 0.8% in 2024 and 1.2% in 2025, based on accelerating ECB's rate cuts and a lower inflation outlook. "Due to a more pronounced drop in energy prices, we expect inflation will be marginally lower in 2025 than we anticipated." This suggests that a resurgence in energy prices could undermine these projections.

The potential impact of Trump's presidency

However, energy prices may face further uncertainties after Trump takes office. The president-elect pledged to push for a truce between Russia and Ukraine, potentially negotiating to reverse some sanctions on Russia's energy exports. "There would indeed be a swift reaction in energy markets if there was a major breakthrough in any future negotiations between Russia and Ukraine", Rodda said. "However, I think the probabilities of this are quite low."

Source: Euronews

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Glendon

Commodity

Silver price (XAG/USD) recovers some of their recent losses from the previous session, trading near $29.80 per troy ounce during European trading hours on Tuesday. Analyzing the daily chart suggests that short-term price momentum appears neutral, with the XAG/USD pair positioned around the nine-day and 14-day Exponential Moving Averages (EMAs). A breakout in either direction could signal a clearer trend.

Moreover, the 14-day Relative Strength Index (RSI) hovers near the 50 level, suggesting a neutral outlook. This suggests the market is evenly balanced, with no clear indication of overbought or oversold conditions, reflecting equilibrium between bullish and bearish momentum.

Silver price currently tests resistance at the immediate 14-day EMA of $29.83, followed closely by the nine-day EMA at $29.84. A breakout above these levels could boost market sentiment and drive the XAG/USD pair toward the key psychological level of $30.00. A sustained move beyond this threshold may strengthen bullish momentum, potentially setting the stage for the grey metal to target its two-month high of $32.28, last achieved on December 9.

On the downside, initial support is located at the four-month low of $28.74, recorded on December 19, followed by the critical psychological level of $28.00. A break below these levels could intensify bearish momentum and signal further downside potential for Silver price.

XAG/USD: Daily Chart

Source: FXSTREET

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Warren Takunda

Economic

Rachel Reeves will give a statement regarding a recent trip to China; however, opposition parties will have the opportunity to press her on ongoing market concerns linked to the surging cost of UK debts and the fall in the Pound.

The Chancellor has been conspicuous by her absence in recent days, with the only official communications from her Treasury department coming via official statements and an appearance by her deputy, Darren Jones.

The government has said it won't change the course of its spending and taxation plans, despite falling economic growth and a rout of UK bonds and the Pound.

Investors will want to hear whether the Chancellor has, in fact, been pondering the issue and will respond to growing funding costs by delivering new policies to restore confidence in the UK.

Borrowing costs have surged, and the Pound fallen, in the wake of evidence the economy has flatlined since Labour took control. Reeves had promised to boost growth in order to fund a huge increase in public spending in the coming years. Without growth, the government will struggle to repay its debt.

The Pound to Euro exchange rate has fallen for four days in succession and is holding out at 1.1911. The Pound to Dollar exchange rate is under substantial pressure, having fallen to its lowest level in nine months at 1.2099, but is now stabilising at 1.2210.

Although it is now oversold in the short term, the Pound has so far shown little interest in rebounding, confirming markets have not seen any indication that the government intends to make the necessary changes to boost confidence in the UK's debt dynamics.

Reeves will come under pressure to cut spending and/or raise taxes in 2025, with most economists predicting a combination of the two as she now has no room to meet her fiscal rules, the most important being that debt must start falling as a percentage of GDP by 2029.

However, tax hikes were tried in October and survey after survey has indicated the decision has severely dented business confidence and led to a retrenchment in growth and employment. Pound Sterling Steadies Against Euro and Dollar Ahead of Reeves Appearance_1

Pound Sterling Steadies Against Euro and Dollar Ahead of Reeves Appearance_1

Above: GBP/USD hit oversold conditions (see RSI in lower panel), and has scope to enter a relief bounce.

"Business sentiment took a sharp turn for the worse in the latter months of the year, as business leaders digested the full implications of the government’s early policy decisions. Business was dismayed by the tax increases announced in the Autumn budget, and also concerned by the aggregate impact of proposed employment law reforms," says Dr. Roger Barker, Director of Policy at the Institute of Directors.

UK 10-year gilt yields, the benchmark government that investors typically watch, have risen to 17-year highs on fears that the economy is in stagflation, where rising inflation meets weakening growth.

"Sterling has been in focus this week as the clear underperformer in G10 FX, with the bear steepening and underperformance in UK gilts alongside the currency sell-off characteristic of an acute rise in UK fiscal risk premia," says Kamakshya Trivedi, an analyst at Goldman Sachs. Pound Sterling Steadies Against Euro and Dollar Ahead of Reeves Appearance_2

Pound Sterling Steadies Against Euro and Dollar Ahead of Reeves Appearance_2

Above: GBP/EUR is close to being oversold. It has met the key 200-day moving average (blue line), which could offer technical support.

Reeves will speak today in Parliament but could struggle to command the market's confidence. She repeatedly said she would deliver growth via pro-business policies in the lead-up to the election but delivered the exact opposite.

"All the chatter on FICC desks is that rather than reconsider the spending side of the ledger; the UK govt will come back for more tax in a self-defeating cycle. Again, whilst the govt has said it won't, it also hasn't definitively ruled it out - so no one really believes the promise as Reeves is seen to have lied in opposition about tax plans," says Simon French, Chief Economist & Head of Research at Panmure Liberum.

With her credibility in question, Reeves might find any statements that promise to deliver growth as a way out of the recent market troubles to be ineffective.

Solid policy commitments are needed, with the most effective likely to be a commitment to cut the UK's benefits bills significantly. There have been reports of such a desire, but nothing official, and Reeves knows her left-wing Labour Party colleagues would balk at such a commitment.

Instead, Prime Minister Keir Starmer has indicated the preference would be to fight a war on waste in the UK's departments, pressing them to find cost savings.

Markets don't think this is enough and there is a risk Reeves attempts to adopt a strategy of lying low and hoping the market settles on its own volition.

"With the market’s not-too-distant memory of previous fiscal risk episodes, the clear risk to Sterling from here is an escalation in the loop of sell-offs in UK assets and a more strenuous fiscal position," says Trivedi.

We Won't Chase the GBP Selloff

However, Goldman Sachs FX analysts are not inclined to chase the Pound lower at this stage: "while the recent GBP weakening is likely primarily a UK-specific story, we think it can also partly be explained by the broader risk-off price action in FX markets this week, and as such an eventual recovery in risk appetite should lend some support to the Pound."

Trivedi adds that market dynamics are likely to improve, with both the macroeconomic and bond supply pictures pointing to an eventual compression in fiscal risk premium in Gilts, "which we think would also imply some pricing-out of fiscal risks in the currency."

Goldman Sachs thinks the UK data pulse can improve in the coming weeks, in part helped by a rise in government spending.

If analysts at the bank are correct, GBP weakness could soon fade, although it warns a number of risks remain. These include the dollar rally continuing as Donald Trump takes power and the Bank of England cutting interest rates faster and further than expected this year.

Source: Poundsterlinglive

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Warren Takunda

Stocks

Asian shares were mixed Tuesday, echoing trading on Wall Street, where gains for oil and gas producers helped offset drops for Nvidia and other Big Tech companies.

Japan’s benchmark Nikkei 225 index slipped 2.0% in afternoon trading to 38,394.09 following a holiday on Monday. Australia’s S&P/ASX 200 added 0.5% to 8,231.00. South Korea’s Kospi edged up 0.3% to 2,497.95. Hong Kong’s Hang Seng rose 1.9% to 19,234.98, while the Shanghai Composite surged 2.1% to 3,227.11.

“After a holiday break, Japan’s markets are playing catch-up following last week’s market selloff,” said Yeap Jun Rong, market strategist at IG.

Japan’s Finance Ministry reported that the surplus in the current account, a measure of the country’s foreign exchanges in goods, services and investments, rose to 3.4 trillion yen ($21 billion) in November, up 54.5% from the same month the previous year.

On Wall Street, the S&P 500 rose 0.2% after erasing an earlier fall of 0.9%. The Dow Jones Industrial Average climbed 358 points, or 0.9%, while the weakness for Big Tech stocks dragged the Nasdaq composite to a loss of 0.4%.

Stocks have been under pressure the last month, and the S&P 500 is coming off its fourth losing week in the last five as traders reduce expectations for how much relief the Federal Reserve may deliver this year through lower interest rates.

Such cuts would give the economy a boost, and the U.S. stock market ran to repeated records last year on the assumption that more are coming after the Fed began lowering rates in September. But inflation has remained above the Fed’s 2% target, and recent reports have suggested a still-solid U.S. economy doesn’t need much help. Questions are growing about whether the Fed will deliver even a single cut in 2025.

High rates put downward pressure on prices for all kinds of investments, and those seen as expensive can feel the stiffest punches. Nvidia fell 2% and was the heaviest weight on the S&P 500, though that represents just a smidgen of the index’s huge gains in recent years. The chip company’s stock had nearly quintupled over the last three years amid the frenzy around artificial-intelligence technology.

Apple’s 1% slip and Meta Platforms’ fall of 1.2% were also among the heaviest weights on the market. Because they’re two of the largest companies on Wall Street, their moves pack more punch on the S&P 500 than other stocks.

Moderna tumbled 16.8% for the largest loss in the S&P 500 after giving a forecast for revenue this coming year that fell short of analysts’ expectations. The vaccine maker, which is seeing a slowdown in COVID-related sales, is accelerating a cost-cutting program.

Macy’s fell 8.1% after saying it will likely report revenue for the last three months of 2024 that’s at or slightly below the low end of the forecast range it had earlier given.

Edison International fell another 11.9% as wildfires continue to burn in the territory of its Southern California Edison utility. The utility has said fire agencies are investigating whether its equipment was involved in the ignition of the Hurst fire.

On the winning side of Wall Street were oil-and-gas companies after the price of oil climbed. On Monday, a barrel of benchmark U.S. crude rose 2.9% to $78.82, while Brent crude climbed 1.6% to $81.01. The Biden administration said Friday it’s expanding sanctions against Russia’s energy industry.

Exxon Mobil gained 2.6%, and Valero Energy jumped 4.9%.

By Tuesday afternoon in Asia, benchmark U.S. crude lost 38 cents to $78.44 a barrel. Brent crude, the international standard, fell 47 cents to $80.54 a barrel.

Shares of U.S. Steel rallied 6.1% after the Biden administration pushed back to June the deadline it imposed for the Pittsburgh-based company to unwind its proposed acquisition by Japan’s Nippon Steel.

Intra-Cellular Therapies soared 34.1% after Johnson & Johnson said it would buy the biopharmaceutical company and its treatment for bipolar I and II depression for $132 per share in cash. Johnson & Johnson rose 1.7%.

All told, the S&P 500 added 9.18 points to 5,836.22. The Dow Jones Industrial Average rose 358.67 to 42,297.12, and the Nasdaq composite slipped 73.53 to 19,088.10.

In the bond market, which has been dictating much of Wall Street’s action lately, Treasury yields ticked higher.

The yield on the 10-year Treasury rose to 4.78% from 4.76% late Friday. It’s been climbing relentlessly over the last month, and it was below 3.65% just in September.

If Treasury yields continue to rise, either stock prices need to fall or companies need to produce bigger profit growth to make up for it.

In currency trading, the U.S. dollar edged up to 157.58 Japanese yen from 157.26 yen. The euro cost $1.0252, down from $1.0274.

Source: AP

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Michelle

Commodity

West Texas Intermediate (WTI) US Crude Oil prices edge lower on Tuesday and for now, seem to have snapped a three-day winning streak to the highest level since October 8 touched the previous day. The commodity trades with a negative bias around the $77.00 mark during the early part of the European session, though the fundamental backdrop warrants some caution before positioning for deeper losses.

The US Treasury Department on Friday imposed tougher sanctions against Russia's oil industry, targeting nearly 200 vessels of the so-called shadow fleet of tankers. The latest development threatens to tighten global supplies. Adding to this, speculations that US President-elect Donald Trump's administration may tighten sanctions against flows from Iran in the coming months should continue to support Oil prices and validate the positive outlook for the commodity.

Meanwhile, the incoming US macro data pointed to a resilient economy. Furthermore, expectations that Trump's expansionary policies will boost fuel demand support prospects for a further appreciating move for Crude Oil prices. Apart from this, the ongoing US Dollar (USD) profit-taking slide, prompted by retreating US Treasury bond yields and easing fears about Trump's disruptive trade tariffs, suggests that the path of least resistance for the black liquid is to the upside.

Even from a technical perspective, last Friday's breakout and acceptance above the very important 20-day Simple Moving Average (SMA) adds credence to the constructive outlook. Hence, any subsequent slide could be seen as a buying opportunity and is more likely to remain cushioned. Traders now look forward to the release of the US Producer Price Index (PPI), which will influence the USD and provide some meaningful impetus to USD-denominated Crude Oil prices.

Source: FXSTREET

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London Open: Stocks Nudge Lower as Investors Keep an Eye on Bond Yields

Source: Sharecast

EUR/JPY Price Forecast: Seems Poised to Test 162.20-162.25 Confluence Hurdle

Source: FXSTREET

Energy Price Surge Risks Pushing EU Economy Into Stagflation

Natural gas prices double

Stagflation risks ahead in the Eurozone

The potential impact of Trump's presidency

Source: Euronews

Silver Price Forecast: XAG/USD Tests 14-Day Ema Near $30.00

Source: FXSTREET

Pound Sterling Steadies Against Euro and Dollar Ahead of Reeves Appearance

Above: GBP/USD hit oversold conditions (see RSI in lower panel), and has scope to enter a relief bounce.

Above: GBP/EUR is close to being oversold. It has met the key 200-day moving average (blue line), which could offer technical support.

We Won't Chase the GBP Selloff

Source: Poundsterlinglive

Stock Market Today: Asian Markets Are Mixed, Echoing Trading on Wall Street

Source: AP

WTI Trades with Negative Bias Around $77.00, Snaps Three-Day Winning Streak to Multi-Month Top

Source: FXSTREET

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