Investment market update
UK stocks are set to open lower this morning, giving up some of the gains made last week after an interest rate cut by the Chinese central bank and dovish remarks by European Central Bank President Mario Draghi.
Asian stocks pared gains after China cut its interest rates and lenders’ reserve requirements on Friday.China’s one-year lending rate was cut to 4.35% from 4.6%, while the one-year deposit rate will fall to 1.5% from 1.75%.
US stocks ended the week higher following strong technology company earnings reports and a rate cut in China. Shares in Microsoft gained 10% after better-than-expected results. Google owner Alphabet and Amazon also rose after strong results on Thursday. Alphabet shares finished up 7.9%, after reaching a record of $752.50 early in the day. After the closing bell it reported a 50% rise in profits to $3.98bn, helped by growth from mobile searches and YouTube users. Similarly, Amazon rose 6.2% after it surprised investors with a profit for the second quarter in a row.
UK stocks finished higher on Friday after China cut its main interest rate to try and halt its economic slowdown. Shares of the DIY group Travis Perkins rallied after falling sharply on Thursday, ending the day 5.1% higher after Citigroup upgraded the company to a ‘buy’. On the downside, education company Pearson fell 5.2% to a five-and-a-half year low as investors continued to assess its outlook following a profit warning earlier this week. Pearson shares are now down almost 25% this week.
Visibility for Mario Draghi is about to improve. In the week after the European Central Bank president signalled he’s effectively in countdown to more stimulus, he’ll receive a raft of data from unemployment to inflation that will guide his decision on what’s needed.Four percent of mortgage holders in the UK are vulnerable to a rise in interest rates as they pay out more than 40% of their household income on servicing the debt, according to Bank of England Governor Mark Carney. Any increase in interest rates will be “gentle,” but consumers should be prepared.
Former Federal Reserve Chairman Ben Bernanke said weighing the effect of the slowing global economy will be key to the US central bank’s decision on when to raise interest rates. “She’s got some tough calls,” referring to Fed Chair Janet Yellen. “The tough decision that she and her colleagues have to make is, is there enough domestic momentum to keep us moving forward despite these drags from abroad.”