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FTSE lower as Chinese property fears grow

by LLB Reporter
18th Aug 23 10:31 am

Whether it’s the brewing crisis in the Chinese property market, the surge in US bond yields on fears rates will stay higher for longer or the big drop in UK retail sales, things are starting to look a bit ugly out there.

AJ Bell investment director Russ Mould said: “News China real estate giant Evergrande has filed for bankruptcy protection in the US would have prompted some alarm in isolation but when you combine it with its peer Country Garden’s decision to suspend payments on some of its bonds and the words ‘dominos’ and ‘falling’ start to come to mind.

“China-exposed stocks on the FTSE 100 like Prudential and the miners are taking heat on Friday morning, helping to put the index on course for yet another down day. The FTSE is currently demonstrating all the pep and get up and go of a teenager at 8am on a school day.

“Appropriately soggy UK retail sales figures do little to lift the mood either. The wet weather in July leading to a drop in sales which was, markedly, twice as large as anticipated. The question is whether this is a one-off impact due to the rain or signs the pressures on household budgets are finally starting to bite to the extent logic would suggest they must at some point.

“Up until now individual retailers have proved pretty resilient – although a dip in Frasers shares hints at some growing nervousness.

“The one silver lining in the weak retail sales is a datapoint which may reduce some pressure on the Bank of England when it comes to interest rates.

“The relative strength of the US economy is prompting fears of rates sticking higher for longer across the Atlantic and a potential shift from the current easing of inflationary pressures. This is reflected in a big surge in US government bond yields.”

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