Sector movers: Defensives sought out amid less certain outlook for inflation and rates
It was all about defensives at the start of the week as Russian state-owned gas giant Gazprom triggered a spike in natural gas prices that hit already wobbly investor sentiment.
Gazprom announced a three-day halt of the Nord Stream 1 gas pipeline at the weekend for routine maintenance, starting from 29 August, but traders feared much worse outcomes.
In the background, on Monday morning, economists at Citi were already telling clients that they had raised their forecasts for the peak in UK inflation to 18%, which they expected to be reached in January.
The reasons, Citi said, were the additional 25% rally in UK gas prices and 7% rise in electricity costs over the preceding week.
Benchmark 10-year Gilt yields rose by 10 basis points in response to the news on the commodities front to reach 2.52%.
Homebuilders weakened on the back of the rise in bond yields.
Royal Mail shares meanwhile dragged on the Industrial Transportation space amid coverage in the Financial Mail on Sunday of its inability thus far to convince its union that its demands were putting the company's competitiveness at risk.
Worth noting, Industrial Metals & Mining bucked the trend in most cyclical areas of the market.
Propping up the sector, overnight the People's Bank of China reduced its one and five-year loan prime rates, purportedly in a bid to shore up the real estate sector, although some analysts reacted poorly to the news.
"The five-year rate is the benchmark used for mortgage lending, though existing loans won’t be repriced until 2023. But regardless of timing, we see rate cuts as almost impotent, at this juncture," said Craig Botham, chief China+ economist at Pantheon Macroeconomics.
However, Botham was slightly more constructive when it came to the 200bn renminbi fund that Beijing had announced on 19 August to finance completion of stalled housing projects.
"Rather than a systemic fix, therefore, we think the funds are aimed at calming the mortgage boycott, which has spread to 100 cities so far," he said.
"Consequently, the fund will not herald a turning point for China’s real estate sector. But we are encouraged that the central government is — at last — deploying its balance sheet."
Top performing sectors so far today
Pharmaceuticals & Biotechnology 21,021.01 +1.28%
Gas, Water & Multiutilities 6,473.01 +1.17%
Tobacco 37,058.18 +1.14%
Electricity 11,519.54 +0.87%
Industrial Metals & Mining 6,768.53 +0.66%
Bottom performing sectors so far today
Automobiles & Parts 1,655.75 -6.64%
Industrial Engineering 13,602.13 -3.39%
Electronic & Electrical Equipment 8,581.45 -3.01%
Household Goods & Home Construction 11,516.28 -2.86%
Industrial Transportation 3,325.27 -2.52%