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London Quick Take - 9 Sep - Oil hits $100, airlines hit by travel chaos, software shares slump on ChatGPT-6 Astra
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
The pressure on gilts was underlined by yesterday's 30yr auction, which got off at the highest yield since the DMO was created 30-odd years ago. This underscores the reality of the fiscal challenges and the likelihood of fiscal headroom has been halved by the rise in yields. It also underlines the importance of shortening the UK’s maturity profile, which remains much longer than developed market peers. I looked at what investors can do about higher bond yields here. Bank of England governor Andrew Bailey, speaking to MPs yesterday ahead of next week’s meeting of the Monetary Policy Committee, was keen to play the owl and the dove, saying he wished to dispel the idea the BoE has “a secret plan” to increase interest rates, but warned that inflation risks are skewed to the upside: "We have higher energy prices - they could be higher still, I think." Today sees a key US 10yr Treasury auction plus it’s the start of the ‘Treasury twist’ operation to double buybacks at the long end. Then Friday is the key CPI report, which will determine the Fed's decision next week.
Not much from FTSE 100 names this morning but AstraZeneca got a boost after its experimental COPD drug scored two late-stage clinical trial wins, boosting hopes that it will deliver the forecast $5bn in annual sales. Shares had been down more than 1% on the session before flipping positive after results showed the drug, tozorakimab, helped reduce flare-ups in a broad range of people with chronic obstructive pulmonary disease. The drug is under priority review by the US Food and Drug Administration, with approval expected in the first quarter of 2027. It’s a key part of the plank in AstraZeneca hitting its $80bn annual sales target by 2030. The company recently upped peak annual sales forecast for the drug to more than $5 billion, but it could be even higher due to the unmet need for biologics to treat COPD. Essentially there are lots of COPD patients who currently do not qualify for the two existing drugs Dupixent, made by Regeneron and Sanofi; and Nucala, GSK’s drug which hit the market last year.
TL/DR: Risk off with oil at $100, yields hovering around highest level in years/decades...investors don't seem keen to chase equity markets higher with big geopolitical and macro risks front of mind after the August earnings-led bounce.
Oil prices hit triple digits as the US and Iran continue to exchange military strikes, which continues to pile upwards pressure on oil prices and bond yields. The US struck a number of Iranian tankers, with Tehran aiming missiles at an American base in Jordan. Brent extended Tuesday’s rally overnight and has pushed up to $100 a barrel, hitting its highest since July. The spectre of an even more prolonged disruption looms over markets - Intensification of attacks on tanker shipping could push front-month contracts a lot higher from here. Meanwhile, European TTF gas futures have kicked on once more to fresh three-and-a-half-year highs at €787.76. BoE governor Andrew Bailey summed it up yesterday: "We have higher energy prices - they could be higher still, I think. The risks [to inflation] ... are on the upside". Gold is steady around $4,400 with a weaker dollar offsetting the pressure from higher bond yields and driving a bounce off an overnight low at $4,340.
The move up in oil coupled with a higher level of geopolitical uncertainty is weighing on European equities with the DAX –0.6% and CAC –0.9% with an HSBC note on luxury stocks adding some downwards pressure, while the FTSE 100 slid 0.3% despite a bit of support coming from basic resources, especially BP and Shell on higher oil prices, and some defensives like utilities. Burberry was among the biggest decliners after HSBC downgraded it along with LVMH in a note cautioning against near-term recovery in European luxury. Airline shares were taking a knock as well after the air traffic control chaos with IAG –1%, Wizz Air –2% plus Rolls-Royce –1% (flying hours).
US stock markets kicked off the post-Labor Day run into the year-end with a bit of a wobble as oil prices rose and software names were cornered by the latest ChatGPT release, which everyone says is really rather good. There was some clear bifurcation across the tech space. Stocks across my ‘AI fear trade’ screener were in the red with Gartner, Thomson Reuters, ServiceNow and Workday down hard in the –5-7% range. Dow component Salesforce fell –4%. The Dow Jones tell 1.3%, led down by a 10% decline for index heavyweight Amgen after rival Novartis’s stock slumped after disappointing results from its cholesterol drug pelacarsen. Chipmakers had a broadly better time. Qualcomm rallied 3% after it announced a data centre infrastructure deal with Amazon that it dubbed a “multi-generation collaboration”. Intel surged +9% on reports it’s planning to hike CPU prices 10% in October. Strong reviews of the new ChatGPT-6 Astra model helped the more directly AI-exposed names – CoreWeave +12%, while photonics stocks Lumentum and Coherent gained 11% and 7% and fibre optic provider Corning and AI cloud firm Nebius were each up +7%. The S&P 500 finished the session –0.6% at 7,673, while the Nasdaq 100 slipped just –0.1% to 29,507.
September is often tough - historically the weakest for Wall Street. After a decent if slightly mixed summer driven by record earnings momentum - at least in the US stock market - the next phase for investors is going to focus a lot more on the macro - central banks and inflation specifically - and that is likely to mean a rockier patch. The summer was split in two; a tough July was followed by a much better August. Now the S&P 500 is back to where it was by the middle of May. So, returns are essentially flat for 4 months. it's even more pronounced in the UK market, where the FTSE 100 has round-tripped back to where it was in February; 7 months of flat returns despite its so-called defensive characteristics suited to a world of uncertainty. It seems UK investors have been pulling out of UK equities and rotated into fixed income. You wouldn't know it from the bond market mind, as yields have hit multi-year highs, but investors aren't keen to chase these stock markets much higher for now. With inflation proving so stubborn that the Fed may hike next week there's every chance things may get choppier from here.
With oil prices rising above $100 and no signs yet of the conflict taking a more constructive turn, it’s no surprise that bonds are still under pressure, with yields ticking up the last couple of sessions. The 10yr gilt yield is nudging 5.2% again while the 10yr US Treasury yield is back at 4.80% near a fresh cycle high. Whilst inflation and fiscal risks seem very well discounted at these levels, the risks are probably still skewed to the upside for yields. That’s particularly so for the UK where there is now 7-week period of uncertainty ahead of the Budget.
Oil prices hit triple digits as the US and Iran continue to exchange military strikes, which continues to pile upwards pressure on oil prices and bond yields. The US struck a number of Iranian tankers, with Tehran aiming missiles at an American base in Jordan. Brent extended Tuesday’s rally overnight and has pushed up to $100 a barrel, hitting its highest since July. The spectre of an even more prolonged disruption looms over markets - Intensification of attacks on tanker shipping could push front-month contracts a lot higher from here. Meanwhile, European TTF gas futures have kicked on once more to fresh three-and-a-half-year highs at €787.76. BoE governor Andrew Bailey summed it up yesterday: "We have higher energy prices - they could be higher still, I think. The risks [to inflation] ... are on the upside". Gold is steady around $4,400 with a weaker dollar offsetting the pressure from higher bond yields and driving a bounce off an overnight low at $4,340.
The move up in oil coupled with a higher level of geopolitical uncertainty is weighing on European equities with the DAX –0.6% and CAC –0.9% with an HSBC note on luxury stocks adding some downwards pressure, while the FTSE 100 slid 0.3% despite a bit of support coming from basic resources, especially BP and Shell on higher oil prices, and some defensives like utilities. Burberry was among the biggest decliners after HSBC downgraded it along with LVMH in a note cautioning against near-term recovery in European luxury. Airline shares were taking a knock as well after the air traffic control chaos with IAG –1%, Wizz Air –2% plus Rolls-Royce –1% (flying hours).
US stock markets kicked off the post-Labor Day run into the year-end with a bit of a wobble as oil prices rose and software names were cornered by the latest ChatGPT release, which everyone says is really rather good. There was some clear bifurcation across the tech space. Stocks across my ‘AI fear trade’ screener were in the red with Gartner, Thomson Reuters, ServiceNow and Workday down hard in the –5-7% range. Dow component Salesforce fell –4%. The Dow Jones tell 1.3%, led down by a 10% decline for index heavyweight Amgen after rival Novartis’s stock slumped after disappointing results from its cholesterol drug pelacarsen. Chipmakers had a broadly better time. Qualcomm rallied 3% after it announced a data centre infrastructure deal with Amazon that it dubbed a “multi-generation collaboration”. Intel surged +9% on reports it’s planning to hike CPU prices 10% in October. Strong reviews of the new ChatGPT-6 Astra model helped the more directly AI-exposed names – CoreWeave +12%, while photonics stocks Lumentum and Coherent gained 11% and 7% and fibre optic provider Corning and AI cloud firm Nebius were each up +7%. The S&P 500 finished the session –0.6% at 7,673, while the Nasdaq 100 slipped just –0.1% to 29,507.
September is often tough - historically the weakest for Wall Street. After a decent if slightly mixed summer driven by record earnings momentum - at least in the US stock market - the next phase for investors is going to focus a lot more on the macro - central banks and inflation specifically - and that is likely to mean a rockier patch. The summer was split in two; a tough July was followed by a much better August. Now the S&P 500 is back to where it was by the middle of May. So, returns are essentially flat for 4 months. it's even more pronounced in the UK market, where the FTSE 100 has round-tripped back to where it was in February; 7 months of flat returns despite its so-called defensive characteristics suited to a world of uncertainty. It seems UK investors have been pulling out of UK equities and rotated into fixed income. You wouldn't know it from the bond market mind, as yields have hit multi-year highs, but investors aren't keen to chase these stock markets much higher for now. With inflation proving so stubborn that the Fed may hike next week there's every chance things may get choppier from here.
With oil prices rising above $100 and no signs yet of the conflict taking a more constructive turn, it’s no surprise that bonds are still under pressure, with yields ticking up the last couple of sessions. The 10yr gilt yield is nudging 5.2% again while the 10yr US Treasury yield is back at 4.80% near a fresh cycle high. Whilst inflation and fiscal risks seem very well discounted at these levels, the risks are probably still skewed to the upside for yields. That’s particularly so for the UK where there is now 7-week period of uncertainty ahead of the Budget.
The pressure on gilts was underlined by yesterday's 30yr auction, which got off at the highest yield since the DMO was created 30-odd years ago. This underscores the reality of the fiscal challenges and the likelihood of fiscal headroom has been halved by the rise in yields. It also underlines the importance of shortening the UK’s maturity profile, which remains much longer than developed market peers. I looked at what investors can do about higher bond yields here. Bank of England governor Andrew Bailey, speaking to MPs yesterday ahead of next week’s meeting of the Monetary Policy Committee, was keen to play the owl and the dove, saying he wished to dispel the idea the BoE has “a secret plan” to increase interest rates, but warned that inflation risks are skewed to the upside: "We have higher energy prices - they could be higher still, I think." Today sees a key US 10yr Treasury auction plus it’s the start of the ‘Treasury twist’ operation to double buybacks at the long end. Then Friday is the key CPI report, which will determine the Fed's decision next week.
Not much from FTSE 100 names this morning but AstraZeneca got a boost after its experimental COPD drug scored two late-stage clinical trial wins, boosting hopes that it will deliver the forecast $5bn in annual sales. Shares had been down more than 1% on the session before flipping positive after results showed the drug, tozorakimab, helped reduce flare-ups in a broad range of people with chronic obstructive pulmonary disease. The drug is under priority review by the US Food and Drug Administration, with approval expected in the first quarter of 2027. It’s a key part of the plank in AstraZeneca hitting its $80bn annual sales target by 2030. The company recently upped peak annual sales forecast for the drug to more than $5 billion, but it could be even higher due to the unmet need for biologics to treat COPD. Essentially there are lots of COPD patients who currently do not qualify for the two existing drugs Dupixent, made by Regeneron and Sanofi; and Nucala, GSK’s drug which hit the market last year.
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