FTSE 100 In The Red, Microsoft Activision Deal Set To Be Approved

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  • FTSE 100 dips and US sees declines amid higher-for-longer interest rate fears
  • Retail sales rise 0.4% in August as weather improves
  • UK consumer confidence rises to 20-month high
  • CMA edges closer to approving Microsoft-Activision deal
  • Pound falls to lowest level in six months following BoE interest rate decision

Bank Of England’s Decision Leads To FTSE 100 Opening In The Red

The FTSE 100 has opened in the red as investors come to terms with the Bank of England’s decision to hold interest rates at their current levels. While the decision looks likely to offer some respite to soaring mortgage rates, the fact is that borrowing costs are still an onerous burden and there are now questions being asked about the rate at which heat will be sapped out the economy. This week’s surprise inflation row-back has given room for policymakers to trial a wait-and-see approach, but further increases are still very much on the table.

Over in the US, Wall Street has suffered a tough trading session. The Dow fell 1.08%, the S&P 500 lost 1.64% and the Nasdaq Composite shed 1.82%. Interest rate anxiety made itself known through the fact that real estate, consumer discretionary and materials were the biggest laggards, although all 11 S&P sectors headed into negative territory.

Fuelling the fire is an unexpectedly hot jobs data report which showed far fewer people filing for unemployment in the US than expected, increasing the volume on the narrative that the Fed’s poised to hit the ‘increase’ button at the next meeting.

The pound has sunk to its lowest level in six months, as the interest rate pause has seen pound investors head for the emergency exit. Higher interest rates support currency because they attract foreign investment – investors buy UK and sterling denominated assets in the hopes of generating a greater return. The shift in narrative to one of an interest rate pause is an unexpected change of course following the UK’s torrid economic track record so far this year. 

Rise In Retail Sales And Consumer Confidence

UK retail sales have edged up 0.4% following a sharp drop in July caused by wet weather. This coincides with news that UK consumer confidence has reached a 20-month high, with GfK’s consumer confidence index showing a four point rise to a net minus 21. This is a positive development for retailers and the hospitality industry, but there’s still some way to go before things are back on a totally fair footing.

Retail sales have been flattered by an improvement in food sales as well as clothing – the latter of which was supported by NEXT plc (LON:NXT)’s recent upgrade – but overall the mood is still subdued. We’re not in a situation where UK consumer discretionary is in a safe spot, and further upsets are expected as the hiking cycle plays out. A continued preference for discount food and clothing offerings is likely to remain order of the day – a slightly less nervous consumer isn’t the same as a jubilant one.

Microsoft-Activision Deal Set To Be Approved

The UK’s Competition and Markets Authority has edged closer to giving Microsoft Corp (NASDAQ:MSFT) approval to buy Activision Blizzard Inc (NASDAQ:ATVI). The CMA’s concerns centred on whether the deal would harm competition in cloud gaming in the UK. The new terms of the deal from Microsoft show it won’t buy the cloud gaming rights held by Activision, and these will instead be sold to Ubisoft Entertainment.

This eradicates concerns that Microsoft would be able to gatekeep Activision’s content and withhold it from rivals. The loss of the cloud gaming rights is not an ideal concession for Microsoft to have to make, but is necessary collateral if the deal is to be waved through. This looks to be the final bump in the road and approval should be just around the corner in what is ultimately a win for Microsoft.”

Article by Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown