Powell-led optimism appears to be fading, with housebuilders and financial stocks being hit hardest.

US markets turn lower after Powell push

“A resurgent pound served to limit any FTSE 100 upside today, with early European optimism fading into the close. Yesterday’s comments from Powell over the willingness to slow the pace of tightening has helped boost risk assets, to the detriment of the dollar. However, it seems the rebound for US stocks has been relatively short-term in nature, with the Dow leading the losses today. Financial stocks have particularly felt the pressure, with expectations of a slower and lower approach from the Fed serving to limit margin expectations for banks. While Powell’s stance that the rate rise should move at a slower pace is nothing new, markets appear to be pricing in a lower terminal rate, much to the dismay of US bank stocks. ”

Homebuilders on the back foot as house prices tumble

“UK housebuilders have taken a turn for the worse today, with the latest Nationwide HPI figure showing the biggest monthly decline in house prices since mid-2020. While many investors will have been busy celebrating the news that the Federal Reserve will look to tame their monetary tightening process, we are finally seeing the true implications of this spike in borrowing costs take hold. Unfortunately, the UK inflation picture is very different from the US, with double digit headline CPI meaning that the BoE will likely have to remain steadfast in their bid to drive down costs. Thus, while inflated wages and eventual rate cuts could bring a boom for the sector once inflation normalises, we appear to be entering a protracted period of house price weakness that the BoE will be unwilling to immediately remedy. ”

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