Homebuilders sink to bottom of FTSE 100

STOXX 600 down 1%

*

Sterling tumbles to record low

*

Italy's centre-right bloc wins election

*

U.S. stock futures slide

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at

HOMEBUILDERS SINK TO BOTTOM OF FTSE 100 (1038 GMT)

In need of a menu of UK homebuilders? Look no further than the bottom of the FTSE 100 today.

Taylor Wimpey, Persimmon, Berkeley Group and Barratt Developments are down between 4.6%-6.9%, as the implications of the UK's newly announced 'mini-budget' continue to ripple through markets.

The UK homebuilders index of shares < .FTNMX402020> has lost about 7.2% in value since Thursday's close, and that is despite the fact that the government plans to cut stamp duty which in theory should be a positive for the sector.

But with the pound at record lows and a potential intra-meeting rate hike from the Bank of England being talked of, homebuilders are reeling from the macroeconomic concerns sparked by the UK's fiscal makeover.

In an analyst note on Monday, Jefferies analysts cut target prices of key UK homebuilders, saying that while the budget is positive for housing sentiment, macro sensitivity remains.

"Supporting increased housing supply, looking to reducing planning and building regulation complexity and cutting stamp duty suggest government is now feeling more supportive of housing and homebuilders. This we see as important given the tumultuous last few months," the analysts said.

While the cut to stamp duty is helpful, they do not see it offsetting the anticipated increases in mortgage costs.

"But wage inflation, tax and NI savings and energy cost savings from new build should prove more meaningful in reducing the impact," they said.

Higher interest rates have had little impact on house price inflation so far, and if banks continue to be comfortable with lending, a relaxation of stress testing should make it easier for them to get clients through credit requirement, they added.

But they predict the impacts on affordability will be polarised across the customer base, amid disparities between occupations, first time buyers and single-income mortgages.

MILAN: SHORT TERM RELIEF (1010 GMT)

Italian stocks are outperformers today as Sunday's vote delivered little nasty surprises, providing a sense of short term relief to investors who had already positioned themselves for a clear victory of the centre right bloc led by Giorgia Meloni.

Milan's FTSE MIB equity benchmark is last up 0.2% while the pan-European STOXX 600 is down over 1% as recession fears grip markets. A gauge of Italian banks is up 0.9%, having earlier risen as much as 2.5%.

Here's how Citi economist Giada Giani sees the result and its implications.

"Broadly matching expectations, the right bloc is likely to win a comfortable majority of seats after Sunday’s general election... but unlikely to achieve a 2/3 qualified majority, which would have represented potentially a destabilising outcome," she says.

"A clear-cut victory for one coalition makes it more likely that the next government will last longer than recent ones. It also speeds up the appointment of the new government, probably before end-October. Meloni’s first key decision will be the appointment of the finance minister, with a pro-Europe, fiscally-cautious personality looking a likely choice for now. We do not expect an immediate push for a major fiscal relaxation, but we do see risks over the medium term that the right’s policy agenda will clash with EU objectives," she adds.

For more, read our Graphic piece: Italy's right-wing bloc wins election: five questions for markets

BEER: RESILIENT IN THE FACE OF SLOWING GROWTH (0951 GMT)

Leading indicators are signalling a global growth slowdown, with some major economies looking set to enter a recession in the coming quarters and some perhaps already there.

Just this morning, Germany's Ifo Institute said the German economy was heading for a recession as it reported a drop in business morale not seen since the early stages of the pandemic.

Typically in a downturn, equity investors will be looking at defensive sectors, such as healthcare and utilities, to park their cash and analysts at Jefferies have identified another industry worth investing in.

"We like beer," say Jefferies equity analysts, led by Edward Mundy, in a research note.

"Whilst not immune to macro shocks, the category has historically been resilient in the face of slower GDP growth."

With the slowdown on the horizon, Jefferies has to cut its European volume assumptions to -3% for Heineken and Carlsberg in FY2023 to reflect uncertainty and tough comps post-COVID and good summer weather, but expects stronger pricing to provide an offset.

The firm also notes that volumes are expected to grow over the medium term and the sector is cheaper versus staples, trading at a -20% discount versus a five-year average of -7%.

According to Euromonitor, global beer volumes are expected to grow 2.2% 2022-26, with real value growth of 4.2% versus 2.8% growth for broader staples, Jefferies highlights.

Heineken remains Jefferies top pick in the sector, given its high embedded natural volume growth, inflection in business model from volume to value focus and because the company is in the early stages of building a cost consciousness culture.

Elsewhere, the broker has upgraded Carlsberg to 'buy' and downgraded ABI to 'hold'.

STOXX SEE-SAWS, FTSE INDICES DIVERGE, ITALY OUTPERFORMS (0816 GMT)

European shares briefly swung positive but have spent the majority of morning trade in the red and are down 0.4%.

After sterling hit an all-time low versus the dollar, fears of an emergency response from the Bank of England are sending ripples through financial markets.

British blue-chip and mid-cap share indices moved in opposite directions in early Monday trade, in a stark example of how investors are digesting the pound's recent low.

The FTSE 100 exporter-focused blue-chip index of shares was last down 0.1% but had been up as much as 0.6% in early trading, while the domestically-focused FTSE 250 index is down 0.5%.

The divergence reflects the likely benefit a cheap pound will afford exporters, according to Stephane Ekolo, an equity strategist at Tradition.

"Around 70%+ of the FTSE-100 members are exporters - they have their revenues geared outside UK - hence the recent pound underperformance is somewhat a blessing in disguise for the FTSE 100, for now," said Ekolo.

Italian stocks outperformed with the local FTSE MIB benchmark rising 0.9% as the country's right-wing bloc looked set to have a solid majority in both houses of parliament following Sunday's election.

On a sector basis, technology stocks are the best performing, up 2.1%, while basic resources are the worst, falling 1.7%.

A MIXED BAG IN EUROPE: (0637 GMT)

European futures are a mixed bag, with futures on the euro STOXX 50 down 0.5% and a similar picture in Germany, while Britain's FTSE futures are up by about the same amount.

With sterling at a new record low on Monday following last week's mini-budget announcement, markets are mulling the possibility of an emergency response from the Bank of England .

Further South and as expected, Italian politics have lurched to the right. Meanwhile, Japan has warned against speculative yen moves, making markets wary of further intervention.

POUNDED: (0611 GMT)

Sterling's freefall extended to new lows on Monday as investors emphatically reject British finance minister Kwasi Kwarteng's programme of subsidies and unfunded tax cuts.

The pound, the most liquid method for betting against the programme's success, took out its 1985 low in the Asia session to hit $1.0327. It is only the latest casualty in financial markets, which have been tumultuous recently. On Friday, gilts suffered their heaviest selling in decades, and before that, the yen and U.S. interest rate futures were roiled.

For sterling, parity on both the dollar and euro now beckons and speculation is rising of a response - verbal or otherwise - from the Bank of England.

Elsewhere, pressure is building.

Italy on Sunday elected its most right-wing leader, Giorgia Meloni, since World War Two. Relatively poor performances by her euro-sceptic allies the League and Forza Italia may temper how much the power balance in Europe shifts as a result.

Global tension is also mounting over the war in Ukraine, as Russia holds widely-criticised votes aimed at annexing territory it has taken by force.

Besides sterling, Asian stock markets fell on Monday. European futures fell 0.3% and S&P 500 futures fell 0.6%.

Key developments that could influence markets on Monday:

Economics: Euro zone Jul construction output, German Ifo Business Sentiment Survey

Speakers: ECB's Christine Lagarde, Bank of England policy maker Silvana Tenreyro