- FTSE 100 opens lower, as China’s latest stimulus plan underwhelms.
- Wall Street set to teeter at the top of its bull run as US bank earnings and retail sales come into focus.
- UK labour market data and consumer prices snapshot in focus this week.
- UK government holds investment summit as government borrowing costs remain near three-month highs.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Stocks are largely set to tread water at the start of the week as investors look for a sense of direction as US earnings season builds, and the latest stimulus plan from China comes under scrutiny. The FTSE 100 has opened lower, following a volatile session for Chinese stocks after another underwhelming announcement from authorities about further steps to boost the economy. Although investors have largely welcomed the reiteration that more support would be on the way for consumers and the property sector, the lack of detail about how this would be achieved and the numbers involved, held back gains. Oil prices also eased off, with Brent Crude falling back to $78 a barrel, as hopes for a faster rebound of demand in China dissipate.
Wall Street is set to waver near the top of its two-year bull market run, as investors await more results from corporate America, with more big banks set to report. The season has set off on the right foot, with J P Morgan and Wells Fargo reporting better-than-expected earnings. Consumer resilience is shining through and that’s set the bar high for Bank of America, Goldman Sachs and Morgan Stanley which are reporting this week. The US retail sales snapshot will also be in focus, and investors will be keen to see how solid spending in the third quarter, reported by the banks, will have propped up custom on main street. It’s another data set which will be in the briefcase of analysis for Fed policymakers to peruse before making their decision on cutting interest rates in November, with the markets currently pricing in a 90% chance of a reduction.
Investors will be keeping a close eye on UK labour market data out tomorrow and the latest CPI inflation snapshot due on Wednesday for clues about how determined policymakers may be to cut interest rates next month. With inflation staying steady in August there are hopes that prices will have remained calm in September. Prices at the pumps fell to a three-year low during the month and although there still appears to be pent up demand for travel playing out, a fall in consumer confidence may have instilled a bit more caution into spending decisions in September. What had been troubling some policymakers at the Bank of England was the stubborn nature of wage increases, which risks being passed on in the form of higher prices of goods and services. But the growth in average earnings excluding bonuses slowed to 5.1% in the three months to July. Labour market data on Tuesday is expected to indicate that trend is continuing, as a slowing jobs market reduces worker’s ability to bargain. The UK economy returned to growth in August and the Governor of the Bank of England, Andrew Bailey, has suggested that the monetary policy committee could be a “bit more aggressive” at cutting borrowing costs, which lit a fire under speculation that inflationary pressures are easing. But there is still some nervousness around the table about the risk that there could be an unwelcome resurgence in inflation, with Chief Economist Huw Pill still indicating that it would not be wise to cut rates too fast. Financial markets are currently pricing in the chance of a rate cut next month of 85%, but a hotter inflation number and stubbornness in wage growth could see expectations retreat a bit.
The push by Prime Minister Keir Starmer and Chancellor Rachel Reeves to garner fresh investment into the UK are in the spotlight today. The timing of the International Investment Summit has understandably been questioned given uncertainty surrounding the fiscal landscape, however the new government clearly wants to crack on and build relationships. A letter signed by the leaders of big banks, private equity and tech firms, supporting the progress the UK has made in terms of economic stability should help the summit get off on the right foot. As well as boosting the UK’s share of foreign direct investment, with sectors like tech and financial services particularly attractive, there is likely to be focus on the opportunities the National Wealth Fund could present. Here the possibility of creating partnership funds, which could be traded on the stock market to attract global investors is likely to be highlighted. Persuading more sovereign wealth and public pension funds to open UK offices could also see more investment in UK assets unlocked.”
It will be interesting to see if any announcements from the private sector help calm some jitters which have been spreading in the market. Government borrowing costs are hovering close to three-month highs, with 10-year gilt yields around 4.2%. There has been concern about the extent to which the government plans to tinker with fiscal rules and sell more debt to invest in big projects, but a demonstrable willingness to invest from big overseas organizations may help build confidence in the government’s plans.
