- FTSE 100 expected to open flat.
- UK retail sales for November disappoint – +0.2% vs consensus of +0.5%
- US Q3 GDP revised higher, no bounce for Wall Street
- PCE index in sight today – consensus 2.9%
- Congressmen lock horns with Elon Musk as US government faces funding crisis.
- Brent Crude falls below $73 per barrel.
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The FTSE 100 is set to open flat as global markets struggle to find direction in the wake of Wednesday’s Fed triggered reset. Investors are unlikely to find any comfort in UK retail sales figures which grew 0.2% in November after a 0.7% dip the previous month. However, analysts had been hoping for a stronger recovery, with the numbers falling short of the 0.5% consensus forecast. Growth in supermarkets and other non-food stores was partly offset by a fall in clothing retailers. With Black Friday falling outside the reporting period, retailers will be banking more than ever on a strong final month of the year.
Signs of an early revival on Wall Street petered out yesterday despite strong third-quarter GDP figures. The American economy grew by 3.1% in the third quarter. An upward revision from the earlier estimate of 2.8% was widely anticipated, although the number came in even higher than expected. The heat in the economy may stoke fears of even further caution by rate-setters, who are now expected to cut borrowing costs just two times next year. But it remains a fine line to tread. The GDP increase was fuelled by a 3.7% increase in consumer spending.
At the same time, personal savings rates trended down from 4.9% to 4.3%, which raises some doubt around the US consumer’s ability to keep spending at such a pace.The implication that demand is still being supported by credit could see consumer confidence dented in the new year if borrowing costs remain higher for longer.
Today’s Personal Consumption Expenditure (PCE) index for November is likely to be the key driver of sentiment. The expectation is that this key inflation measure has risen by 0.1 percentage points since October to 2.9%. Getting to the 2% target is proving to be harder than expected and if inflation comes in north of consensus, that’s likely to set investor nerves further on edge.
What’s more, the US government is on the verge of a shutdown as Congress and the now politically empowered Elon Musk struggle to reach agreement on the latest short-term funding deal, with less than 24 hours left to find a way forward to agree spending plans for all but essential Federal services.
Brent Crude prices are back below $73 per barrel. Dollar strength and fears of slower rate cuts are dragging on the outlook for fuel prices. Comments from Sinopec, China’s biggest refiner, that demand peaked last year haven’t helped either. Meanwhile, Donald Trump is doing his best to make sure fossil fuel markets don’t operate in an efficient fashion, heaping pressure on the EU to commit to large scale purchases of US oil & gas. Otherwise, as he said on his Truth Social platform, it’s tariffs all the way.”
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