- FTSE 100 retreats slightly from highs as global rally fizzles out.
- Turnaround UK economy as output rises 0.4% in June.
- Chances of interest rate cuts in the UK this year retreat slightly.
- Wall Street rally set for a breather after fresh records were breached again.
- Oil prices lift higher as Trump prepares to meet Putin for Ukraine talks.
- Aviva beats profit expectations and keeps guidance on track.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
The Footsie has retreated from its fresh record highs as the global rally has taken a breather. Investors appear to be reassessing the path of interest rate cuts in the UK, after the economy snapped back to growth. It had been galvanised by the uplift in stocks around the world amid expectations that the US Federal Reserve will cut borrowing costs next month. But now a little more caution is creeping back in.
The sun shone on the UK economy in June, with worries about tariffs and taxes appearing to ease off. Output rose by 4% which has blown away the clouds of concern about recession which lingered, after the economy shrank in May and April. The services sector has sprung back into life, helping the economy expand by 0.3% on a three-month view. This will be welcome news for the government, which has had a frustrating time chasing elusive growth. The worst of the tariff fears are behind the UK, thanks to an early deal with the US, which has proven to be more favourable than with other nations. It’s still going to be a challenge ahead to build on the momentum, given how cautious consumers and businesses still are, but it’s a step in the right direction. It may also ease some concerns about just how large the black hole in the public finances will be, given that growth will help bolster the tax take. However, evidence of a more resilient economy may mean that the Bank of England policymakers are that bit more reticent about cutting interest rates in the months to come and may hold off a bit longer until inflation returns to a downwards trajectory. Financial markets are now not fully pricing in another interest cut before February next year. The pound lifted slightly after the data was released but has stayed relatively stable, hovering around $1.35.
Wall Street futures indicate that stocks are going to take a breather from another record rally. The S&P 500 hit fresh highs yet again, as optimism swirled about borrowing costs coming down in September. Investors are continuing to shrug off the trade turmoil, given that this week’s US inflation snapshot showed a limited effect on prices so far. However, many companies have been absorbing the higher costs and the most recent tariff hikes won’t show up in the latest data. So, given the super-high valuations companies are trading at, and expectations of chunky earnings ahead, there is plenty of room for volatility.
President Trump has warned Russia there will be dire consequences if he blocks the path to peace in Ukraine. It’s expected this would be in the form of much tougher economic sanctions. Trump is laying the ground before his meeting with the Russian leader in Alaska tomorrow. It’s now expected a further meeting will include Ukraine’s Zelensky. With the outcome of the upcoming talks still highly uncertain, oil prices have edged up as supply concerns rise, with Brent Crude trading around $66 a barrel. Nevertheless, a downbeat forecast of global demand from the International Energy Agency is keeping a lid on prices.
Aviva brings insurance, wealth, and retirement under one roof and 2025 is proving to be highly encouraging with momentum building across its diversified business. It’s reported a better-than-expected rise in profits for the first half. Sales from insurance, wealth and retirement rose 9% to £21.5 billion. This buoyant performance has lit up the path ahead and its meant the company sees no change to its positive guidance ahead for 2026. The rise in the interim dividend will be welcome news for shareholders. At 13.1p, it’s around 10% up on last year and a bit higher than expected. ‘’
