- FTSE 100 has hit new highs as investors have been drawn to its defensive qualities and income credentials, amid some rebalancing away from US markets.
- The blue-chip index edged up 0.1% in early trade to hit 9300, building on Thursday’s record gains.
- Brent Crude rises above $67 a barrel after a bigger than forecast drawdown on US oil stocks
- UK government borrowing comes in lower-than-expected for July, offering relief for the government.
- Wall Street futures indicate a lower open as eyes turn to Fed chair Jerome Powell’s speech on Friday at the Jackson Hole Symposium
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘The Footsie has stepped up to reach fresh new highs as investors show more appreciation for the quality companies making up the index but also seek shelter in its defensive qualities and income credentials. Many are multinationals with wide global sources of revenue and are highly cash generating, so are more reliable dividend payers. With President Trump’s unpredictable policymaking and the full effect of tariffs on the global economy uncertain, there’s more demand for assets which offer stable returns, and the dividend strong FTSE 100 is coming into its own. The gyrations on US stock markets, with a wobble for big tech this week might also have propelled more interest in the index, as investors trim portfolios with a big US weighting. Even though hopes have retreated for more interest rate cuts in the UK this year, the direction of travel for borrowing costs is still downwards and consumers are showing some resilience in their spending patterns.
The creeping back up of oil prices has put more wind in the sails of energy giants, Shell and BP. Brent Crude is trading above $67 a barrel, as there was a larger-than-expected drawdown in US oil stocks. The 6-billion-barrel drop in weekly inventories indicates steady demand. Doubts are also creeping back in about a resolution to the war in Ukraine, with Moscow saying without its participation in discussions over future security in the region, the talks were on a ‘road to nowhere’.
There will be relief in the corridors of the Treasury that UK government borrowing was lower than expected in July. It came in £1.1bn, down £2.3bn from the same month last year, according to the Office for National Statistics. It’s the lowest July figure for three years. While it won’t remove the tight fiscal bind the Chancellor is in, it does ease the pressure a little. Borrowing is now largely on track with forecasts made by the independent Office for Budget Responsibility earlier this year. There were stronger than expected tax, and National Insurance receipts, potentially helped by the UK economy returning to growth in July and the effect of frozen tax thresholds taking effect. Even though the number of payrolled employees was estimated to have dipped during the month, wage growth remains at a strong 5% and an upswing in discretionary spending during the month may have helped boost the tax take. The effects of the higher National Insurance contributions from employers will also have filtered through. It’s a brighter picture for the government but it won’t stop the chatter about tax rises in the Budget given that the growth estimates have dialled back, gilt yields have been rising, and the government will still have a hole to fill in the public finances.
Caution is set to be dominating trade on Wall Street later, with futures indicating a lower open. Eyes are turning to what is expected to be Jerome Powell’s final speech at the Jackson Hole Symposium as Federal Reserve Chair. Although the effect of Trump’s tariffs on monetary policy will be the undercurrent theme, investors will be looking specifically for clues as to the Fed’s inclination to cut interest rates going forward. Bets on a cut in September are on, given the stable inflation reading for July, but a little more doubt crept in after the latest Fed minutes and so there will intense focus on what could lie ahead for borrowing costs. Jerome Powell has taken a verbal pummelling from President Trump for the Fed’s decision not to cut interest rates more quickly, but he’s still likely to be driven firmly by upcoming data. The attitudes of other key central bankers will also be watched closely, particularly the stance of Andrew Bailey from the Bank of England. In his speech it’s highly likely he will keep striking a cautious tone and will want to see signs of inflation retreating before being comfortable to vote for further interest rate cuts. Financial markets are currently not pricing in a further interest rate cut in the UK until February next year. However, if inflation doesn’t rise as much as expected, earlier cuts could be back on the cards.’’
