- FTSE 100 remains in negative territory as global economic concerns rise.
- Gold price hits new record levels, amid tense geopolitics and ongoing trade upset.
- UK 30-year gilt yields rise to 5.71% – back to 1998 highs, as bond investors get the jitters over the upcoming Budget.
- Eurozone inflation is stickier than expected and Brent crude heads towards $70 a barrel.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“Warning lights are flashing about increasingly tricky economic conditions and geopolitical risk. As concerns collide about the global outlook, inflationary pressures and worrisome public finances, the FTSE 100 remains on the backfoot, with other European indices also largely in the red.
Gold prices have jumped again, to new record levels, as the fallout from President Trump’s radical trade policy continues to unnerve investors, pushing them towards safer havens. Although spot gold has retreated after breaching £3508 an ounce, it remains highly elevated, as concerns continue to swirl about the impact of tariffs. Investors also appear rattled by Trump’s attempts to interfere with the running of the Federal Reserve, and the disputed sacking of Fed Governor Cook. An independent US central bank is seen as crucial for the US to maintain credible monetary policy management and so the President’s actions are shaking confidence
Bond markets have put Rachel Reeves on a report card at the start of term. The UK Chancellor is facing highly difficult choices in the upcoming Budget, and she’s been dealt a warning by gilt investors. They are selling off UK government debt, clearly concerned that the government may be losing its grip on the public finances. This is reflected in the rise in 30-year UK gilt yields which hit 5.71%, highs not seen since 1998. With so many options for raising taxes being bandied about during the summer, there appears to be concern that the decisions made might not be sufficiently thought through. The worry isn’t just that government coffers won’t be replenished, but that they will be filled at the expense of growth, leading to a vicious circle emerging.
Inflationary pressures remain a political challenge. The annual inflation rate in the Eurozone has edged up to 2.1% in August, the highest level in four months, with food prices climbing 5.5%. Households are still having to deal with concerning cost-of-living increases. This is making it more difficult to rein in public spending at a time when people are already feeling the pinch. A confidence vote in France is now looming, over plans for a fresh round of austerity, with the potential for political instability at the heart of Europe.
Geopolitical risk remains high, with new relationships being forged as the US turns old trading friends into new potential foes, and Russia remains incalcitrant over attempts to deliver a ceasefire in Ukraine. These continuing tensions are showing up in the oil price, with Brent Crude rising 2% towards $70 a barrel, levels not seen in almost a month. This is likely to add to concerns about stubborn inflation, although forecasts for lower demand in the global economy due to trade tensions will keep a lid on prices to some extent.’’
