- Wall Street closes weaker, pushed lower by Tech stocks
- UK Inflation higher than forecast
- Rate cut expectations pushed back
- Sterling rallies on higher rate bets
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“Wall Street closed weakly last night, with the S&P 500 index losing 0.6% in value. But that number, unremarkable in itself, does not tell the whole story. Tech stocks came under real selling pressure last night, so we saw a 3.5% drop in Nvidia shares accounted for almost half the market’s overall move, with other tech names, from Broadcom to Meta, also notably weak. Palantir tumbled over 9% as investors questioned whether a valuation of over $400 billion could be justified by a business which last year generated less than $3bn of revenues.
The FTSE 100 has opened slightly weaker this morning, down 9 points to 9,180, having reached an all-time high in yesterday’s trading session. Talks of peace deals in Ukraine are prompting some profit-taking amongst defence stocks, with both Rolls Royce and BAE Systems losing ground in early trading. Housebuilders have reacted negatively to the stronger than expected inflation figures, with Barratt Redrow and Berkeley Group amongst the biggest losers in the FTSE today.
UK inflation data released this morning showed a further tick up in the pace of prices growth and was greater than most economists had expected. Consumer prices rose by 3.8% in the year to July, up from 3.6% the month before. The cost of services rose by 5.0%, reflecting rising wages and employer taxes being passed on to the customer.
Interest rate cuts look less assured after these numbers. The Bank of England has been projecting an upturn in inflation in the latter part of the year and this indeed seems to be the case. But the strength of the upturn will be a concern for the Bank’s rate-setters, who need to be confident of an eventual ebbing away of price pressures before they push rates much lower from here. Chancellor Rachel Reeves landed a major bill onto employers when she hiked National Insurance costs earlier this year and they are now trying to pass the buck onto consumers through price increases. The early signs are that they are succeeding.
News of higher-than-expected inflation initially pushed sterling higher, briefly rising through $1.35 before easing back. Markets are betting that the unexpected inflation figures will force the Bank of England to take a cautious approach to lowering rates. The swaps market is currently projecting rates to fall by just 0.4% by next summer from their current level of 4% in the UK, compared to an expectation of 0.5% just a week ago.
Brent oil futures are trading better this morning, up around US$50c, to $66.3 per barrel. The longer-term trend though is still firmly downward, with prices having been in a steady retreat from around the $120 marker three years ago. Geopolitical events have led to brief rallies in recent months, but ample supplies of oil are keeping a lid on prices and these supplies look set to remain strong for some time to come.”
