Market Report: Quarter point Fed cut a near certainty this week, but all bets are off for 2026
Derren Nathan, head of equity research, Hargreaves Lansdown: “The FTSE is holding its head above water this morning after a weak session on Friday. This also follows a mixed start to the week for Asian stocks as traders digested the ratcheting up of tensions between China and Japan.
Tokyo accused the Chinese military of locking radar onto its military jets. This latest escalation comes amidst increased Chinese military activity in the waters between Taiwan and Japan. This comes after Japan’s newly-elected Prime Minister Sanae Takaichi’s stated her willingness to help defend Taiwan should China attack the island, whose sovereignty it continues to deny. The territory’s pivotal role in the global semiconductor industry, at a time where technology is proving to be the backbone of global growth, means that the stakes here are far more than just regional.
On the domestic front, key UK data points to look out for this week include November’s retail sales figures which are scheduled Tuesday. The previous month saw sales contract by 1.2% and with pre-budget caution likely to have dominated in November and accountants BDO playing down the success of Black Friday promotions, tomorrow’s numbers could struggle to get back into positive territory.
Turning to the wider economy, GDP numbers for October are expected to land on Friday. Forecasts are looking for a 10-basis point acceleration in monthly growth to 0.2% after a cyber-attack at Jaguar Land Rover weighed on the September numbers.
But it’s events in the United States that will take centre stage this week. Anything other than a quarter point cut to Fed Funds Rates on Wednesday will come as a big surprise but cast your eyes forward 12 months and the waters become much muddier. Markets see two further quarter point cuts as the most likely outcome but the probability of a doveish third cut, or just a hawkish single cut isn’t that far behind. It’s commentary for 2026 and beyond that’s likely to be the key focus for markets.
With US jobs under pressure, inflation still above target, and lending rates 1.5 percentage points below the peak, already it’s a balancing act that’s becoming ever trickier. One thing looks certain, the days of sub 1% rates borrowers became accustomed to post the Great Financial Crisis are over with theoretical ‘neutral’ rates more likely to be in the 3% region. That’s not necessarily a problem though and remains relatively benign by historical standards. One thing that can help the economy tolerate a higher neutral rate is productivity growth. There’s a lot of hope resting on Artificial Intelligence to provide that boost, but as with all technological shifts, the size and speed of this change is difficult to second guess.
Brent Crude oil prices have strengthened to $63.8 per barrel. The potential for further rate cuts to stimulate demand, as well as ongoing concerns of oversupply, are being overshadowed by a lack of progress in finding a lasting peace between Russia and Ukraine, and with it sanctions on exports of Russian fossil fuels. The rising possibility of US military action in Venezuela puts a further 1.1 million barrels of daily production at risk.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Unilever’s spin-off of its ice cream business into The Magnum Ice Cream Company (TMICC) was completed over the weekend, and shares are set to begin trading in London, Amsterdam and New York when markets open this morning. TMICC has already been functioning as a standalone business since 1 July 2025, so the trading of its shares shouldn’t bring any major disruption to operations.
The separation makes TMICC the largest ice cream business in the world, with iconic brands like Magnum, Ben & Jerry’s, Wall’s and Cornetto in its portfolio. It’s already scooped up a 21% share of global ice cream sales, nearly double that of its largest competitor, Froneri. The global ice cream market is forecast to grow by 3-4% annually until at least 2029. TMICC is targeting growth slightly ahead of this pace, up to 5% annually, driven by increased marketing investment, improved distribution channels and market share gains.
TMICC is already free cash flow positive and profitable in its own right. The balance sheet is in decent shape, but dividends are off the cards until 2027 as the group finds its footing as a standalone business. That could cause some downward pressure on the share price in the near term, as dividend-focussed investment funds that hold Unilever will be handed TMICC shares, the latter of which they may be forced to sell to abide by their investment mandate.”