Market Report: Interest rate decisions to retake centre stage after US markets embrace decisive Trump victory
Derren Nathan, head of equity research, Hargreaves Lansdown: “With the implications of Trump’s huge win still being assessed for the global economy, the internationally focused FTSE 100 has opened up slightly. It gave up initial gains yesterday, so trading is still set to be cautious as investors ponder the implications of a possible clean sweep for the Republicans in the US elections. Mining stocks are on the front foot this morning, after nursing heavy losses, yesterday, helped by much better than expect export figures from China for October.
US futures are suggesting Wall Street will build slightly on yesterday’s solid gains which saw American stock markets touch new record highs. Yields in both US and UK government notes both rose materially, and are still hovering at elevated levels, suggesting that markets are starting to price in more inflationary pressure and tighter monetary policy. This was also reflected in a surge in the value of cryptocurrencies and the dollar.
All eyes will now turn to interest rate decisions from the Bank of England at noon today and the Federal Reserve Bank later in the day. Markets are broadly expecting a quarter-point cut from Threadneedle Street which would bring rates to 4.75%. Jerome Powell’s also expected to announce a quarter point cut which equates to a whole point cut since rates peaked. But perhaps of more importance will be comments about the future direction of travel with markets now expecting only two further cuts in 2025, due to the impact of a fresh Trump presidency with tariff hikes and tax cuts which are expected to be inflationary.
Brent Crude prices struggled to find clear direction in the wake of the election result. At close to $75 per barrel. On the one hand, Trump’s oil-friendly agenda could open up the supply taps again. A strong dollar is also net-negative for the nominal price. However, the demand picture is more muddled. US consumption’s likely to get a boost but tariffs could weigh on usage in China, the world’s biggest importer.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Sainsbury’s delivered a sweet set of first-half results, and investors will be relieved to see a volume-driven uplift in the Grocery business. But consumers haven’t been as hungry for General Merchandise & Clothing, which posted a decline in the period. That’s not been helped by its ownership of Argos, which gives it extra exposure on the general merchandise front and has weighed on overall performance a touch.
But with that slip-up aside, Sainsbury’s continues to gain market share, and at a faster pace than competitors according to industry data. That’s been helped by its huge push to improve its service, products and value perception, which is helping to sway more customers to do their big food shop at Sainsbury’s, driving strong basket size growth.
Things like Nectar prices and Aldi price matches have so far worked at plugging the exit of customers too. Underlying operating profits in the retail business look on track to grow between 5-10% over the full year. That’s not at all bad for a ‘boring’ grocery business, but it does mean the group needs an even sweeter second half to get there.
Rolls-Royce investors would be forgiven for having their heads in the cloud of late, with Roll-Royce continuing to be the FTSE 100’s best performer so far in 2024. In a short trading update this morning, it was pleasing to see Large Engine Flying hours, the driving force behind a large chunk of its revenue, sitting above pre-pandemic levels.
The only slight downside is that strikes at Boeing have caused a slight delay in getting upgrades to one of its engines signed off. But with this approval still expected in the coming months, investors won’t be too worried. All full-year guidance remains on track, with underlying operating profits between £2.1-£2.3bn expected, helping to fund the return of dividends at the end of its financial year.”
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