Market report: Rate cut hopes fuel stock rally as UK politicians make bid for last votes
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 has opened higher, riding on the coattails of the fresh enthusiasm which swept over Wall Street, with any political uncertainty pushed into the background. Stocks have largely been driven upwards by hopes that interest rate cuts are on the horizon and a soft landing is in sight, thanks to encouraging comments from the chair of the Federal Reserve. Jerome Powell said that the US is back on a disinflationary path due to recent weaker inflation readings. He stressed that policymakers are wary of keeping monetary policy ‘too tight for too long’ and losing expansion in the economy. His comments helped lift the S&P 500 to another record high at 5,509, its first-ever close above 5,500. The UK’s blue-chip index, stuffed with international companies reliant on global trade, is sensitive to the fate of the world’s largest economy, given the repercussions a stark American slowdown would have. This treading carefully approach by the Fed is being welcomed, but there’s lot of detail in upcoming data to be poured over before a cut will come.
There are less than 24 hours to go until the polls open for the UK’s general election and a frenzy of last-minute campaigning is underway, as candidates jostle to win over floating voters. Even Boris Johnson, with his distinct marmite appeal, has been wheeled out by the Conservatives to help shore up support among the Tory faithful. There may be remnants of uncertainty, but they are not fazing investors, given the strength of the poll lead Labour commands. At this stage of the game anything other than a clear Labour majority would be more unsettling. However, for parties like the Greens and Reform, winning seats in parliament would help push more of their policies into the political limelight. Maintaining financial stability is set to be the priority for an incoming Labour government, and bond markets are sanguine, with gilt yields significantly lower than there were at the end of May and sentiment driven by the central bank rather than party policies. The pound is also little moved, trading around $1.268, with recent dips showing sensitivity to expectations that the Bank of England will move before the Fed in cutting interest rates.
Speculation over the path of interest rates has pushed tech giants on another run upwards, but Tesla’s update, showing demand for its cars beat forecasts, also lifted sentiment. Shares rallied more than 10% after deliveries for the second quarter came in at 443,956. This may have been down 5% year-on-year, but it was still better than expected. Plus, a bonus present was unveiled in the form of a surge in sales for Tesla’s energy storage products. Nvidia shares dropped, which is likely to be due to some profit taking given its huge surge in valuation.
Oil prices are ticking upwards again, following a drop in US crude stockpiles for the week ending 28 June. Demand for fuel to power trips over the US holiday season is expected to be high. But traders are also eyeing potential supply constraints. Geo-political escalation in the Middle East is still a threat, given the ongoing violence in Gaza. The hurricane season forecast to be particularly fierce this year, given the devastation wreaked on the Caribbean this week and if severe storms hit the Gulf Coast, refining capacity could be significantly disrupted.”
