FTSE closes higher amid caution over potential interest rate hike

·3-min read
FTSE muted as traders cautious over potential interest rate hike
Investors are continuing to keep their ears to the ground on whether or not the Bank of England will hike interest rates soon to combat rising inflation. Photo: Richard Baker/In Pictures via Getty

European stock markets were muted for much of Tuesday, following a day of losses the session before.

In London, the FTSE 100 (^FTSE) traded flat for most of the day, finishing 0.3% up after a late surge. The CAC (^FCHI) was 0.1% lower in Paris, and the German DAX (^GDAXI) was 0.3% higher.

It came as investors are continuing to keep their ears to the ground on whether or not the Bank of England (BoE) will hike interest rates soon to combat rising inflation. 

Over the weekend, governor Andrew Bailey warned that Threadneedle Street "will have to act" over rising inflation, suggesting that rates will rise from their lows of 0.1% soon. However, he did not give an indication of when this would be. 

The Bank has already said UK inflation is set to exceed 4% before falling back as the economy recovers from the COVID-19 pandemic.

“Not a particularly great start to a new week yesterday for markets in Europe, but having just come off the back of three days of strong gains at the end of last week, we were probably overdue a bit of a pullback,” Michael Hewson of CMC Markets said.

“The big question now is whether that means we are back to chopping and changing in the same broad range we’ve been in since the beginning of July, or whether we sustain the positive momentum of the last couple of weeks?”

Watch: What is inflation and why is it important?

Across the pond, the S&P 500 (^GSPC) climbed 0.6% and the tech-heavy Nasdaq (^IXIC) was also 0.6% higher at the time of the European close. The Dow Jones (^DJI) edged 0.5% up.

It came as US home construction fell last month, as builders fought labour and material shortages, as well as higher prices.

Residential starts fell 1.6% in September to a 1.56 million annual rate, the data showed, falling below the 1.62 million Bloomberg forecast.

Applications to build, a proxy for future construction, fell 7.7% to 1.59 million units over the period, the largest monthly decline since February.

The positive mood on Wall Street followed the S&P 500 and Nasdaq both finishing in positive territory on Monday, helped by oil prices slipping back from their peaks.

They were also boosted by optimism that last week’s trend of earnings beats will continue later today, when Netflix (NFLX) announces its latest numbers for the third quarter, after the close of US markets tonight.

Read more: Budget 2021: Better recovery to help Sunak cut public borrowing by £30bn

Elsewhere, stocks in Asia took their lead from Wall Street overnight, ending the day higher thanks to an outperformance from technology stocks.

In Tokyo, the Nikkei (^N225) climbed more than 0.6% while the Hang Seng (^HSI) rose 1.4% and the Shanghai Composite (000001.SS) was 0.7% up.

On Monday disappointing GDP data from China had cooled investor sentiment.

Meanwhile, Bitcoin (BTC-USD) was hovering around the $62,000 (£44,984) mark, less than $3,000 short of its April record high, with a new security to trade the cryptocurrency due to begin trading Tuesday on the New York Stock Exchange.

Watch: What are SPACs?

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