Wall Street and FTSE higher ahead of inflation data and interest rate decisions
A look at how the major markets are performing on Monday
Wall Street, European stocks and the FTSE 100 were higher on Monday as investors anticipated US inflation data and decisions on interest rates this week from the Federal Reserve and European Central Bank (ECB).
Federal Reserve chair Jerome Powell said on Friday that interest rates may not need to rise as high as previously expected, adding that decisions on rate moves will be made on a "meeting by meeting" basis.
The Dow Jones (^DJI) rose 0.26% to 3,963.76 points, while the S&P 500 (^GSPC) gained 0.24% to 4,308.97 points. The tech-heavy NASDAQ (^IXIC) also opened higher, by 0.35% to 13,305.91.
In London the FTSE 100 closed 0.11% higher at 7,570.69.
Earlier in the day the Swiss bank UBS (UBSG.SW) formally completed the takeover of its rival Credit Suisse (CSGN.SW).
The $3.2bn deal, agreed in March, was supported by Swiss regulators to avoid destabilising the banking system. It means the enlarged UBS will have a balance sheet of $1.6trn and a workforce of 120,000.
Numerous restrictions have also been imposed on staff, including a ban on new clients from high-risk countries, according to the FT.
FTSE 100 and European stocks
In afternoon London trade, The FTSE 100 (^FTSE) was up 0.21% to 7,578.11 points, while the CAC 40 (^FCHI) in Paris rose 0.65% to 7,259.86 points. In Germany, the DAX (^GDAXI) also gained, by 0.76% to 16,071.04 points.
Ocado Group (OCDO.L) was top of the FTSE index, along with Croda International (CRDA.L), Frasers (FRAS.L) and B&M (BME.L), while Anglo American (AAL.L) and Segro (SGRO.L) were at the bottom of the basket.
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Frasers (FRAS.L) shares were lifted after it acquired a strategic stake of 18.9% in AO World (AO.L) for £75m on Friday. The retail giant said AO’s electrical know-how will help drive growth in ‘bulk equipment and homeware ranges.’
Meanwhile, Glencore (GLEN.L) is in talks with Teck Resources (TECK) after making an offer to buy the Canadian miner’s coal business, in the latest twist in the takeover battle.
US and Asia markets
The main US indexes opened in the green as investors looked ahead to the Federal Reserve meeting.
Matthew Ryan, head of market strategy at global financial services firm Ebury, commented on the upcoming rate decision.
“Barring a significant upside surprise in Tuesday’s CPI report, we expect the Fed to pause its rate hike cycle this week, as it assesses the impact of its aggressive tightening cycle on the US economy.
"We suspect that FOMC [Federal Open Market Committee] chair Powell will strike a non-committal tone that neither closes the door to another hike in July, nor completely rules one out either. For now, we see the Fed in firmly data-dependent mode, and policymakers will likely wish to see at least one more inflation report after the May data before deciding whether rates are sufficiently restrictive at current levels,” he said.
Ryan also noted that the Fed’s updated ‘dot plot’ of interest rate projections will be highly important for markets.
“In our view, policymakers will once again signal that rate cuts are not expected to commence until 2024, in line with our call in favour of no change in the fed funds rate throughout the remainder of the year. As things stand, markets are largely pricing in another 25bp rate hike in July, so any indication that the Fed is done tightening for now would likely be seen as a clear bearish signal for the US dollar,” he added.
In Asia, the markets were mixed. Tokyo’s Nikkei 225 (^N225) rose 0.52% to close at 32,434.00 points, while the Hang Seng (^HSI) in Hong Kong lost 0.08% to 19,373.52. In mainland China, the Shanghai Composite (000001.SS) also declined, by 0.08% to 3,228.83 points.
Pound
The pound (GBPUSD=X) was down against the US dollar by 0.01% to 1.25. Against the euro, sterling (GBPEUR=X) was also down, by 0.04% to 1.16.
Oil markets
In commodities, oil prices fell on Monday as traders continue to worry about demand and hope that the revival in Chinese oil demand comes back into play.
US crude oil, or West Texas Intermediate (CL=F), lost 1.43% to trade at $69.17 a barrel, while Brent crude (BZ=F) fell 1.32% to $73.80 a barrel.
Economic data
There’s plenty of potential market-moving data out this week which starts on Tuesday with the release of core consumer price index (CPI) figures from the US Bureau of Labor Statistics, measuring a basket of US consumer goods.
On Wednesday, the Federal Open Market Committee (FOMC) will release its much anticipated interest rate decision in the US, and will also hold a press conference to discuss future monetary policy. Markets are leaning towards a pause from the Fed, according to the CME FedWatch tool.
On Thursday, the European Central Bank (ECB) will also release its interest rate decision, and hold a press conference afterwards. Analysts expect it to raise interest rates by 25 basis points.
“US and European stock futures are going to see some serious tests this week as the economic calendar is full of fireworks, and some of them could send a significant trimmer for the current rally,” Naeem Aslam, chief investment officer at Zaye Capital Markets, said.
"This is the week when we are going to see the US inflation data and the Fed meeting. The expectations are that we will see some further slowdown in the inflation reading, but unfortunately, only this element will not be enough, as traders are inclined to see some ease in the stickiness nature of inflation.
“If we see the economic readings showing some signs of relief in terms of higher inflation, we could see some additional strength for the US stock market, while traders could still be waiting for the Fed meeting’s event.
"We believe that no matter what the reading is going to be, the Fed is going to increase interest rates and is more than likely to follow in the footsteps of the RBA and BOC,” he added.
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The Bank of Japan will also announce its monetary policy decision this week.
Meanwhile, in the UK, the Confederation of British Industry has forecast growth of 0.4% in 2023, an upgrade from its previous expectation for a contraction of 0.4%. It also upgraded its outlook for GDP next year to hit 1.8% up from 1.6%.
“Its new director general Rain Newton-Smith said ‘businesses and consumers alike will be relieved that the UK economy has avoided recession and will re-enter growth territory in the second half of this year," Scholar said.
"Similarly, KPMG is no longer forecasting a recession, now pencilling growth of 0.3% in 2023 and 1.1% in 2024."
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