The FTSE 100 added to substantial gains on Friday as investors continued to position for the end of the interest rate hiking cycle.
A weak US jobs report poured cold water on the notion the Federal Reserve would hike again this year, and with central banks appearing to march in lockstep, it could also mean interest rates stay the same in the UK for the foreseeable future.
Indeed, after the Fed and BoE held off hiking rates last week, the weak US jobs report even sparked market chatter of rate cuts – although there is no indication either central bank has any plans to do so in the near term.
“The FTSE 100 started the week modestly higher amid growing confidence the interest hiking cycle has peaked,” said AJ Bell investment director Russ Mould.
“Weak jobs figures from the US on Friday were the latest bit of news to underpin this status and with both Bank of England governor Andrew Bailey and Federal Reserve chair Jerome Powell due to speak this week, investors will be watching closely to see if they seek to counter or reinforce this narrative.
“For now, we’re still in a world where bad news equals good news because of the implications for rates. At some point though the market will turn to the implications of a significant weakening in the economy on corporate earnings.”
The implications of softer economic conditions were evident in Monday’s trade, with housebuilders slipping back after a strong rally last week. Taylor Wimpey was down 0.4% and Barratt Developments gave up 0.3%.
UK banks were among the top risers as markets aligned behind interest rate expectations and bond yields slipped. Natwest gained 2% and Standard Chartered perked up by 3%. The two were the heaviest hit during the last round of earnings.
Scottish Mortage slipped 0.6% after full year results provided insight into the pricing of their private assets.
“Scottish Mortgage was once the market’s leading investment trust, with great clamour to own its shares, but market dynamics have shifted and having large exposure to unquoted companies went out of fashion,” said Russ Mould.
“The big fear stalking Scottish Mortgage is its unquoted holdings would see their value marked down aggressively.
“Interestingly, the shares’ discount to net asset value has narrowed somewhat since the spring, and today’s publication of first-half numbers may provide a measure of reassurance to shareholders as its net asset value fell, but only modestly.”