The FTSE 100 was on the front foot on Friday as investors appeared encouraged by a two-week period of central bank action and inflation data.
The key takeaway for investors is the Federal Reserve and Bank of England are likely done with rate hikes and inflationary pressures on global economies are easing.
“One sure way to fire markets up would be a definitive course of action on interest rates. In the absence of certainty though, markets only have maybes to go on. And the latest suggestion from Goldman Sachs suggests that interest rate cuts could be coming in the new year and will brighten up February,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
“There has been some concern over when the Bank of England will start snipping the tightropes of monetary policy, given that there is still some residual heat in the economy. Policymakers are insisting that loosening isn’t on the cards just yet, but things have been moving in the right direction which opens up the possibility of a policy shift in the coming months.”
Optimism around rates and inflation trumped a poor session in Asia and concerns about retail sales as the FTSE 100 gained 0.8% in early trade.
“The FTSE 100 shrugged off a weak showing for Asian shares overnight and softer than expected UK retail sales to trade firmly higher on Friday, shaking off the ennui it had shown on Thursday in the wake of Wednesday’s exuberance,” said AJ Bell investment director Russ Mould.
“The index was hurt by its big exposure to oil and gas yesterday as a big build in US inventories caused crude prices to plunge. The upside of this scenario is it further reduces inflationary pressures and underscores the idea that the rate hiking cycle has peaked.
“What’s helped in this regard is that Federal Reserve officials, while not exactly getting out the garlands and bunting and announcing a victory parade in the battle against inflation, are not really pushing back against the peak rates narrative either.”
Should others join Goldman Sachs in predicting rate cuts early next year, global equities could really fire up.
All industry groups were higher in London at the time of writing, with cyclical sectors leading the way.
Of the FTSE 100 constituents, only 5 were trading negatively at the time of writing.