The volatility at the beginning of August is now a distant memory, with global equities resuming their upwards trajectory and US and UK stocks trading near record highs.
The FTSE 100 is around 1.5% away from record highs, while the S&P 500 closed last night less than 1% away from all-time highs.
“European equity indices pushed ahead on Tuesday, including a 0.75% increase in the FTSE 100 as investors were in a risk-on mood. Banks, commodity producers and consumer-facing companies helped lead the charge ahead of the all-important US interest rate decision tomorrow,” said Russ Mould, investment director at AJ Bell.
“Gains were seen across most of the UK market, with only five FTSE 100 stocks in negative territory including British American Tobacco.”
As Russ Mould alludes to, the Federal Reserves’ predicted interest rate cut is the key driver of the equity gains on Tuesday. UK investors will be happy to see the FTSE 100 higher even though markets are pricing for a hold of UK interest rates at Thursday’s meeting.
“Interest rates aren’t expected to go anywhere later this week, with the Bank broadly expected to hold rates at 5% after August’s cut,” said Laura Suter, director of personal finance at AJ Bell.
“The Bank has been keen to reiterate that it will not move too swiftly to cut interest rates, meaning holding rates this month would stick to that playbook. Markets are pricing in a roughly two-thirds probability of rates remaining unchanged this month, leaving a chance of a cut to 4.75%. As always, these forecasts are based on market prices, which bounce around a bit and are vulnerable to fresh economic data shocks. With inflation data due this week, we can’t rule out an unexpected change to that impacting the Bank’s decision.
Investors will be encouraged that UK equities can withstand any concerns about the Bank of England not embarking on sharp interest rate cuts and are seemingly not reliant on a lower interest rate environment to carve out gains.
Kingfisher
Kingfisher was the FTSE 100’s top riser after the DIY group upgraded its profit forecast for the year as cost-cutting measures outweighed softer revenues.
The company has been under pressure in recent years as consumers hold back from big purchases amid higher interest rates and rising inflation. However, the company’s assertive action to reduce costs has been well received by investors, and today’s 6% gain takes the stock to its highest level since early 2022.
“It’s clearly still been tough going in the home renovation market, as consumers have tightened their belts amid high borrowing costs but there are bigger chinks of light at the end of the tunnel,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“With more interest rate cuts eyed on the horizon, and the housing market starting to spring into life, the outlook looks better, leading Kingfisher to improve its profit outlook. A spurt of better weather later in the summer is likely to have helped propel sales of seasonal ranges.
“This is a trend also flagged up in the latest snapshot from the British Retail Consortium, which showed that as the sun shone more in August, shoppers were more encouraged to snap up DIY and gardening items and host BBQs. The company is now expecting adjusted pretax profit to come in between £510 and £550 million, instead of in a range of £490 to £550 million.”