The FTSE 100 gained on Thursday as investors digested US and UK interest rate decisions and the near-term trajectory for borrowing costs.
London’s leading index was trading 0.2% higher shortly after the Bank of England held rates at 4%, despite growing weakness in the UK jobs market. In contrast, the Fed decided to move to cut rates to stave off the impact of low job creation.
There is a clear divergence between the Federal Reserve and the Bank of England’s monetary policy, with the BoE handcuffed by stubbornly high rates of inflation.
“The Bank of England has decided to keep rates unchanged, highlighting the challenge of weak jobs data and stubborn inflation pressures. Cutting too soon could lead to higher inflation expectations, while holding too long risks slowing growth further,” explained Lale Akoner, Global Market Analyst at eToro.
“With household long-term inflation expectations having risen to 3.8% – the highest since 2009 – the Bank remains cautious, sticking to its “gradual and careful” approach. Alongside the no-cut decision, the Bank said that they would slow down the place of their QT, reducing bond sales to £70bn and skewing away from longer-dated gilts.”
It’s conceivable that the positivity in UK stocks today was down to the Federal Reserve cutting rates and signalling a series of further cuts through the rest of the year.
“The Fed’s 25bp cut landed as expected, but the dot plot stole the show – pointing to another 50bp of easing this year, even as policymakers remain miles apart on the path forward,” Matt Britzman, senior equity analyst, Hargreaves Lansdown said.
“Inflation is still sticky, jobs are cooling, and the committee now faces a delicate balancing act as its two mandates (jobs and inflation) pull in opposite directions. The S&P 500 closed flat, but futures are flashing green this morning as investors bet that, for now, rate cuts are a tailwind worth chasing.”
The S&P 500’s flat close overnight masked a rip-roaring rally in US small and midcap deeptech stocks in the quantum computing and AI fields, ignited by hopes of more interest rate cuts to come.
US futures were pointing to a higher open, and mega-cap tech looked to be joining the fray.
There was a risk-on feel to UK stocks despite the BoE’s inaction. Miners were firmly bid with Anglo American and Antofagasta rising more than 1%.
RELX was the top riser with a 3% gain.
UK investors wanting their slice of any US tech rally in the wake of the Fed’s rate cut picked up Polar Capital Technology Trust, helping shares rise more than 2%.
Next was the FTSE 100’s top faller after the retailer warned a slowing UK economy could impact the group’s growth. That said, the group seems to be coping just fine with current conditions as profits rose more than 10% in their first half. Perhaps today’s pullback will prove to be a buying opportunity for Next shares.