The FTSE 100 was in a buoyant mood on Thursday as the UK headed to the polls to vote in the general election.
However, the biggest driver of UK stocks on Thursday was not the prospect of Keir Starmer making a victory speech outside Downing Street tomorrow but the Federal Reserve minutes released last night.
“The FTSE 100 made a strong start on election day but its gains had far more to do with events on the other side of the Atlantic,” said AJ Bell investment director Russ Mould.
The Federal Reserve released minutes last night that suggested US monetary policy makers saw financial conditions easing to a point conducive to reducing borrowing costs.
“Participants highlighted a variety of factors that were likely to help contribute to continued disinflation in the period ahead,” the Federal Reserve wrote in their minutes.
“The factors included continued easing of demand–supply pressures in product and labor markets, lagged effects on wages and prices of past monetary policy tightening, the delayed response of measured shelter prices to rental market developments, or the prospect of additional supply-side improvements. The latter prospect included the possibility of a boost to productivity associated with businesses’ deployment of artificial intelligence–related technology.”
The mention of possible deflation as a result of AI is interesting for the long-term path of monetary policy and what it will do to US AI stocks when they reopen tomorrow.
US markets are closed for Independence Day today, so the true impact of The Fed’s dovishness on global markets may not be felt until tomorrow, by which time we will have received data from June’s Non-Farm Payrolls.
190,000 jobs are thought to have been created last month. Should the headline figure miss estimates, the case for a rate cut becomes much stronger. In such a scenario, one would expect a sharp rally in stocks.
FTSE movers
Gains were broad on Thursday, with 83 of the FTSE 100 constituents trading higher at the time of writing.
UK housebuilders were well bid as traders positioned for a Labour victory and the promise of planning reforms and a boom in housebuilding.
Smith & Nephew was the FTSE 100’s top riser on Thursday after activist investor Cevian Capital took a 5% stake in the firm. The Smith & Nephew share price has had a dismal run, and investors will hope the activist shakes the firm up. Shares were 9% higher at the time of writing.
Next was the biggest faller as the retailer traded ex-dividend.
