Interest rate hopes are back! After a couple of weeks of malaise following Federal Reserve and Bank of England decisions to keep interest rates on hold, a speech by Fed Chair Jerome Powell has once more ignited hopes of rate cuts later this year.
Equity bulls jumped on the Chair’s comment and sent the S&P 500 to record highs in the US overnight. UK traders didn’t need asking twice to bid up the FTSE 100, which was trading 0.5% higher at the time of writing.
“The FTSE 100 has opened higher, riding on the coattails of the fresh enthusiasm which swept over Wall Street, with any political uncertainty pushed into the background,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“Stocks have largely been driven upwards by hopes that interest rate cuts are on the horizon and a soft landing is in sight, thanks to encouraging comments from the chair of the Federal Reserve.
“Jerome Powell said that the US is back on a disinflationary path due to recent weaker inflation readings. He stressed that policymakers are wary of keeping monetary policy ‘too tight for too long’ and losing expansion in the economy.”
Macroeconomics could well help propel stocks higher through the rest of the week with Fed minutes due out this evening and June Non-Farm Payrolls set for release on Friday.
The FTSE 100’s gains were broad on Wednesday, with 85 constituents trading higher at the time of writing. Cyclical sectors enjoyed buying pressure as risk appetite grew.
IAG was the top riser, gaining 4%, closely followed by Fresnillo who was helped higher by a bid in gold and silver.
Precious metal prices slipped after recent central bank meetings suggested the market would have to wait for rate cuts – prices showed signs of reversing on Wednesday with a potential interest rate cut on the horizon.
JD Sports was the biggest faller after Barclays cut the stock to underweight with a 110p price target. The downgrade follows poor results from Nike, the brand that accounts for around 50% of JD Sports sales.
