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Written by: Susannah Streeter | Hargreaves Lansdown
- FTSE 100 opens in the green buoyed by a higher close on Wall Street.
- Investors await ECB minutes with manufacturing data showing improvement.
- Higher for longer sentiment returns due to fall in US jobless claims.
- Calm largely restored on UK debt markets.
- Energy bills set to rise but oil prices dip back, with Brent at $81 a barrel.
The FTSE 100 has opened on the front foot buoyed by the feel-good holiday vibe emanating from the US, as Wall Street headed into the Thanksgiving weekend. With worries about another hike from the Fed now largely put to bed, and the economy showing fresh signs of resilience, there is hope that a soft landing will be achieved despite interest rates scaling such heights. As turkey dinners take centre stage today, trading will be thin. But there are crumbs of comfort being offered by German manufacturing data which so which shows an improvement. It’s still in contraction territory, but there is a slightly better outlook for factories. French manufacturing survey showing business confidence remains unchanged from a slightly more upbeat outlook in October. Investors are waiting for minutes from the European Central Bank as a gauge on how long restrictive monetary policy will be needed .
Realisation is dawning that higher interest rates look set to be hanging around for longer in inflation hit economies. This reassessment has pushed up the costs of US government borrowing slightly, particularly after unemployment benefit claims dropped by more than expected, to a five week low. It shows the labour market is still flexing considerable muscle. It comes hot on the heels of the Fed minutes which underlined policymakers’ plans to tread carefully when it comes to monetary policy. Bets on earlier cuts to interest rates are now being taken off the table with the 30-year treasury yields ticking up slightly
Calm has largely been restored to UK debt markets with the Chancellor’s Autumn Statement not rocking the boat. The risk premium which has been placed on Britain has eased off. The CEO of the UK Debt Management Office has welcomed the stabilisation, after trade in gilts was hit by a huge wave of volatility following the Trussenomics mini-budget last year. Appetite to buy UK government debt has recovered among foreign investors.
The short-term stimulus offered by tax cuts appear to have caused UK gilt yields to lift a little but investors also have an eye on the projections for inflation to linger for longer in the UK. It’s not expected to reach the target of 2% until 2025 so the Bank of England’s warning that elevated rates will be needed for an extended period is again coming to the fore.
News that energy bills are set to rise for millions of households in January will come as a blow after the sweeteners offered by the UK government in terms of those cuts to NI tax. Working households will see energy costs shoot up, just as those tax reductions hit their payslips, which is likely to cancel out the feel-good factor the Conservatives were hoping would improve their election prospects. Oil prices have dipped back, after OPEC+ delayed a key meeting until later in the month. But there is still likely to be volatility ahead, given threats to cut production amid high tensions in the Middle East.’
Related: Market Report: Wait and See Mood Prevails While Higher Oil Prices Loom