Written by: Susannah Streeter | Hargreaves Lansdown
- FTSE 100 opens flat as dollar dips and eyes turn to Autumn Statement.
- Caution descends ahead of release of Fed minutes.
- China keeps key lending rates unchanged.
- Nikkei hit 33-year high before retreating as profits are taken.
- Brent rises to around $81 a barrel and threatens to move higher given OPEC stance over Gaza.
There doesn’t seem much motivation on Monday to reverse early losses on the FTSE 100. It’s been on the back foot in early trade, despite a close in the green for Wall Street on Friday. The slight tick up in sterling may be part of the equation, given the effect on dollar denominated earnings of the raft of multinationals listed on the index. Focus for domestically orientated stocks is being trained on the UK Chancellor’s Autumn Statement this week, with rumours swirling of an extension of fiscal incentives for companies, as well as mooted cuts to inheritance tax. However, he’s slightly hampered in any big moves to use the tax system to stimulate short-term demand given the risks that could fuel inflation all over again.
Hopes bubble that interest rate cuts are on horizon
While a ‘wait and see mood’ has descended, confidence is still quietly bubbling that interest rate cuts could be on the horizon. Recent data showed more demand than expected seeping out of economies, which is increasingly weighed down by high borrowing costs. Concerns that there could be another grinch-like hike from the Fed in December have retreated and more bets are being placed that a reduction could come in the Spring. The Fed’s minutes will be poured over when they are released on Tuesday for clues as to the direction of travel ahead for monetary policy. The dollar has edged lower, providing more relief for import-hungry countries which have been sideswiped by its strength. Germany’s producer prices came in as expected, showing another shift downwards in the cost of goods sold by manufacturers at the factory gate. This will feed through to consumer prices, indicating the battle against inflation is slowly, but surely making ground. The People’s Bank of China did little to rock the boat, given the decision to keep benchmark lending rates unchanged was expected. It’s grappling with the tricky scenario of downwards pressure on the yuan and deflation settling in, while the economy is still struggling to regain its mojo, and targeted stimulus for sectors still hoped for.
Nikkei reached new 33-year highs.
A wave of positivity has charged sentiment in Japan, with the Nikkei scaling new peaks to 33-year highs of 33.853, before retreating. That’s not because of a sudden mini loss of confidence, instead investors are likely to have taken the opportunity to book profits after such a good run. Optimism has been fuelled by some solid domestic earnings and the weakness in the yen. There are also hopes the Fed and other central banks have ended their hiking cycle, and that there will be some respite in sight after the squeeze on customers for Japanese goods in key markets.
Oil production cuts on the horizon.
Oil prices have ticked up as investors eye the upcoming OPEC+ meeting next weekend, where a decision to cut production will be mulled amid deep unhappiness over the conflict in Gaza. Not only are Russia and Saudi Arabia expected to keep the taps tighter on crude supplies extending production reductions well into next year, but other cuts of up to 1 million barrels a day could also be on the cards. It’s not just the sharp retreat in crude prices, which flirted with the $100 a barrel in September, which appear to be prompting this move. It’s being seen as a way of exerting political pressure on the US, by oil-rich Middle East nations whose populations are angry about the conflict. The threat of sending oil prices sky-high again just as voters gear up to go to the polls in the US next year will be an unpalatable thought for Joe Biden. It seems likely that even though crude costs have come down considerably there is volatility ahead, and the repercussions of the conflict in Gaza could again prompt a sharp upwards move in energy prices.’’