HL LIVE
HL commentary as it happens
Wednesday 20th August
Brent crude rises slightly
Brent oil futures are trading better this morning, up around US$50c, to $66.3 per barrel. The longer-term trend though is still firmly downward, with prices having been in a steady retreat from around the $120 marker three years ago. Geopolitical events have led to brief rallies in recent months, but ample supplies of oil are keeping a lid on prices and these supplies look set to remain strong for some time to come.
Sterling rallies on higher rate bets
News of higher-than-expected inflation initially pushed sterling higher, briefly rising through $1.35 before easing back. Markets are betting that the unexpected inflation figures will force the Bank of England to take a cautious approach to lowering rates. The swaps market is currently projecting rates to fall by just 0.4% by next summer from their current level of 4% in the UK, compared to an expectation of 0.5% just a week ago.
Rate cut expectations pushed back
Interest rate cuts look less assured after these numbers. The Bank of England has been projecting an upturn in inflation in the latter part of the year and this indeed seems to be the case. But the strength of the upturn will be a concern for the Bank’s rate-setters, who need to be confident of an eventual ebbing away of price pressures before they push rates much lower from here. Chancellor Rachel Reeves landed a major bill onto employers when she hiked National Insurance costs earlier this year and they are now trying to pass the buck onto consumers through price increases. The early signs are that they are succeeding.
UK inflation higher than forecast
UK inflation data released this morning showed a further tick up in the pace of prices growth and was greater than most economists had expected. Consumer prices rose by 3.8% in the year to July, up from 3.6% the month before. The cost of services rose by 5.0%, reflecting rising wages and employer taxes being passed on to the customer.
Wall Street closes weaker, pushed lower by Tech stocks
Wall Street closed weakly last night as tech stocks came under real selling pressure. The FTSE 100 also opened slightly weaker this morning, having reached an all-time high in yesterday’s trading session. Talks of peace deals in Ukraine are prompting some profit-taking among defence stocks and housebuilders have reacted negatively to the stronger than expected inflation figures
Tuesday 19th August
Wall Street set for a lower open as wait-and-see mood percolates
There are few triggers expected to move markets significantly in the days ahead, with US futures pointing to a lower open for the S&P 500. There’s a wait-and-see mood percolating ahead of the Jackson Hole central bankers’ symposium, which is expected to help illuminate the path ahead for interest rate cuts in the US. Attendees are also set to discuss big challenges in labour markets, especially with the major crackdown on immigration in the States, which is limiting the numbers of workers available, increasing costs for companies. Ageing populations in Western nations are also a growing challenge, adding to the burden for younger workers.
UK borrowing costs remain elevated
UK borrowing costs remain elevated, as investors assess the government’s spending commitments including its defence pledges. At 5.61%, the yield on 30-year gilts is close to a 27-year high and has already surpassed the level hit in April amid volatile markets sparked by Trump’s radical tariffs threats. While the government is relying more on shorter-dated debt to fund its borrowing, it’s still a measure of uneasy sentiment about the state of the public finances. It’s also driven by market expectations for the path of monetary policy ahead. Another interest rate cut is not being priced in fully until March 2026.
While there’s a fifty-fifty chance of a cut in December, investors are wary given the tone of caution struck by policymakers at the last meeting. July’s inflation snapshot is out tomorrow, and the CPI reading is set to creep higher from 3.6% in June, to potentially 3.8%. The Bank of England has forecast inflation will peak at 4% in September before finally retreating. It seems borrowers will need more patience and will have to dig deep to deal with expensive loans for many more months to come.
Oil prices have dropped as a trade deal edges closer
There’s relief that talks between Trump, Zelensky and European leaders appear to have made good progress. With the US President sounding highly positive on giving security guarantees and protection to Europe, it has bolstered hopes for a longer lasting settlement. Ukraine is offering to purchase around $90 billion of American-made military equipment as part of the deal.
Oil prices have dropped a little as a deal edges closer, given that it’s likely to lead to an easing of sanctions on Russia energy imports, increasing supplies on global markets. The threat of further barriers to trade with Moscow is still hovering over proceedings, with the next step expected to be a meeting between Zelensky and Putin.
FTSE 100 opens flat
While there is more optimism washing around that peace in Ukraine might be achievable, wariness remains about the outcome of what’s been a war of attrition. More upbeat sentiment about the potential easing of geopolitical tensions, is colliding with concerns that interest rates look set to stay higher for longer in the UK. The FTSE 100 has opened flat but is still trading close to its recent highs as the British stocks remain attractive to investors.
Monday 18th August
UK inflation due out this week and there could be an Oasis bump to prices
The fall in fuel costs since June will be welcomed by households, although it’ll take time to filter through to the pumps and may not fully show up in this week’s inflation figures in the UK. The Consumer Price Index is also influenced by how sharply costs fell last year, when prices also dropped significantly. Air fares have also been higher this summer as pent-up demand for travel continues. The Oasis tour, which saw high demand for hospitality around the gig dates, has the potential to push up inflation in the sector during July. We are unlikely to see the Gallagher effect show up in quite the same way as Taylor Swift’s bump to prices in June 2024. But demand for hotel rooms, beer, bucket hats and nineties-style gear could be one of the factors that keep inflation heading higher. The Bank of England is forecasting that CPI will hit 4% next month, double its target, which is why another interest rate cut this year looks very touch and go.
Talks between Trump and Zelensky are in focus amid hopes for a peace deal
The future of Ukraine hangs heavy in the balance as Zelensky, flanked by European leaders, prepares to meet Trump. Putin’s high bar for a peace deal may scupper hopes for an end to the conflict, but with more details emerging about what land could be ceded or retained in Eastern Ukraine, there does seem be more substance to the talks. With less talk of tougher sanctions on Russia, oil prices dropped back as supply concerns faded but, amid the ongoing uncertainty, Brent Crude has begun creeping higher and has headed back above $66 a barrel.
FTSE 100 looks set for a positive start after fresh records were breached in Asia
The FTSE 100 looks set for a small dose of Monday motivation, helping to erase some of Friday’s losses as investors take a glass half-full approach to the global economic outlook. Investors are also waiting for the upcoming Jackson Hole central banker meeting, for clues about the direction of interest rates in the United States, with expectations that recent data will pave the way for more cuts. Despite the fierce criticism he’s had to shoulder from President Trump, Fed chair Jerome Powell is not expected to set a firm path for rate reductions. He is likely to say he’ll stay driven by the latest inflation and jobs data available. Wall Street futures indicate a positive start for the S&P 500 and the tech-heavy Nasdaq, and there’s the potential for a push back up to record levels.
Nikkei hits a high helped by greater clarity over tariffs and the weaker yen
There’s a swell of optimism at the start of the week, amid hopes for an easing of geopolitical risk and a more clement global economic environment. Indices in Asia have benefited from a big pulse of positivity, with the Nikkei hitting fresh record levels. As more certainty has returned to corporate Japan, given that a new tariff regime has been agreed, it’s helped boost stocks. The weaker yen has also been a positive force, given that it increases the value of profits made abroad.
Friday 15th August
Oil trades lower as US/Russia talks attract caution
Oil prices are trading lower this morning, with Brent hovering around the $66.60 mark. Traders have turned cautious ahead of today’s meeting between the presidents of the US and Russia. A failure to reach a deal over Ukraine could force Trump’s hand, as he’s been vocal about severe repercussions if negotiations fall through.
US futures trade higher as optimism continues
The S&P 500 ended the day flat after an early dip, with investors rotating back into the reliable mega-cap names and pulling away from some of the smaller companies that had been performing well earlier in the week. Longer-term government yields rose, and the odds of a Fed rate cut in September edged lower. Still, markets remain almost certain of a cut next month, and US futures are trading higher this morning as investors maintain the glass-half-full mentality that’s been driving stocks higher in recent weeks.
Positive open for European markets
The sun is shining on UK and European markets this morning, which are on track for a bright end to a positive week for major indices. Absent any major local earnings releases or economic news, UK and European markets are mirroring positive sentiment seen across the pond, as investors have largely shrugged off yesterday’s hotter-than-expected US producer inflation print (PPI).