The FTSE 100 looks set to end the week higher as a some of the larger constituents in the index, such as the oil and pharmaceutical companies regained their footing after a poor previous week. The small recovery in UK Equities has occurred despite of broader European markets becoming increasingly concerned with the escalation in the Russia/Ukraine War. Ukraine struck a military target inside Russia with US-made long range missiles leading to fears of broadening of the conflict.
The UK Government borrowed more than expected in October, highlighting the issues posed to Chancellor of the Exchequer, Rachel Reeves, in her effort to stabilise public finances. Borrowing was £17.4bn last month, £1.6bn more than October 2023 and the second highest level since 1993 according to the Office for National Statistics. Despite this, the Chancellor has downplayed chances of a rise in taxes to help pay for it.
UK inflation also sharply accelerated in October to 2.3% vs 1.7% in the month previous. Price pressures have been expected to rise after a 10 percent increase last month in Britain’s energy bill cap, however, the figure comes in 0.1% higher than that estimated by economists at Reuters. The UK is still on track to continue its ‘gradual’ interest rate cutting process to meet the 2% target for inflation, and that a more rapid approach would only be needed if wages and prices cooled more than expected, according to Deputy Head of the Bank of England Dave Ramsden.
Retail sales in the UK dropped 0.7% month-on-month in October 2024, the steepest decline in four months, following a revised 0.1% rise in September and exceeding forecasts of a 0.3% fall. Retailers attributed the downturn to low consumer confidence and Budget-related uncertainty. Non-food store sales fell 1.4%, driven by a 3.1% drop in clothing store sales, reversing gains from prior months spurred by end-of-season sales and favorable weather. Year-on-year, retail sales rose 2.4%, below the revised 3.2% increase in September and the 3.4% forecast.
Commodity markets
Gold is rallying, reversing earlier losses this month. Currently nearing $2,700 per ounce, it has risen for five consecutive sessions, gaining nearly 5% this week as investors seek a ‘safe haven’ amid rising geopolitical uncertainty. While markets are still pricing in a 25-basis-point rate cut at the Federal Reserve’s December meeting, speculation is growing after a surprise drop in U.S. jobless claims.
Brent Crude edged higher this week, surpassing $74 per barrel and heading for its best performance in two months, as the Ukraine-Russia war intensifies. However, gains were limited by a 0.5-million-barrel rise in U.S. crude inventories, exceeding forecasts of a 0.4-million-barrel increase. Traders are closely watching the 1st December OPEC+ meeting, amid speculation the group might delay planned output increases for 2024 and 2025. Concerns over slowing global demand persist, particularly as China, the world’s largest crude importer, continues to grapple with weak economic growth and low demand.
Equity markets
US stock futures remained steady on Friday, with the three major indices poised to end the week in positive territory. The Nasdaq Composite led the charge, up 1.56% so far this week, as an impressive reporting season continues for many of the largest tech firms in the US. The Dow Jones and S&P 500 gained 0.98% and 1.33%, respectively, further highlighting the strength of the US stock market and the favourable view taken by traders for the newly elected Trump administration.
The President-Elect is currently assembling his cabinet, most notably nominating Pam Bondi for attorney general, just hours after his initial pick, Matt Gaetz, withdrew from consideration from the role. The new choice is likely to attract a warmer reception than her predecessor from US senators, given her experience as state attorney-general in Florida.
China has expressed willingness to engage in ‘positive dialogue’ on trade with the U.S. under the Trump administration. Beijing officials aim to position the country as a reliable trading partner, recognising its heavy reliance on manufacturing exports to support an economy weakened by low demand. While China remains ‘steadfast’ in resisting protectionist measures, officials emphasised the strong economic complementarities between the two nations and the potential for a mutually beneficial trade agreement.
In macro news, U.S. unemployment benefit claims fell by 6,000 to 213,000 for the week ending 16th November, the lowest since April 2024 and well below market expectations of 220,000. The data underscores the resilience of the U.S. labour market despite the Federal Reserve’s aggressive tightening cycle, providing room for the central bank to ease its pace of monetary loosening if inflation remains persistently high.
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