UK markets rebounded this week and are set for their best performance in seven months, with the FTSE 100 Index rising 1.7% to trade at 8,109 points at the time of writing.
UK business activity rose more than expected in April, with the S&P Global Flash UK Purchasing Managers’ Index (PMI) Composite Output Index rising to 54 in April from 52.8 in March, well above the 52.6 forecast by economists polled by Reuters. A figure higher than 50 indicates expansion.
The UK’s economic recovery has continued to gain momentum as improved growth in the services sector offset a renewed downturn in manufacturing. The PMI pointed to growth well more than forecasts by the Bank of England’s Monetary Policy Committee, which projected economic growth to remain stagnant at about 0.1% in each quarter of 2024. Business reported rising consumer spending, supported by an increase in real wages, easing inflation and low unemployment.
The Bank of England’s Chief Economist Huw Pill warned this week that the UK central bank should be wary of cutting rates too soon after years of above-target inflation. His comments underscore the divisions within the bank’s Monetary Policy Committee, over how soon to ease policy as it prepares to set interest rates on May 9th, after Bank of England Governor Andrew Bailey struck an optimistic note about the battle against inflation, as price growth fell to 3.2% in March.
According to research company Kantar, UK grocery price inflation fell to a 30-month low of 3.2% in the four weeks to mid-April, down from 4.5% last month and the lowest rate since November 2021, as reported on Tuesday. The decline was aided by a significant increase in promotional spending by retailers with items bought on offer making up 29.3% of supermarket sales in April, the largest share outside the Christmas period since June 2021. Lower grocery inflation could help support higher spending, aiding the economy to rebound from last year’s recession, as real wages continue to rise at a steady pace. Elsewhere, the GfK Consumer Confidence indicator in the UK hit a three-month high in April, after remaining flat in March, reflecting the effects of anticipated tax cuts and lower inflation with the same period last year.
Commodity markets
In the commodity markets, Brent crude futures traded around $89 per barrel on Friday and are set for a weekly rise, as US Treasury Secretary Janet Yellen told Reuters that US economic growth was likely stronger than suggested by weaker than expected quarterly data. Yellen stated, US GDP growth for the first quarter could be revised higher after more data is in hand, and inflation will ease to more normal levels after a clutch of “peculiar” factors held the economy to its weakest showing in nearly two years.
Elsewhere, supply concerns also boosted oil prices as geopolitical tensions continue in the Middle East. Israel stepped up airstrikes on Rafah after saying it would evacuate civilians from the southern Gazan city and launch an all-out assault despite allies’ warnings this could cause mass casualties.
Gold traded around $2,350 an ounce on Friday, pulling back from recent highs, as US Treasury yields rose after economic data showed signs of persistent inflation, lowering hopes of the Federal Reserve cutting interest rates any time soon. Gold is traditionally known as an inflation hedge, but elevated interest rates reduce the allure of holding non-yielding bullion.
On the physical front, China’s net gold imports via Hong Kong jumped 40% in March, from the previous month, Hong Kong Census and Statistics Department data showed on Thursday. Net imports into the world’s top gold consumer stood at 55.836 metric tons in March, compared with 39.826 tons in February, the data showed.
Equity markets
US equity futures rose on Friday, recovering losses from the previous session on the back of strong earnings from mega-cap tech names. In Thursday’s regular session, the Dow Jones Industrial Average fell 0.98%, the S&P 500 lost 0.46%, while the Nasdaq Composite declined 0.64%.
Figures released on Thursday from the Bureau of Economic Analysis showed that the US economy grew less than expected in the first quarter of 2024, at an annualised rate of 1.6%, far below analysts’ expectations of a 2.5% rise, and the revised rate of 3.4% for the fourth quarter last year.
In addition, the measure of inflation used to calculate GDP rose from 1.9% to 3.1%. This caused concern amongst investors, who began to cast doubt on the potential for US Federal Reserve rate cuts. Investors reduced their bets on rate cuts after the data release, with the Federal Reserve’s first 0.25% reduction now expected in November, rather than September.
Investors are now looking ahead to the Personal Consumption Expenditures (PCE) price index for March, which will be released later Friday. The PCE price index, the Federal Reserve’s preferred inflation measure, which excludes food and energy components, is predicted to confirm an uptick in early 2024. Economists are expecting to see increases of 0.3% in both headline and core PCE price indexes in March, with forecasts suggesting 2.6% and 2.7% year-over-year increases, respectively.
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