UK markets advanced further this week, with the FTSE 100 Index rising by 0.85% to trade at 7,710 points at the
time of writing.
The Bank of England has estimated it will require the treasury to transfer a total of £150 billion by 2033 to cover expected losses on the central bank’s quantitative easing programme, up from a previous calculation of £100 billion.
Early profits on the scheme were expected to turn into losses when interest rates rose, but the estimated cost to UK taxpayers over the life of the programme has climbed over the past year as monetary policy has tightened sharply.
Three of the UK’s largest lenders and several small players announced cuts to mortgage rates on Thursday, after last week’s official data showed a better-than-expected drop in June inflation. The moves by Nationwide, Barclays and TSB followed on from a decision by HSBC, which on Wednesday became the first big mortgage provider to cut the cost of about 100 of its products in the wake of the inflation data.
The reaction came as last week’s inflation figures led to a change in market expectations that the Bank of England was more likely to raise interest rates by 0.25% rather than 0.5% next week.
Although the base rate is at a 15-year high of 5%, the larger than expected fall in June inflation data has helped stabilise financial markets, allowing banks to reduce funding costs. The reduction in the cost of home loans reflected
the impact of the slowing housing market triggered by the surge in mortgage rates in recent months, as the
Bank of England raised the base rate to tackle inflation. Lenders have also come under pressure from MPs over
the speed at which mortgage rates have risen compared to savings products.
Commodity markets
In the commodity markets, Brent crude futures traded around $84 per barrel on Friday, hovering near a three- month high hit earlier in the week, as the prospect of tighter global supply and a rebound in Chinese demand supported the market.
Crude has posted four consecutive weekly gains on an expected tightening of supply because of output cuts by OPEC and its allies, as well as some involuntary outages.
Risk appetite in wider financial markets is being boosted by growing expectations that central banks such as the Federal Reserve are nearing the end of policy tightening campaigns, which would boost the outlook for global growth and energy demand.
With interest rate hikes either at or near a peak, amidst increasing views that a recession will be avoided, risk assets such as oil have become increasingly appealing. A pledge on Monday from China to boost policy support for the economy also spurred hopes of oil demand regeneration from the world’s largest crude importer. Gold traded around $1,950 an ounce on Friday, and is set for a weekly decline, weighed down by a stronger dollar and an uptick in bond yields after stronger than expected US economic data.
Equity markets
US equity futures rose on Friday after a positive week, as investors welcomed fresh economic data and
corporate earnings results.
In Thursday’s regular trading session, The Dow Jones Industrial Average declined 0.67%, the S&P 500 Index fell 0.64%, while the Nasdaq Composite dropped 0.55%.
The Federal Reserve raised its benchmark interest rate by 0.25% on Wednesday to the highest level in 22 years, as it left the door open to further increases this year. The Federal Open Market Committee lifted the federal funds rate to a new target range of 5.25% to 5.5% with unanimous support, resuming its most aggressive monetary tightening campaign in decades.
Economic growth in the US was stronger than expected in the second quarter of 2023, as activity proved resilient, despite the Federal Reserve’s campaign of aggressive interest rate rises. The US economy grew 2.4% on an annualised basis between April and June, according to preliminary figures released by the department of Commerce on Thursday. The data showed the US economy accelerated from a 2% growth rate in the first quarter, and faster than the 1.8% rate predicted by economists, as labour market resilience underpinned consumer spending.
A separate report from the US Labor Department on Thursday showed initial claims for state unemployment benefits fell 7,000, to a seasonally adjusted 221,000 for the week ended July 22nd .
The information provided in this communication is not advice or a personal recommendation, and you should not make any investment decisions on the basis of it. If you are unsure of whether an investment is right for you, please seek advice. If you choose to invest, your capital may be at risk and the value of an investment may fall as well as rise in value, so you could get back less than you originally invested.