The FTSE 100 was slightly up at 8,250 on Friday, at the time of writing, and on track for a third straight month of gains, with investors awaiting key inflation data from Europe and the US later today.
On the domestic economic front, Nationwide Building Society data showed that UK house prices returned to growth in May following two months of declines. Robert Gardner, Nationwide’s chief economist, stated that the housing market was “showing signs of resilience” despite the rise in mortgage rates in recent months, as hopes of an imminent interest rate cut from the Bank of England faded.
Investors are now pricing in only one cut in interest in 2024 as inflation has proved to be stickier than expected, falling to only 2.3% last month. The benchmark rate of interest continues to stand at a 16-year high of 5.25%.
In general election news, both Labour and the Conservatives have ruled out the possibility of VAT increases, as scrutiny over both parties’ tax plans has intensified in the build-up to the 4th July vote.
Chancellor Jeremy Hunt claimed that his party would not increase tax on goods and services as it would likely “hammer families’ finances and push inflation back up”, whilst simultaneously accusing Labour that they would increase VAT should they be elected. These accusations were quickly dismissed by shadow chancellor Rachel Reeves who stated there would be “no increase to income tax, national insurance or VAT”.
Commodity markets
Brent crude futures fell toward $81.5 per barrel on Friday, sliding for the third straight session as demand-side uncertainties continued to weigh on oil markets.
A draw on US crude inventories was higher than expected, increasing supply by 4.2m barrels last week compared to the expected 1.9m barrels. Investors are now looking ahead to Sunday, where OPEC+ members will decide on supply cuts through to 2025.
Gold prices rebounded to trade above the $2,350 per ounce mark on Friday, following the release of PCE inflation figures for the US. These figures offered investors some support, suggesting that the Federal Reserve has room to cut interest rates this year. The odds of a Federal Reserve ease in inflation increased slightly for September, November and December.
Equity markets
The US experienced a weakened trading session throughout the week, with the Dow Jones (-2.17%), the S&P500 (-1.46%) and the NASDAQ (-1.69%) all trading lower. Revised data released on Thursday showed that the US economy grew at a lacklustre 1.3% annual pace in the first quarter, lower than the advance estimates of 1.6%.
On Friday, however, US futures rebounded following positive core PCE data, which showed the Federal Reserve’s preferred inflation indicator coming in slightly lower at 0.2% compared to the expected 0.3%. The three major averages moved into positive territory, adding about 0.2%, as traders welcomed the PCE inflation figures. These figures offered investors belief the Fed has room to cut rates this year.
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