FTSE 100 Posts Its Best Week Since May
There were contrasting fortunes across global stock markets last week as investors weighed dovish signals from the Federal Reserve and hotter than expected inflation reports. The FTSE 100 was one of the strongest performers, rising 1.1% to hit a new record high, supported by gains in mining, retail and banking stocks.
The Federal Reserve’s annual economic summit for central bankers in Jackson Hole, Wyoming was the key for focus for markets during the week, especially Fed Chair Jerome Powell’s speech on Friday. Powell, and his colleagues at the Fed, have steadfastly resisted pressure from President Trump to cut interest rates due to concerns that tariffs will feed through to higher consumer price inflation in the US.
However, recent weakness in the jobs market has put policymakers in a more challenging position and Powell acknowledged that “the shifting balance of risks may warrant adjusting our policy stance”. Investors interpreted the remarks as a clear signal that the Fed will resume its rate cutting cycle and money market futures are now pricing in an 83% chance of a cut at its next meeting in September.
The Fed remained in the news on Monday after President Trump posted on his Truth Social platform that he has fired Federal Reserve governor Lisa Cook, “effective immediately”. Cook, appointed by Joe Biden in 2022 and the first African American women to serve of the Fed’s board of governors, has been accused of making false statements to obtain mortgages. In response, Cook said that she will not resign, and the president has no authority to fire her.
Closer to home, the Bank of England is facing a similar challenge of a deteriorating economic outlook and accelerating inflation. Last week it was revealed that annual consumer price inflation picked up to 3.8% in July due to higher airfares, 30% higher than a year ago, and food prices rose by 4.9%. The BoE forecasts inflation could reach 4% in the coming months, twice as much as its target rate, which puts further interest rate cuts before the end of the year in doubt.
In company news, shares in WH Smith plunged more than 42% on Thursday, wiping £600 million off its market valuation, after the discovery of an accounting error forced it to slash its profit outlook for North America by around £30 million for the current trading year. The company said it had booked income from suppliers earlier that it should and has appointed Deloitte to carry out an independent audit.
Once a stalwart of the British high street, the retailer has transformed into a global business with around 1,300 stores in airports, train stations and hospitals around the world. In North America, it has 320 stores operating under brands including District Market, Flight Stop and Root & Branch.
In commodity markets, Brent Crude climbed to $69 a barrel after the US president warned again on Friday that he would impose more sanctions on Russia if there is no progress towards a peaceful settlement with Ukraine within the next two weeks. Ukraine also stepped-up attacks on Russian energy infrastructure over the weekend, including a drone attack at the Ust-Luga fuel export terminal which caused substantial damage.
This focus over the week ahead will be Nvidia’s quarterly earnings report after US markets close tonight. The $4 trillion chipmaker has become the world’s most valuable company on the back of the insatiable demand for its advanced AI technologies, and the bar has been set high to meet Wall Street’s lofty expectations. Since OpenAI launched ChatGPT at the end off 2022, Nvidia’s share price has risen twelvefold, including a 34% increase so far this year, and its latest update is seen as a barometer of the boom in AI which has underpinned US stock markets over the past two years.
The economic calendar is headlined by Friday lunchtime’s release of the US PCE inflation report. The Federal Reserve’s preferred measure of inflation is expected to show that consumer prices rose 2.6% over the past twelve months in July. A higher reading would suggest that tariffs are starting to bite which could delay the resumption of interest rate cuts in the US.
(Cover Image Source: Allison Saeng)