- China shares leap most in two weeks
- US stocks rally alongside bond yields
- Pound higher after UK wages jump
- Glencore (LONDON:GLEN) near top of FTSE after issuance
- US stocks to open higher before CPI data
The biggest jump in Chinese shares for two weeks and a 1% jump yesterday on Wall Street helped UK and European markets to solid gains in morning trading. Most of the gains in China were thanks to a late spike, typical of government buying.
Global benchmark indices from the FTSE 100 to the Dow Jones Industrial Average are pushing into the top of the sideways range that has been in place for the past two weeks. The very similar price action across developed stock markets reflects a widespread refusal to act before the Fed.
The move higher in US stocks and bonds yields on Tuesday could be a sign of what’s to come after the Fed decision. A rise in bond yields can only really mean positioning for a rate hike. The concurrent move higher in stocks could mean that there will be a relief rally on a hike.
A hike in rates shows that the Fed is confident in the US economy, so in a circular kind of way, that confidence can spread to other market participants and the way they invest in the market.
In a typical tightening cycle, stocks top out long after the first rate hike because the move to tighten policy is considered a sign of strength in the economy, its only later when higher rates curtail investment. The only problem is that this isn’t a typical tightening cycle because of how long rates have been at rock bottom.
If the Fed does hike, the Bank of England may not be far behind them if the latest labour market data is anything to judge by. The British pound rallied as it was reported that the UK unemployment rate dropped to 5.5% and average weekly earnings expanded 2.9% in the three months through July. BOE governor Mark Carney will speak at the hearing of the UK parliament’s treasury committee later today.
The FTSE 100 rose for a second day on Wednesday with Burberry and Sports Direct (LONDON:SPD) both higher following an 80% jump in first half profits at clothing retailer rival JD Sports. Commodity trader Glencore founds itself in the rate position as a top riser after a $2.5bn share issuance. Mondi (LONDON:MNDI) was a top faller following a broker downgrade.
US stocks look set for a cautiously higher open with consumer price inflation expected before the opening bell.US CPI will be the defining data point before the FOMC decision. The below target inflation is one of the main reasons the Fed has delayed lifting rates this long.
USA pre-opening levels
S&P 500: 1 point higher at 1,979
US 30: 28 points higher at 16,627
Nasdaq 100: 2 points higher at 4,361
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