Global interest rate decisions take centre stage this week, with the most intriguing meeting likely to come from the Federal Reserve announcement on Wednesday.
That there will be a cut from the Fed is now without question, but the scale of the reduction remains under intense debate. The current economic data does not necessarily point to anything beyond a 0.25% cut, but traders are now pricing in an equal likelihood of a more aggressive 0.5% move. The dial has moved slightly in anticipating that the Fed could make a statement move as it begins its easing cycle, and such an outcome would certainly allay any concerns of the central bank having fallen behind the curve. Whatever the outcome, the market is still pricing in 1% of cuts in total by the end of this year, which could take some of the sting from Wednesday’s announcement.
On Friday US markets were stronger again, leading to weekly gains of almost 6% for the Nasdaq and of 4% for the S&P500. Mega cap and semiconductor stocks were in focus, while there was also buying interest among the likes of industrials, utilities and communication services. Quite apart from the Fed decision, investors will also be scrutinising releases such as industrial production and retail sales in order to keep abreast of the current economic backdrop.
In the meantime, and despite any volatility which could potentially plague markets this week, the main indices remain in rude health in the year so far, with the Dow Jones having added 9.8%, the Nasdaq 17.8% and the S&P500 18%.
Widespread holidays in Asia including mainland China and Japan limited moves across the region, with some weakness in Hong Kong potentially being a sign of things to come when China opens again. This followed more disappointment in the latest Chinese releases, where investment figures, factory output and retail sales all missed expectations. At the same time, the unemployment rate rose to a six-month high, underlining the fragility of an economy where a beleaguered property sector adds to the country’s current issues.
There seems a clear divide between investors, who continue to advocate further and more aggressive stimulus intervention to revive the flagging economy and the authorities, who tend to take a much longer term view but whose measures so far have clearly done little to boost prospects. The result so far this year has been an exodus of investors from the country to other regions who they perceive to offer stronger returns.
Receiving rather less fanfare this week will be the Bank of England rate decision on Thursday, where no change is expected following last month’s cut. There may be some interest arising from both retail sales and inflation data, however, potentially to throw some light on the MPC’s next move, which is currently not expected to come into force until November at the earliest. In the meantime, the more domestically focused FTSE250 drifted in early trade, although the index remains up by 6% in the year to date.
For the premier index food was in fashion as broker upgrades to J Sainsbury PLC (LON:SBRY) and Marks and Spencer Group PLC (LON:MKS) read across to Tesco (LON:TSCO). Phoenix Group Holdings PLC (LON:PHNX) slipped however, following the release of its interim results which revealed a sharp increase in both its pre-tax loss and net finance expenses figures. With many more data points to consider as the week progresses, the FTSE100 was unable to gain ground in opening trades although the index is still ahead by 6.8% do far this year.