· FTSE 100 surges on open as shock of Israel attacks subside.
· Focus returns to hopes that interest rates will stay on hold in the US.
· Oil prices dip but stay elevated, around 5% above Friday’s level.
· Next and M&S on the front foot as consumer card spending rises in September.
· Airlines recover, helped by data showing a surge in bookings in September.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’A more upbeat sentiment has returned, as the shock of the Israel attacks subsides. Equities have regained momentum, with the FTSE 100 surging on the open. Although there are set to be longer-term geo-political implications of fresh conflict in the Middle East, for now attention appears to be turning back to interest rates, amid expectations that the screws won’t be tightened on monetary policy again.
Bets are increasing that the Federal Reserve won’t have to raise rates in November, given that wage growth appears to be stabilising. A waiting game is now on, ahead of the latest CPI report due out on Thursday, but expectations are that it should show core inflation, stripping out more volatile fuel and food prices, continuing to cool, even if the headline rate inches up again. But the Fed has taken investors aback before in its hawkish tone, and the door is still being left open to another rate hike, if policymakers don’t judge inflation to be moving quickly enough to target. For now though, hopes are hovering that the US will still head for a soft landing.
Oil prices have dipped back but are largely clinging onto gains made after Hamas launched devastating stealth strikes and Israel retaliated with huge force. Brent Crude is still trading above $87 a barrel, up around 5% since Friday, as concerns about supply shortages and potential distribution snarl ups come to the fore, amid worries about the potential for a prolonged war in the region. The slight retreat in crude prices though put energy giants on the backfoot in early trade.
Next and Marks and Spencer have gained ground on a swell of positivity, and were among the biggest risers in early trade. Although the warm weather has been playing havoc with spending patterns, with winter woollies being shunned, sunny September days made shoppers more upbeat overall. Figures from Barclaycard show consumer card spending grew by 4.2% year on year in September, up from 2.8% in August. The cost-of-living crisis may still be raging, but consumers are clearly keen to splurge on little treats to find the feel-good factor. Health and beauty stores saw a 6.9% surge in spending, with purchases of make-up and skin care boosting sales. While we are steering more clear of big ticket items, the so called ‘lipstick effect’ appears to be taking hold, helping push up sentiment towards the big stores supplying luxury beauty treats like M&S.
Airlines have flown into calmer skies, despite the continued disruption and cancellation of flights into Tel Aviv. British Airways owner IAG lifted around 1.6% in early trade, but not enough to make up Monday’s losses. There is set to be ongoing turbulence for airlines as the conflict rages, and concerns will still linger about a loss of confidence about flying to the area among the travelling public, as geo-political tensions stay elevated. However, Barclaycard data indicated that overall demand for travel was super-strong in September. For the travel sector as a whole, credit card sales indicated sales surged by 13.2%, but for airlines growth had added thrust, soaring 31.1%. As people returned from one holiday, they were clearly keen to book another overseas trip. The wash-out summer is likely to have had an impact with British holidaymakers fed up with the rain, super-keen for a guaranteed sunshine next year.’’
