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October optimism continues but inflation and cost-of-living problems still linger: early market update from HL’s Streeter

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  • Wall Street has stayed buoyant, with a rally continuing on the S&P 500 and Nasdaq Composite indices.

  • Brent crude largely holds onto big gains amid expectation OPEC+ will announce a big production cut.

  • Sterling dips slightly but hovers above $1.14.

  • FTSE 100 expected to open lower ahead of a speech from UK Prime Minister Liz Truss.

  • Cost of living concerns weigh on Tesco, as full year profits expected to come in at lower end of range.

  • Twitter shares rise like a rocket, but stay below Elon Musk’s offer price as doubts still linger that a deal will go through.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

‘’Early October optimism is still seeping through financial markets, with hopes rising that the relentless hikes in interest rates by the Federal Reserve could slow and even soon reverse. Investors are clinging onto every shred of evidence which may point in this direction, such as US job vacancy stats which dropped sharply in September. But there is still every chance that the rays of light they are glimpsing will be eclipsed by a fresh determination by policymakers to stay the course on rate rises until inflation is brought down considerably further. Rather than a quick Fed pivot, it’s more likely to be a slow a gradual turn in policy, particularly if the US core inflation rate, remains stubbornly elevated around 6.3% at the temperature check next week. New Zealand’s rush to raise rates to a seven year high, up another 50 basis points to 3.5%, highlights the battle so many countries are facing to cool down prices in an overheating economy.

Hopes that lower fuel prices will help calm soaring inflation in struggling economies are already being dented with oil having shot up ahead of a key meeting today to determine output. It’s already widely expected that OPEC+ will cut production targets to try and lift crude, which has pushed a barrel of Brent crude back above $91, where it’s still hovering. Oil prices jumped 8% over the two previous sessions with markets pricing in a reduction of up to 2 million barrels of oil a day, which would represent the biggest cut since the height of the pandemic. If members of the cartel decide to set production targets a bit higher, it could ease the upwards pressure on prices.

The more robust pound, compared its fragile state last week, will minimise slightly some of the effect of the jump in oil prices for UK consumers, given that a stronger sterling makes imports of good priced in dollars less expensive, but even at $1.14 the pound is still hovering around levels which were last broadly seen in the mid-1980s.

The extent to which the cost of living crisis is squeezing consumers is clear from Tesco’s update. Full year adjusted operating profits are now expected to come in at the lower range of expectations, around £2.4- £2.5 billion. Despite the brand’s strong value proposition, it’s clearly not immune to the new purse tightening habits of its customers.

The FTSE 100 is expected to open lower, following yesterday’s strong gains, as investors await a speech from the beleaguered Prime Minister Liz Truss at Conservative Party conference in Birmingham. She is expected to brush away concerns about market volatility and double down on her promises that her policies will lead to growth. She’s facing an uphill struggle though to convince her colleagues that reductions in public spending, which will be necessary to fund tax cuts, won’t end up denting productivity over the longer term instead, especially if working families are made poorer.

Twitter has again been set alight with speculation that the Elon Musk purchase could be back on, with shares surging 20%. The company has now acknowledged that it’s received a proposal from Musk to re-start the deal, amid the looming court case brought after he tried to back out. It intends to close the transaction at $54.20 per share, the price he promised to back six months ago. But shares ended a rocket fuelled day trading just shy of that, showing that scepticism remains about whether the deal really will go ahead with speculation swirling again that it could be just another delaying tactic. If the sale does eventually go through, a bout of buyer’s remorse may have damaged the company Elon Musk will end up owning. He has been like a dog with a bone in his focus on the number of fake bots on the platform. This is an important metric considered to be key for future revenue streams via paid advertising or for subscriptions on the site, and his relentless scrutiny of Twitter’s figures over the last few months is likely to prompt questions from potential advertising partners.’’

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