US inflation data released yesterday showed lower than expected impacts from President Trump’s tariffs. That led to anticipation that the US Federal Reserve would feel more confident to lower US interest rates, sending stocks higher. The S&P 500 index hit a new all-time high of 6445.8 and the tech-heavy NASDAQ composite jumped over 1%, to its own record at 21,690.
With Asian markets following through with gains of their own overnight, the MSCI World Index has hit its own all-time high. With the market’s favourite volatility measure, the VIX index dropping below, 15 investor sentiment is clearly positive with little signs of greed being overcome by fear, despite all of the extraordinary events unfolding around the globe.
US Treasury secretary, Scott Bessent, called for a step-change in the pace of rate cuts at the Federal Reserve. With a Trump-backed candidate expected to be appointed to the board of the Fed imminently, the balance of voting opinions could shift decisively toward an easing bias. Secretary Bessent laid his cards down quite clearly, calling for the Fed to consider making a swift reduction of 50 basis points to US rates next month. Whilst lower funding costs are typically positive for stocks, the erosion of the Fed’s independence could still come back to haunt markets because, once the Fed is dancing to the Administration’s tune, it isn’t just the cost of US money that is going down, but the quality too.
On this side of the pond, stocks are generally better in early trade. The FTSE 100 opened 0.3% higher at 9,175, with BAE Systems at the top of the leaderboard, up 2.0%. Specialist insurer, Beazley, is at the bottom of the board, dropping 6% on poorly received results.
Oil markets look to have assumed that a resolution of the war in Ukraine is done and dusted, before either the US or Russian leaders set foot on Alaskan soil. Brent futures contracts are continuing to slip lower, dropping through $66 in early morning trade today. With the tensions over Iran’s nuclear programme still unresolved and Ukraine still hotly disputed, Oil remains capable of springing surprises onto the markets. But for now, it is the strength of oil supply that is holding sway and keeping the bulls penned in.
With US rates being called lower, the dollar is on the slide today, trading lower against pretty much every other major currency. For sterling, that means a rally through $1.351 having broken out of the downtrend set in recent weeks.
By Steve Clayton, Head of Equity Funds at Hargreaves Lansdown
