With the FTSE 100 having opened in the green, with investors shrugging off yesterday’s turmoil in Parliament, there is plenty on investors radar today as Susannah Streeter, head of money and markets, Hargreaves Lansdown, explains in this overview:
‘’There’s been a recovery in sentiment for the pound, stocks and UK government debt after scenes in Parliament roiled markets. A Chancellor in tears, a backbench revolt, and signs investors are becoming more risk averse to the UK is hardly the way the Prime Minister wanted to mark his first year in office. The government is in repair mode, with Keir Starmer backing Rachel Reeves to remain Chancellor into the next election and beyond. This is helping restore some calm on bond and currency markets, given that investors need stability and certainty to have the confidence to invest in UK assets.
It’s been a positive start for the Footsie, with investors shrugging off yesterday’s turmoil. Gilt yields, which indicate UK government borrowing costs, have been dipping back from the sharp gains yesterday, while the pound has also regained some strength. Sterling is still lower against the dollar compared to 24 hours ago, having reached multi-year highs earlier this week. But it is still up 1.5% on a fortnight ago, and around 12% since the start of the year.
Some worries remain about the government being backed into a corner and losing its grip on the public finances. Investors may still be on alert to fresh opposition to government plans to trim spending, to try and abide by its fiscal rules and keep bond markets onside. This wasn’t a mega strop out, but a flare of alarm lobbed into Westminster. It comes as business sentiment remains weak, according to the British Chambers of Commerce. Less than half of firms surveyed expect their sales to grow over the next 12months, with tax the biggest bugbear for business. With a quarter of firms cutting back on investment plans amid rising costs, it’s not fertile ground for the seed of growth to grow.
Broader market sentiment has been buoyed after Trump notched up another tariff agreement, this time with Vietnam. This has added to hopes that there will be a flurry of deals struck before the deadline next week. But it’s by no means certain. If more deals aren’t signed and higher tariffs come into effect, there could be yet another spurt of volatility on financial markets. However, with the TACO trade in play – the expectation that Trump Always Chickens Out – a big showdown may be avoided.
Eyes will turn to the official non-farm payrolls report later today, a crucial snapshot of the labour market for clues as to when the Fed will move again on interest rate cuts. Yesterday’s private sector survey came in weaker than expected, leading to speculation that policymakers may reduce borrowing costs later this month to support a slowing economy. Concerns about slower growth in the US has contributed to a fall back in oil prices. Brent Crude had gained ground yesterday after reports that Iran had stopped cooperating with the nuclear watchdog, adding to fears of a re-escalation of tensions in the Middle East. But a build-up in US stocks, with inventories rising by 3.85 million barrels last week, is indicating lower demand for energy.
The ballooning debt mountain in the US, which has prompted the mega fall out between Trump and Musk is still on investors’ minds. They are monitoring the progress of the President’s big tax cut bill which is back in the House of Representatives, after being narrowly passed by the senate. It’s forecast to add $3.3 trillion to $3.4 trillion to the national debt. It’s raising concerns about the sustainability of US borrowing, ripples of worry which have been tarnished the dollar’s reputation as a safe haven.’’
