- FTSE 100 opens in the green but trading could be muted ahead of rate decisions
- Wall Street stocks end the session higher after a choppy trade as traders ponder the Fed’s next move
- Liz Truss rules out a quick free trade deal with the US, raising concerns about the trade outlook
- Oil stabilizes as China lifts lockdowns and US sells more crude from its strategic reserve
FTSE 100 opens higher
The London Stock Exchange has resumed normal business after the somber, historic scenes in Westminster and trading is expected to be quite subdued. The FTSE 100 opened higher, taking the lead from the Wall Street close and being hailed by the lifting of some of China’s Covid restrictions.
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However, investors are widely expected to bid their time and wait for a flurry of central bank activity later in the week, with big rate hikes expected on both sides of the Atlantic.
On Wall Street, shares fluctuated in value, drifting higher at the close as there was no new data to rely on. But expectations are mounting that another 0.75% rate hike will be washed ashore on Wednesday, the third straight hike, amid strong payrolls data and persistent inflation.
In the UK, the focus will return to speculation over whether the new Truss government is on an austerity course on a collision course with the Bank of England to stimulate the economy at a time when central bank policymakers are trying to do so Suppress demand to reduce inflation.
The Bank of England is expected to announce a further 0.5% hike in interest rates when policymakers meet later this week, but speculation is mounting that they could commit to a 0.75% hike if as inflation is expected to return to double digits.
Friday’s retail sales snapshot showed that consumers are spending less, so this was a step in the right direction in terms of containing the price spiral. But that’s not the way Liz Truss wants the economy to go right now, as it appears intent on boosting growth, even if it means high inflation could linger for much longer.
Britain’s Trade Agreement
An aura of pessimism about Britain’s prospects is likely to linger with no quick fix in sight to boost trade with foreign partners. The admission by Liz Truss on the way to the UN talks in New York that a free trade agreement with the USA is unlikely in the short to medium term should be particularly disappointing among Brexiteers.
This confirmation comes after Joe Biden’s government warned the UK government against tearing up Northern Ireland’s trade deal protocol, which was a key part of the Brexit trade deal with the EU.
No new talks are planned with European counterparts to advance this protracted dispute as the government is overwhelmed with difficult issues to solve, not the least of which is the cost of living crisis and energy security headaches.
Oil prices have stabilized with Brent crude hovering around the $92 a barrel mark as traders price the darkening global outlook with interest rates set to rise again this week, expected to limit aggregate demand.
However, prices are being supported to some extent by the easing of Covid restrictions in China, as the huge city of Chengdu comes out of lockdown and 21 million people are allowed to resume life.
Supply nerves were also calmed after the US announced it would put an additional 10 million barrels on the market from its strategic reserves for delivery in November ahead of the threat of the EU ban on Russian oil in December.
Article by Susannah Streeter, Senior Investment and Markets Analyst, Hargreaves Lansdown