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Today’s markets: London rises as eyes turn to the Fed

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The FTSE 100 is up a bit this morning in contrast to sharper falls across other stock markets ahead of the Federal Reserve decision today. Mainland Europe is shut for the May Day holiday, so the focus is on London and New York.

There’s a slew of company updates. Medical equipment maker Smith and Nephew rose to the top of the FTSE 100 with a bullish update, Next is down a touch despite reporting sales ahead of estimates. GSK rose more than 1 per cent as it upped guidance and Aston Martin remains an absolute car crash, shares dipping 13 per cent. Wickes was lower which is no wonder given the property market – people don’t get a new kitchen every year if they are not moving house. Speaking of which, there was also an update on house prices which surprisingly fell month-on-month due to rising mortgage costs. Falling expectations of rate cuts since the start of the year have meant lenders hiked up costs, with three increasing borrowing costs in the past two weeks. The January price war is long behind us. House prices fell 0.4 per cent between March and April, Nationwide said, and are 4 per cent down on the peak in the summer of 2022.

Yesterday the market was rocked by a hotter-than-expected Employment Cost Index from the US, which climbed to 1.2 per cent, its highest in a year. Here is BMO to explain: “The acceleration in the ECI supports the narrative that the last leg down in inflation will be slow and uneven and reinforces our call for the Federal Reserve to remain on hold until September.” The implication is that the labour market is still too hot for the Fed to cut. It confirmed the emerging story painted by three hot CPI prints and the quarterly core PCE beat. Treasury yields jumped – the 2-year is back above 5 per cent and 10-year towards 4.7 per cent. That gave more support to the dollar, which rallied. Gold fell to its lowest in a month and crude prices declined further. Copper, which had been rallying hard all year, fell sharply. 

To wrap up April, the FTSE 100 led the way and rallied 3 per cent and notably hit fresh record highs. Miners led the way with Anglo American up 40 per cent after the BHP bid. Fresnillo rallied 25 per cent and Antofagasta was 12 per cent to the good. Other European shares fell for a second day on Tuesday to end the month on a sour note, the Dax shipping more than 1 per cent on soft numbers from the likes of Volkswagen. Wall Street tumbled yesterday to end an ugly month – the Dow closing down 1.6 per cent for the session and 5 per cent for the month, its worst monthly performance since Sep 2022. The S&P 500 and Nasdaq both fell by more than 4 per cent as investors pushed back expectations for rate cuts. Tech had another bad day, with Tesla down more than 5 per cent as Elon Musk fired his supercharger team. Amazon fell over 3 per cent but bounced after hours as profits trebled. 

The Fed: It will be a wait-and-see meeting – no change is expected. A big question for the market is whether the Fed sticks to its belief that inflation is coming down, or whether it throws in the towel and says: “Yeah we got it wrong again, we are going to have to stay higher for longer.” Which takes to the all-important data, which could be about to surprise again.

The Trader is written by Neil Wilson, chief market analyst at Finalto

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