London is down this morning with the FTSE 100 dipping nearly 0.5 per cent in the morning trading, with AstraZeneca leading the way down. A mining rally following a bid for Centamin was unable to undo the damage. Shares in Frankfurt are flat and Paris is fairing best, rising 0.4 per cent. Futures for the US markets show the S&P will open slightly higher later on today.
Yesterday, stock markets made a bit of a comeback. The three major US indices rallied more than 1 per cent after their bruising start to the month. The FTSE 100 added more than 1 per cent for the session. Apple shares were unmoved after hours on the launch of the new iPhone 16.
The FTSE 100 will hit 9,000 this year, says UBS, citing political stability, last month’s interest rate cut by the Bank of England, and a likely return to earnings growth this year. UK stocks still suffer from “undemanding valuations”, with shares trading at a lower price/earnings ratio than the long-running average. But don’t get too excited…all this is “largely priced in”, and “UK equities will struggle to outperform their international peers in what we expect to be a positive year-end for stocks”.
Chances of a rate cut by the Bank of England have ticked up even before the wage data this morning showed a marked slowdown that ought to give policymakers greater scope to ease. Wage growth excluding bonuses declined to 5.1 per cent in the three months to July, down from 5.4 per cent in the quarter to May. Grocery inflation returned to its downward trend, according to Kantar.
Later this week the European Central Bank is expected to cut rates again. The ECB left interest rates unchanged in July but said September’s meeting was “wide open” as it downgraded its projections for growth and inflation in the Eurozone. A 25bps cut at this meeting now looks increasingly certain, particularly as the Fed is a slam dunk to cut this month as well. Eurozone inflation dropped to a three-year low of 2.2 per cent in August, down from 2.6 per cent in July. The core rate fell to 2.8 per cent in August from 2.9 per cent in July. Eurozone manufacturing PMI data out last week was also very soft and, taken together, continues to build the case for the ECB to cut again in September.
Another factor supporting a cut is the recent growth in negotiated wages, which slowed to 3.55 per cent in the second quarter from 4.74 per cent three months earlier, thanks mainly to a slowdown in Germany. The ECB has long stressed how important the negotiated wage data is to its policy outlook.
By Neil Wilson, chief market analyst at Finalto