Derren Nathan, head of equity research, Hargreaves Lansdown: “The FTSE 100 has opened up, shrugging off weak sessions on Wall Street and in the Far East. Despite fresh strikes by US and Iranian forces in the Persian Gulf overnight, Brent Crude oil, which has traded as high as $96 per barrel in the last 24 hours, is now back below $94 as Washington and Tehran contradict each other on the status of the Strait of Hormuz.
US stocks suffered a bruising session yesterday as investors winced at the highest headline CPI inflation numbers in three years, and a throwaway “I love inflation” comment by President Trump. The 4.2% annual increase was driven by a 23.5% rise in energy. Beneath the surface, however, core inflation was more muted at 2.9%. The monthly rise of 0.2% came in a little cooler than forecasts of 0.3%. Taken together with last week’s bumper non-farm payrolls data, there are some signs that the economy can accommodate a higher level of hiring without running red hot. Bond markets took a sanguine view with US 10-year yields broadly flat at 4.5%.
However, futures are still pointing to a quarter point rate hike by the Fed towards the end of year. Tech stocks had the worst of it yesterday with the NASDAQ losing 2% of its value. Some of this has been attributed to a redeployment of capital as investors look to fund their commitments to tomorrow’s Space X IPO, which is targeting a fundraise of $75bn, the biggest primary issuance in history. However the fundamentals suggest there’s plenty of life left in the AI trade yet. US futures are up this morning, with the NASDAQ showing a bigger rise than the broader market.
Later today, there are a couple of data points that could further influence the tug of war between borrowing costs, price rises and interest rates. Continuing jobless claims are expected to remain broadly flat at about 1.78 million, which is relatively low compared to historical norms. Last week’s non-farm payrolls numbers pointed to structural pockets of hiring strength in sectors such as healthcare, and a bump in leisure and hospitality job creation ahead of the FIFA World Cup, which kicks off today. However, this is being offset by hiring freezes and limited job cuts in other sectors.
The bigger mover of today’s market could be the US Producer Prices Index, which can be loosely seen as a forward indicator of the direction of consumer prices. The year-on-year print is expected to rise from 6.0% to 6.4%, although forecasts suggest the pace of change is slowing, with the monthly change expected to decelerate from 1.4% to 0.7%. With markets already twitchy, a meaningful surprise on either side is likely to see an amplified reaction.”
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