Derren Nathan, head of equity research, Hargreaves Lansdown: “The FTSE has followed global markets upwards this morning after Donald Trump backed off on threats to tariff key European trading partners in February over opposition to his plans to acquire Greenland. He’s also ruled out the use of force and claimed that a framework for a deal on Greenland was being discussed with NATO. The relatively light sell-off that came with the initial announcement on tariffs suggests investors were already sceptical about the prospects for economic or military escalation, and so far, the unified response by Denmark’s European allies looks to have had the desired effect. But the hectic nature of today’s geopolitical theatre means further market shocks can’t be ruled out, and the President’s Davos speech today could move markets in either direction.
Rachel Reeve’s policy of fiscal tightening looks to be having the desired effect on the public purse as December’s public borrowing came in below market forecasts of £13 billion at £11.6 billion, the lowest December drawdown since 2019. However, it’s unlikely to signal a spending spree with borrowing for the year still above Treasury forecasts. That said, it's likely to be taken as a positive signal for government borrowing costs and interest rate expectations, adding to the positivity on London markets, which are close to record highs.
US futures are pointing to a positive start, too, after Wall Street clawed back some of the week’s earlier losses following Donald Trump’s online activity. Today, the market will have some firmer data points to digest. Initial jobless claims, updated estimates for third-quarter GDP and core PCE inflation are all on the table, with PCE and its implications for interest expectations usually carrying the greatest sensitivity for markets. However, the delay to this readout from last year’s government shutdown means we’re less likely than usual to see a shock. Forecasts are for an annual increase of 2.8% for the year to November 2025, still above the 2% target and unlikely to raise hopes of a further rate cut before the summer.
The release of geopolitical pressure hasn’t been enough to provide a further boost to oil prices, with Brent Crude falling back to under $65 per barrel. The International Energy Agency provided a timely reminder of its expectations for oversupply this year, which was also mirrored by a 3 million barrel increase in last week’s US crude inventories.
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