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Global stocks have had a quiet start to the week without much guidance from economic data ahead of the main speeches made by central bankers at the economic symposium.
London stocks had ticked a little further into the black by midday on Wednesday, helped along by a solid performance from the mining sector, as investors mulled borrowing figures and looked ahead to the release of the latest Federal Reserve minutes.
Figures released earlier by the Office for National Statistics showed that government borrowing was higher than expected in July.
Borrowing came in at £3.1bn, up £1.8bn on July 2023 and £100m higher than the Office for Budget Responsibility was expecting. It was also above the £2.5bn expected by economists and marked the highest borrowing figure for July since 2021.
Cumulative borrowing in the first four months of the fiscal year was £51.4bn. This was £500m less than in the same period a year earlier, but £4.7bn more than the OBR had forecast in March.
Jessica Barnaby, deputy director for public sector finances at the ONS, said: “Revenue was up on last year, with income tax receipts in particular growing strongly.
“However, this was more than offset by a rise in central government spending where, despite a reduction in debt interest, the cost of public services and benefits continued to increase.”
Alex Kerr, UK economist at Capital Economics, said: “Overall, today’s release highlights the tight fiscal backdrop that the Chancellor faces ahead of her first Budget on 30th October. We still think that she will look to raise an additional £10bn a year via higher taxes in the Budget and increase borrowing by around £7bn a year.”
JD Sports gained ahead of a second-quarter trading update on Thursday.
Public bus operator Mobico surged as it held annual guidance after a jump in adjusted interim operating profit driven by positive demand and cost cuts.
BT Group was weaker again, having tumbled on Tuesday after competitor CityFibre announced a long-term broadband partnership with Sky.
Elsewhere, Barratt and Redrow were in focus again as their merger came one step closer to regulatory approval after the Competition and Markets Authority said that allowances made by the companies may just be enough to get the green light.
In the US stocks edged higher in pre-open as investors awaited an annual review of US jobs data as well as Federal Reserve meeting minutes for further clues on interest rate cuts.
Futures on the S&P 500 ticked up 0.2% as Target Corporation jumped in premarket trading after ending a string of sales declines. The yield on 10-year Treasuries was steady at 3.81%, while the dollar paused a three-day run of declines. Europe’s Stoxx 600 added 0.4% amid thin trading volumes.
Anticipation is mounting before Fed Chair Jerome Powell’s Jackson Hole speech at the end of the week that could decide whether the market rebound has further to run. As traders look to Wednesday’s payroll revisions, there’s concern signs of excessive weakness will revive fears the Fed is behind the curve on lowering rates.
“Given that the US labour market is at the centre of the Fed’s policy, the publication is of unusually high interest,” said Amanda Sundstrom, interim chief strategist for Norway at SEB AB. “A large downward revision in the number of new jobs created could add new fuel to concerns that the Fed has waited too long to cut interest rates.”
Rate-cut bets have driven a bout of dollar weakness, but the US currency halted the slide on Wednesday on speculation the drop may be overdone.
“The dollar selloff is taking a breather given the speed of recent losses,” said Valentin Marinov, a Credit Agricole strategist in London.
The dollar’s slump is fuelling rallies in other major currencies, sending the euro and pound to fresh 2024 highs as traders home in on the path ahead for global interest rates.
Weakness in the dollar helped push the euro to its strongest level of the year, around $1.1130, on Tuesday. The pound rose as much as 0.5% to $1.3052, the strongest since July 2023, while the Swiss franc rose more than 1% to the day’s high of 0.8540 per dollar. Treasuries rallied across the curve.
A lot of Fed-related negatives appear to be priced in already as the US rates market prices in almost 100 basis points of cuts this year, he said. This seems like a lot given the next meeting is September with only a few months to follow. A 50 point cut isn’t impossible, but another 50 before the end of the year would require some very weak data first.
Gold held steady near a record high after the dollar’s recent run of losses. A weaker greenback typically aids gold as it is priced in the US currency.
Looking ahead to the rest of the day, the Fed minutes are due after the close of UK markets at 1900 BST.
More from us at TPP at the weekend.
