The FTSE 100 was higher on Thursday as investors reacted to Federal Reserve minutes released overnight, which signalled that the US central bank is on the verge of cutting interest rates at its September meeting.
“The Fed might have given its strongest signal yet that it is ready to start cutting interest rates, but the market isn’t going all-in with its bet on monetary policy,” said Dan Coatsworth, investment analyst at AJ Bell.
– Advertisement –
After a strong rally in US stocks since the flash crash early in August, the market reaction was fairly muted in last night’s US session. This suggests that the recent rally in stocks has already priced in the current market pricing of a rate cut amid slower US economic data.
Subscribe to our newsletter
The S&P 500 closed up 0.5% and is less than 1% away from all-time highs. European traders took their cue from the US rally and the FTSE 100 was trading 0.35% higher at the time of writing.
“Traders are still only pricing in a 67.5% probability of a US rate cut at the Fed’s next meeting on 18 September,” Dan Coatsworth said.
“One could argue that is quite low given weak jobs data strengthens the argument to cut now. In theory, this narrative warrants a much higher percentage probability for a cut in the cost of borrowing.
“It was only a few weeks ago that the market panicked about a potential recession in the US amid suggestions that the Fed had acted too late in cutting rates. However, these fears seemed to have evaporated given how equity markets have quickly recovered most of the territory lost earlier in the summer. Investors have regained their optimism and perhaps they now don’t want to see a rate cut as it would confirm a gloomier backdrop.”
JD Sports
JD Sports was the FTSE 100’s top riser on Thursday as investors bought into improving sales figures. Doubts swirled around JD Sports after it cut profit forecasts earlier in the year, but today’s update shows the firm is back on the right path.
“After a challenging period of volatile conditions and guidance downgrades, JD Sports got back on the front foot in the second quarter,” explained Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“Like-for-like sales were up 2.4% in the period with the strongest growth coming from North America. Despite the tough economic conditions, the group hasn’t shied away from its expansion in North America and Europe.
“The Hibbett acquisition was completed in late July, expanding the group’s presence in the US through its 1,179 stores, which will further strengthen its foothold in the world’s largest sportswear market. The full-year outlook remains on track, with management expecting pre-tax profits to land in the £955-£1,035mn range, on a pre-Hibbett basis.”
JD Sports shares were 6% higher at the time of writing.
