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London Quick Take - 17 Aug - Investors dial back Fed rate hike bets, dollar weakens, FTSE advances as copper climbs
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
The month-long ceasefire between the US and Iran is due to expire today...talks have effectively ground to a halt but think there is little appetite on either side to meaningfully re-escape the conflict. The White House wants to exert economic pressure, while Iran is content to choke energy flows. Oil prices rose last week by about 5% but fell Friday and have opened flat this week with Brent a little above $88.
Stocks fell Friday with the FTSE 100 off about 0.2% and the S&P 500 falling a similar level though it was coming off a record high. For the week, the S&P 500 advanced +0.4% while the Nasdaq also rose for a third straight week. Reddit jumped +12% after being selected to join the S&P 500. Nvidia edged lower as securities filings disclosed stakes worth about $21 billion in SpaceX and $30 billion in Intel. US stock futures were mixed early Monday with Dow futs down and S&P 500 futs higher. Broadly speaking we see equities are looking easy with the macro backdrop and are seeing the Fed backing off from hiking soon...I'm not convinced but don't fight the Fed or momentum when it kicks into gear...momentum is clearly back with the Kospi entering a technical bull market last week. It's closed today for a holiday so no read through but Japan was higher, led by tech despite disappointing eco data, while Hong Kong rallied +1.5%.
Stocks opened higher in London early Monday with the FTSE 100 making up some of last week's losses, led by miners as copper prices advanced. Copper rose about +1.4%, moving in closer to a record high despite weaker China data as speculators boosted their net long to a fresh 5½-year high as traders increasingly look at tight supply -see Antofagasta last week trimming output forecasts + US-China competition as bullish indicators. More on copper and other commodities from Ole here.
China's economy lost steam in July - retail sales +0.6% from a year earlier missed the estimated +1.5% gain; urban fixed-asset investment, including real estate and infrastructure, contracted -6.7%; industrial output climbed +4.5% in July, short of estimates, while unemployment ticked up. Japan's economy also fell short of forecasts with +1.1% expansion missing forecasts for +2% growth.
Markets are pricing out Fed rate hikes after last week's data with softer economic data on Friday: July retail sales fell -0.6% on the month against consensus for a +0.1% rise, the first decline since October 2025, and the core control group used for GDP fell -0.4%, its largest drop since early 2025. Also, the preliminary University of Michigan sentiment index fell to 51 in early August from 55.2, below expectations. Softer data and inflation prints is pushing down Treasury yields, which has sent the dollar down and gold higher. DXY trades down at 99.30, testing the two-month lows set on 7 August. The weaker dollar has lifted cable to its best since the middle of May with GBPUSD above 1.3565. Gold meanwhile is feeling the benefit of lower Treasury yields and a weaker dollar to clear $4,400 again.
Clearly the recent US data gives the Fed a bit of space...markets odds for a Sep rate hike have gone out from 50% to 30% in the last week, but inflation is stickier and hotter than the CPI might be trying to say. I would flag that UoM year-ahead inflation expectations ticked up from 4.2% in July to 4.3% this month...a sign that it's going to become incrementally harder for the Fed to re-anchor inflation expectations each meeting it passes up the opportunity to hike. In the absence of more precise forward guidance, the Fed risks losing control of the long end of the curve in particular as inflation expectations start to move out. This becomes self-fulfilling and is increasingly decoupled from short-term price pressures from the Iran war... the toothpaste analogy applies. Without swift policy action in September the Fed risks repeating the mistakes of the post-Covid surge in prices that the Fed believed to be transient. Minutes of the FOMC's July meeting will be pored over later this week for clues about how policymakers are thinking. The minutes take on added significance as chair Kevin Warsh has refrained from offering the usual forward guidance markets have become accustomed to and because there was an unusually large body of dissent, with three members voting to raise rates.
Also coming up this week are a couple of key UK data points ... we had a tiny bit of encouraging signs about the UK's labour market in a recent survey – official data out early Tuesday will show whether this is the start of something. The last report was not great - the UK saw no jobs growth in the three months to May, and the slowest wage growth in five years, data last month showed. Hiring remained weak as vacancies fell, and payrolls declined again as the unemployment rate held steady at 4.9%. UK CPI inflation data for July is the main macroeconomic event on Wednesday. Having unexpectedly fallen to a 15-month low 2.6% in June, the re-escalation in US-Iran tensions suggests we could see rising petrol and heating costs nudge the headline CPI number back towards 3%. More in the week ahead here.
Stocks fell Friday with the FTSE 100 off about 0.2% and the S&P 500 falling a similar level though it was coming off a record high. For the week, the S&P 500 advanced +0.4% while the Nasdaq also rose for a third straight week. Reddit jumped +12% after being selected to join the S&P 500. Nvidia edged lower as securities filings disclosed stakes worth about $21 billion in SpaceX and $30 billion in Intel. US stock futures were mixed early Monday with Dow futs down and S&P 500 futs higher. Broadly speaking we see equities are looking easy with the macro backdrop and are seeing the Fed backing off from hiking soon...I'm not convinced but don't fight the Fed or momentum when it kicks into gear...momentum is clearly back with the Kospi entering a technical bull market last week. It's closed today for a holiday so no read through but Japan was higher, led by tech despite disappointing eco data, while Hong Kong rallied +1.5%.
Stocks opened higher in London early Monday with the FTSE 100 making up some of last week's losses, led by miners as copper prices advanced. Copper rose about +1.4%, moving in closer to a record high despite weaker China data as speculators boosted their net long to a fresh 5½-year high as traders increasingly look at tight supply -see Antofagasta last week trimming output forecasts + US-China competition as bullish indicators. More on copper and other commodities from Ole here.
China's economy lost steam in July - retail sales +0.6% from a year earlier missed the estimated +1.5% gain; urban fixed-asset investment, including real estate and infrastructure, contracted -6.7%; industrial output climbed +4.5% in July, short of estimates, while unemployment ticked up. Japan's economy also fell short of forecasts with +1.1% expansion missing forecasts for +2% growth.
Markets are pricing out Fed rate hikes after last week's data with softer economic data on Friday: July retail sales fell -0.6% on the month against consensus for a +0.1% rise, the first decline since October 2025, and the core control group used for GDP fell -0.4%, its largest drop since early 2025. Also, the preliminary University of Michigan sentiment index fell to 51 in early August from 55.2, below expectations. Softer data and inflation prints is pushing down Treasury yields, which has sent the dollar down and gold higher. DXY trades down at 99.30, testing the two-month lows set on 7 August. The weaker dollar has lifted cable to its best since the middle of May with GBPUSD above 1.3565. Gold meanwhile is feeling the benefit of lower Treasury yields and a weaker dollar to clear $4,400 again.
Clearly the recent US data gives the Fed a bit of space...markets odds for a Sep rate hike have gone out from 50% to 30% in the last week, but inflation is stickier and hotter than the CPI might be trying to say. I would flag that UoM year-ahead inflation expectations ticked up from 4.2% in July to 4.3% this month...a sign that it's going to become incrementally harder for the Fed to re-anchor inflation expectations each meeting it passes up the opportunity to hike. In the absence of more precise forward guidance, the Fed risks losing control of the long end of the curve in particular as inflation expectations start to move out. This becomes self-fulfilling and is increasingly decoupled from short-term price pressures from the Iran war... the toothpaste analogy applies. Without swift policy action in September the Fed risks repeating the mistakes of the post-Covid surge in prices that the Fed believed to be transient. Minutes of the FOMC's July meeting will be pored over later this week for clues about how policymakers are thinking. The minutes take on added significance as chair Kevin Warsh has refrained from offering the usual forward guidance markets have become accustomed to and because there was an unusually large body of dissent, with three members voting to raise rates.
Also coming up this week are a couple of key UK data points ... we had a tiny bit of encouraging signs about the UK's labour market in a recent survey – official data out early Tuesday will show whether this is the start of something. The last report was not great - the UK saw no jobs growth in the three months to May, and the slowest wage growth in five years, data last month showed. Hiring remained weak as vacancies fell, and payrolls declined again as the unemployment rate held steady at 4.9%. UK CPI inflation data for July is the main macroeconomic event on Wednesday. Having unexpectedly fallen to a 15-month low 2.6% in June, the re-escalation in US-Iran tensions suggests we could see rising petrol and heating costs nudge the headline CPI number back towards 3%. More in the week ahead here.
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