Originally published at: Market Roundup: Tech, Putin and Bank of England rate cuts - InvestEngine Insights
Here’s our Head of Investments, Andrew Prosser, to run through the biggest stories moving markets this week.
Ups and downs across the week
After a difficult day on Friday of last week, Monday started well with investors choosing to “buy the dip”.
This led to 85% of the companies in the S&P 500 closing higher than they started the week. The US market, as a result, grew by around 1.5% on Monday alone.
After the optimism of Monday, the early-week rally came to an end on Tuesday thanks to some data coming out of the US. Employment in the services sector was revealed to be weakening, while inflationary pressure remained.
This combination of weakening employment figures and inflationary pressures presents a challenge for the Federal Reserve, with Jerome Powell and his team having to balance inflation while managing the level of unemployment.
US tech (and Putin) boosts markets
On Wednesday and Thursday, the market reversed course yet again. More “buy the dip” mentality from investors helped to push markets higher. These gains in the latter half of the week were driven largely by:
US tech performing well. It was another positive week for US tech (specifically the magnificent 7), with Apple in particular performing well after they announced a $100 billion investment in the US. The hope is that this may exempt them from the tariffs on chip imports threatened by President Trump.
Trump and Putin confirm talks. It was also announced that the leaders of the US and Russia, Trump and President Putin, will meet for talks in the coming days. This confirmation raised hopes of a potential Truce in Russia’s war with Ukraine.
US interest rate cuts are increasingly expected. As Trump’s tariffs officially came into force, interest rates in the US – which are higher than in other areas like the UK or most of the EU – could come down again in the near future.
Further rate cuts from the Bank of England
While we’re on the topic of rate cuts, it’s time to look over the pond to the UK. The Bank of England decided to cut its base rate down to 4% (from 4.25%).
Perhaps the most interesting thing about this news, however, is how close the vote turned out to be. The Monetary Policy Committee failed to reach a majority decision after the first round of voting, so had to resort to a second round of voting. This second round was also extremely close, with rate cuts winning by five votes to four.
Andrew Bailey, Governor of the Bank of England, said in his accompanying comments that there was now “genuine uncertainty”, because the committee sees risks of inflation overshooting and growth undershooting.
The decision was a closer call than expected. So, though the decision to lower the base rate was anticipated by markets, this indecision caused the pound and Gilt yields to spike. The market has now priced in a 75% chance of another 0.25% cut in 2025, down from over 90% before the recent decision.
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