Market snapshot: a transformative year for the FTSE 100?

A weak week ended with a firmer Friday as comments from a Federal Reserve member reignited hopes of an interest rate cut next month.

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The probability of a cut was raised to 70% by investors from 40% just the previous day, with the observation that monetary policy was still “moderately restrictive” even after two cuts this year, potentially leaving the door ajar for an end-of-year boost. The outlook has been clouded by the recent government shutdown with a dearth of economic data available. Even last week’s delayed jobs report, which was stronger than expected, related to September and therefore missed out the majority of the effects of the lockdown in October.

Even so, there are increasing signs that the economy remains sluggish, which will put additional emphasis on the retail sales release this week, although once more the data will be slightly historic in relating to September. Nonetheless, the consumer is the cornerstone of US growth, accounting for some two-thirds of overall activity, and with the festive season approaching at speed, there will be some hopes that the recently guarded sentiment will at least temporarily be erased.

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The week will also be punctuated by being closed on Thursday for the Thanksgiving holiday and with shortened hours the day after as Black Friday takes hold. This lower trading activity could result in higher volatility, particularly with the overarching debate around artificial intelligence (AI) valuations still at elevated levels.

In the meantime, the main indices remain in rude health for the year as a whole, despite what was a bruising week which saw declines of between 2% and 3% for each of them. In the year to date, gains of 8.7%, 12.3% and 15.3% for the Dow Jones, S&P 500 and Nasdaq respectively have been achieved regardless of “Liberation Day” earlier in the year and the latest round of tech overvaluation concerns.

In Asia, the Hang Seng rose, boosted by a 4.7% hike for e-commerce giant Alibaba Group Holding Ltd ADR (NYSE:BABA), which reports tomorrow, and where it has already reported strong demand for its AI app. Although Japanese markets are closed for a holiday, there is rising speculation that the authorities may be preparing to intervene with some yen buying in an attempt to staunch the recent slide of its currency.

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For the UK, the Budget is planted in the middle of the week and may well impact the currency and bond markets. For equities, the effects may be more indirect depending on an outlook which, apart from the extension of tax thresholds which could increase fiscal drag and equate to a tax rise in all but name, then filter through to consumer sentiment. In such a scenario, investors could choose to mark down the likes of the retailers and the housebuilders, while the more domestic banks could also come under some pressure.

The premier index chose to take its lead from a renewed sense of optimism elsewhere, especially given its largely international focus. The FTSE 100 is closing in on what would be a transformative year and is ahead by 17% so far, even after the recent wobbles which have moved the index from its recent record high and where an average 3.2% dividend yield is an additional sweetener. Miners were at the vanguard of a risk-on approach in early trades, while the likes of Polar Capital Technology Ord (LSE:PCT) and Scottish Mortgage Ord (LSE:SMT) felt the tailwind of the US and Asian strength in big tech.