Market snapshot: UK outlook as inflation drops

Our head of markets assesses sentiment following UK data and ahead of a US central bank meeting later.

Resistance to the recent slide in US markets has gained some traction, although the situation remains brittle, with many of the concerns causing the slide still in evidence.

The economic recovery in the world’s largest economy remains uneven, with high unemployment claims and traces of a continuing pandemic weighing on prospects. The consumer has to date been helped by a generous fiscal boost from the government, while the monetary stance of the Federal Reserve is still extremely accommodative.

The outcome of the Fed meeting later today is expected to confirm that the central bank retains its dovish stance, and is ready to initiate further action if the economic data demands it. At the same time, any forward guidance will reveal the current thinking as to how to navigate the current challenges, such as any tweaks to its position on interest rates.

Meanwhile, hopes of further fiscal stimulus have temporarily stalled as the opposing sides of the House see any payout as political capital, given that the Presidential race is now accelerating. Even so, the fact remains that there is a disconnect between Wall Street and Main Street which the authorities need to address, particularly in this politically-charged environment.

The year-to-date figures have at least temporarily stabilised. The Dow Jones is down just 1.9%, the S&P500 is up 5.3% and the Nasdaq is still ahead by 25% even after the recent selling pressure.

The FTSE 100 index remains unable to emerge from the doldrums, with the index still down 19% in the year to date. A slight uptick in recent sessions is largely the result of a weaker sterling, as the index remains constrained by the nature of its beleaguered constituents such as oils and banks, as well as generally sour sentiment towards immediate UK economic prospects.

The August “Eat out to Help out” scheme helped put a lid on inflation for the month - down to 0.2%, the lowest measure of  the Consumer Price Index (CPI) since December 2015 - but the impending end to the furlough scheme, the likely rise in unemployment and fractious negotiations with the EU will likely keep the UK in unfavoured territory.