European markets have continued their trend of tentative gains, with the FTSE 100 marginally lower thanks to a strengthening pound. Yesterday’s UK PMI survey report saw a surprise move back into expansion territory, with markets reacting by lifting expectations of a rate hike (22%) in the first quarter. The international nature of the FTSE 100 means that sterling strength will typically impact earnings valuations for those companies earning abroad, with the inverse correlation between GBPUSD and the FTSE 100 meaning that the strength seen in the pound this week was always likely to hold back the main UK index.
US markets return from their Thanksgiving break today, with retailers hoping that the spirit of giving translates into a strong Black Friday and Cyber Monday spending spree. Earnings from the likes of Walmart and Best Buy have noted a weakening demand environment, signalling the potential for a disappointing fourth quarter on the high-street. Nonetheless, with spending habits having remained strong throughout this year, there is a good chance that we see consumers take advantage of sales where possible in a bid to maintain their standard of living.
Looking ahead, US PMI data dominates as we close out the week. Yesterday’s rebound in both eurozone and UK composite PMI surveys eased fears of a deepening economic crisis under the weight of elevated interest rates. However, that is a double-edged sword, as any near-term economic weakness does help drag inflation expectations lower. With US manufacturing and services PMI figures teetering on the brink of contraction, markets predictions for a potential decline across both metrics bring expectations of a soft landing as designed by the Fed.
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