FTSE 100 leads positive European session on falling BRC inflation data

• Chinese markets lead the way higher
• UK inflation gauge helps drive FTSE 100 outperformance
• US markets in focus as data-dependent Fed look towards growth and jobs releases

Asian markets have maintained the positive tone established on Monday, with Chinese stocks moving sharply higher once again. That optimism comes off the back of a raft of measures announced on Sunday, which include halving the stamp duty on stocks, reducing the minimum margin ratio on securities, and cutting stock trading commissions. However, the desire to hold off on any stock market weakness seeks to paper over the cracks as the economy continues to falter, with the interest rate cut seen last week largely underwhelming markets. With that in mind, markets have been emboldened by reports that the PBoC may cut their reserve requirement ratio earlier than had been expected, in a bid to ensure healthy liquidity.

The FTSE 100 has been the big outperformer in Europe, with an encouraging inflation survey from the British Retail Consortium (BRC) seeing shop price inflation fall sharply in July. The annual rate decelerated to the lowest level since October 2022, with the decline from 8.4% to 6.9% largely driven by easing food prices. However, while the decline from 13.4% to 11.5% in UK food price inflation may be a significant move in the right direction, we will need to see this trajectory maintained if we are to see CPI normalise.

US markets are hoping to continue their positive start to the week, with tech stocks leading the way yesterday thanks to a sense of optimism off the back of Jerome Powell’s Jackson Hole appearance. Claims that the US may need to hike further if necessary were tempered by the promise of a ‘cautious’ approach to monetary tightening, with rate likes to remain elevated for some time yet.

Markets are likely to remain sensitive to the data, with the Fed’s decision to sit on the fence signalling a data dependence on future decisions. Today brings US consumer confidence and JOLTS job openings data to the table, with both expected to move lower. However, the big-ticket items start to roll through from tomorrow, with GDP, ADP NFP, Core PCE, and the US jobs report yet to come this week.