FTSE Hits New All-Time High After 8 Months of Wandering
The UK stock market looks set to finish the week on a high after touching a new ATH today. The boost comes from a receding bearish mood on bonds, and renewed hope for BoE action.
- 10-year gilt yields decline
- BoE rate cut hopes increase
- Shadows still remain
The FTSE reach a new all-time high today reaching 8,497.85. The rally follows a three-day streak on renewed optimism. The FTSE looks set to break the extremely wide range the index had been in since May 2024.
Bond Selloff Weakens
The global bond selloff that was led by US Treasuries and shocked the gilt market seems to have receded. The concerns of rising inflation and higher debt that have inflicted bonds declined thanks to softer data.
The 10-year gilt yield hit 4.91% on Tuesday and went back to 4.630% today. US inflation data showed a smaller than expected rise. While today’s UK GDP data showed a slightly weaker expansion of the economy.
BoE Rate Cut Expectations Increase
The perception of action from the Fed improved slightly leading to investors increasing bets on action from the BoE.
Today’s GDP data showed the UK economy expanded less than forecast and showing that the economy is failing to fully recover from the pandemic.
A weaker economy and Fed action may help the BoE take action sooner rather than later. As the central bank attempts to reactivate the economy.
The recent dip in inflation to 2.5%, compared to forecasts of 2.6%, has also helped increase hopes for action from the BoE.
The market now sees a rate cut of 25 basis points by February and 100 basis points through 2025.
FTSE Live Chart
Risks for FTSE Still Lurking
Despite the euphoria on monetary policy easing risks still remain for the UK economy and national debt. The FTSE, much like the DAX, seems to be immune from the weak economic data that is available.
The rising borrowing costs and expanding debt has led to a selloff in the pound and gilt markets. I would expect the volatility of these markets to spill over to the FTSE at some point.
The [[GBPUSD]] has lost 5 big figures, 500 pips or 4%, since the start of 2025. The trend may continue as the UK economy continues to struggle while the US economy expands.
The depreciating pound should at some point create some inflation through higher import prices. On the national debt front, the new policies in the budget may create a higher borrowing need putting more pressure on gilts.
