One week of markets in one minute: Stocks tread water as Fed says case for rate hike has strengthened

Markets took something of a back seat this week with all eyes focusing on the central bankers meeting in Jackson Hole, but by Friday – the day of the long awaited speech from the Fed – little had changed, with no timescales set for further rate hikes.

Janet Yellen, chair of the US Federal Reserve, went as far as to say that the case for a rate hike had strengthened in recent months, but she left rate-watchers with little else to go on, with no hint that an upward move is coming next month as some commentators had predicted.

UK markets responded on Friday with some narrow gains, while US shares dipped, but in truth this was a week when markets were little changed. UK shares were off marginally for the week, down from 6,859 points last Friday to end the week at 6,838 points, while in the US the S&P 500 was also in negative territory for the five-day stretch, down from 2,183 to 2,166 just after London closed.

It was a similar story around the globe, with Japan’s Nikkei 225 off just over 1% for the week, falling from 16,543 points to 16,360 points, although Germany’s DAX managed to rise from 10,544 to 10,588 points, with a gain of almost 0.5%.

Currency markets were choppy however, with Cable moving from under $1.31 at the start of the week to above $1.32 by Friday, only to retreat back below $1.32 after Yellen’s announcement.

Viktor Nossek, director of research at WisdomTree Europe, said Jackson Hole had done nothing to trigger a rate hike in the US, with the risks of acting too fast outweighing any pressures coming from recent data releases.

“Until the labour market in the US turns red-hot, the risk of inflation weakening following a rate hike would put the Fed in the difficult position of having to fight it with less room for policy easing,” he said. “It is therefore better to delay and risk high inflation that leads to subsequent further rate hikes than pre-emptively trying to contain current price pressures that so far have posed little to no risk to the US economy.”

Elsewhere, with little in the way of new data to go on, commodities also remained range-bound, albeit with some sharp swings throughout the week. Oil finished the week just below $50 a barrel as investors toed and froed over the latest expectations of an output freeze from Opec and whether non-members will unite with the oil cartel.

Having risen as high as $50.50 at one stage, it was at $49.75 shortly after London closed for the Bank Holiday. However, it was a downbeat five-day session for gold which continued it’s slide from last Friday throughout this week. Having started Monday at $1,340, it was down to $1,325 by late Friday.

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FTSE 100: UP 7.9%

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