FTSE 100 Start’s Week Positively as Oil Prices Settle Down

UK's May inflation report will provide critical insights into the global inflation landscape this week. A weaker-than-expected inflation print could offer some relief to the Bank of England (BoE), potentially paving the way for further monetary easing. The market anticipates a softening of inflation, driven by adjustments to vehicle excise duty and a decrease in airfares, leading to a moderation in service price growth.

However, the BoE, like the Fed, faces upside risks stemming from geopolitical tensions, particularly in the Middle East, which could impact energy prices and feed into broader inflationary pressures. The BoE is likely to maintain a data-dependent approach, emphasizing that its policy decisions will hinge on the evolution of economic conditions and global uncertainties.

The FTSE 100 is trading up 0.35% early this morning, with the high of 8,908.82 moving ever closer, with the index currently hovering around 8,882. The oil price surges seen last week have settled, with this morning's trade showing Brent Crude down 1.2% through the morning.

Entain's shares have gained 11.3% on BetMGM guidance, whilst Haleon lag's the index, down 1.4% on the day.

Across the Atlantic, the Federal Reserve's meeting is the week's marquee event. While a change in interest rates is widely considered unlikely, with futures markets pricing in a mere 3% chance of a cut, the market will dissect the Fed's updated economic projections and forward guidance for clues about the timing and pace of future policy adjustments.

Of particular interest will be the “dot plot,” revealing individual members' expectations for future interest rate levels. Any deviation from the market's current expectation of two rate cuts later this year could trigger a rapid recalibration of bond yields and potentially halt the dollar's recent slide.

Recent import price data will also be scrutinized, as stronger-than-expected figures could embolden a more cautious Fed stance. President Trump's repeated calls for lower rates add an additional layer of political pressure, though the Fed is expected to maintain its independence and prioritize economic data.

While US earnings growth expectations remain positive for 2025, valuation pressures stemming from potentially higher interest rates could temper market enthusiasm, especially if the Fed adopts a hawkish tone. Geopolitical uncertainties and US trade policy developments continue to pose significant risks, potentially leading to increased volatility in the coming weeks.

The QQQ ETF, tracking the Nasdaq 100, has the index 0.46% up through the early part of pre-market trading, whilst the SPY (S&P 500 ETF) is trading up 0.41%, indicating a positive start to the trading week Stateside.

On Friday, weaker performance was seen in airline, credit card, and tech stocks, reflecting anxieties about higher interest rates. However, the stabilization of oil prices today (so far) could provide some support to these sectors.