FTSE 100 Starts Week Steady – US Markets To ReOpen

The FTSE 100 opened the week higher, closing with marginal gains of 0.028% at 9,189.88 on a day marked by the absence of the US session, with Stateside markets closed for the labor day holiday. The index's recent underperformance, coupled with uncertainty surrounding potential tax policies and ongoing legal battles over U.S. tariffs, continues to weigh on market dynamics.

The FTSE 100 experienced a 1.44% decline over the past week, making it the worst-performing index in Europe during August. This downturn was exacerbated by concerns over proposed tax increases targeting the UK's financial sector.

Discussions surrounding a possible windfall tax on UK banks, intended to address a £30 billion shortfall in public finances, triggered significant sell-offs in major retail banks such as NatWest and Lloyds to end the last week.

The shares of NatWest and Barclays both saw their shares climb by over 1% today, with Lloyds (+0.55%) and HSBC (+0.59%) making a reversal, indicating a tentative rebound. This uptick may be attributed to increasing skepticism regarding the implementation of additional banking taxes, particularly in light of the Chancellor's recent Financial Services Growth and Competitiveness strategy, which aims to bolster the sector's global competitiveness.

The possibility of undermining this strategy with a new tax has cast doubt on its implementation, leading to a partial recovery in bank stocks.

Across the Atlantic, a U.S. federal appellate court ruled that most of former President Donald Trump's global tariffs were imposed without proper legal authority. The court found that Trump's use of the International Emergency Economic Powers Act (IEEPA) to justify sweeping tariffs did not meet the legal threshold of a national emergency. Despite this ruling, the tariffs remain in place until mid-October, pending a potential appeal to the Supreme Court.

This legal development introduces further uncertainty into global trade relations and could influence market sentiment, especially in sectors sensitive to trade policies. Investors are closely monitoring the situation, as the potential removal or modification of these tariffs could significantly impact international trade and economic growth.

Looking ahead, the U.S. Non-Farm Payrolls (NFP) report for August is highly anticipated.

Analysts expect an increase of 75,000 jobs, up from 73,000 in July, with the unemployment rate projected to edge up to 4.3% from 4.2%. This report is particularly significant as it precedes the Federal Reserve's September meeting, where a rate cut is widely anticipated.

A weaker-than-expected NFP could solidify expectations for monetary easing, while a stronger report might prompt a reassessment of rate cut probabilities. The market has already priced in a high probability of a rate cut, making the NFP data a crucial indicator.

In Europe, the European Central Bank (ECB) will enter its quiet period ahead of its September 11th meeting. Inflation figures for August are expected to show a slight monthly increase, with the annual rate remaining at 2%, aligning with the ECB's target.

Core inflation is anticipated to dip to 2.2% from 2.3% in July. These figures will be crucial in guiding the ECB's monetary policy decisions, especially considering recent indications that the bank may be concluding its rate-hiking cycle. The strength of the euro against the dollar and pound will likely depend on these inflation figures and the ECB's subsequent policy signals.