S&P 500 steadies as oil eases and Fed rate bets shift

Summary

S&P 500 futures edged higher after the US holiday, while European futures were little changed following last week's gains. Oil eased after OPEC+ agreed another output increase and as shipping through the Strait of Hormuz continued to recover, although Brent remained near levels suggesting price support. The US dollar stayed broadly stable as markets increased expectations the Federal Reserve will leave rates unchanged this month, with Treasury yields edging lower. 

Equities

The FTSE 100 closed 0.2% higher on Friday at 10,679.03, extending its gains for the week as financial stocks and chemicals shares supported the market. The FTSE 250 also finished 0.5% higher, reflecting broader strength across UK equities. We continue to see investors focusing on company-specific developments alongside economic data ahead of the Bank of England's next policy decision.

Close Brothers Group closed 7.9% higher on Friday, leading gains in the financial sector after strong buying interest. Lion Finance Group added 2.8%, while Standard Chartered rose 1.5%, helping lift the wider banking sector. Bank of England policymaker Catherine Mann also indicated that changing market expectations for interest rate increases since the June policy meeting would be an important factor in her vote later this month.

Johnson Matthey climbed 4.9% on Friday after confirming it had received Chinese regulatory approval for the sale of its Catalyst Technologies business to Honeywell. The company expects the transaction to complete by the end of August, providing greater certainty over one of its largest strategic disposals. Chemicals stocks rose 2.5% overall following the update.

UK economic data remained mixed, with the latest surveys showing the services sector contracted for a second consecutive month in June, while businesses reported little change in their pricing expectations despite easing tensions in the Middle East. Those releases reinforced expectations that incoming economic data will remain central to the Bank of England's rate decision later this month.

Attention now turns to the start of the second-quarter earnings season in the US, when major companies will provide updated guidance on trading conditions and the outlook for the remainder of the year. Investors also continue to assess Thursday's weaker-than-expected US jobs report, which reduced expectations of a near-term Federal Reserve rate increase.

US stock markets, including the NYSE and Nasdaq, were closed on Friday, in observance of the Independence Day holiday.

Forex & Commodities

The US dollar steadied early on Monday after posting its weakest weekly performance since April, following softer than expected US jobs data released late last week. The report reduced expectations of a near term interest rate increase by the Federal Reserve, leaving investors focused on the minutes from the Fed’s June meeting, due on Wednesday, and next week’s US inflation figures for further guidance on monetary policy. The dollar index traded around 101.0, while the euro held close to a two week high at 1.143 and sterling remained firm at 1.334.

The Japanese yen stayed close to its weakest level since 1986, trading around 162.1 against the US dollar early on Monday. Markets remain alert to the possibility of intervention by Japanese authorities, although analysts believe any support for the currency is likely to prove temporary while the interest rate gap with the US remains wide. Attention also turned to New Zealand, where investors expect the Reserve Bank of New Zealand to raise interest rates later this week.

Spot gold eased early on Monday to around $4,160 per ounce after reaching its highest level in two weeks earlier in the session. The modest rebound in the US dollar weighed on prices, although weaker US employment data has reduced expectations of an immediate Federal Reserve rate increase, offering continued support for bullion. Investors are also awaiting the Fed meeting minutes for any indication of whether policymakers broadly share Chair Kevin Warsh’s more hawkish stance. JPMorgan now expects gold to average around $4,300 per ounce during the third quarter and $4,500 in the fourth quarter.

Oil prices edged lower early on Monday after OPEC+ agreed to raise its production target by 188,000 barrels per day from August. Brent crude traded around $71.78 a barrel, while US West Texas Intermediate stood near $68.49. Markets are also monitoring the recovery in exports through the Strait of Hormuz following recent disruptions, while rising exports from Gulf producers and record shipments from Russia are expected to increase global supply in the coming weeks.