The FTSE 100 continues to trade near the previous high, the Bank of England cut interest rates by 0.25%, this move was expected. Major indices are rebounding as investors react to cooler-than-expected inflation data. Major indices rallied after lighter-than-expected November US CPI data (2.7% annualized vs. 3.1% forecast) eased inflation concerns and boosted expectations for potential further Fed rate cuts in 2026. Today we have the US PCE price index at 1.30pm, this is the Federal Reserve’s preferred inflation gauge. A “cool” reading here (following yesterday’s better-than-expected CPI) would further solidify expectations for rate cuts in early 2026.
Softer inflation data has triggered a counter trend rally in the US, the FTSE 100 is near a key resistance, there is a risk the rally in the FTSE will extend today if the PCE price index is softer than expected. On the negative side bond yields are rising, despite softer inflation and the Bank of Japan raised interest rates today, marking the highest level in 30 years. A BOJ hike narrows the Japan-US interest rate differential, making this trade less attractive and potentially leading to unwinding (selling US assets to repay yen loans). This could explain why US yields are rising (treasury bonds are down). Rising rates in Japan could derail the rally in the US.