Stock markets are cautious with futures holding near record levels as investors wait for this week’s Federal Reserve decision on interest rates. Investors remain optimistic, but volatility may increase due to macroeconomic risks and anticipation of a possible rate cut. In the UK, bond markets and gilts will be watched closely amid concerns about borrowing costs and the pace of quantitative tightening. UK 10Y yield continues to climb.
Persistent climbing yields often signal inflationary pressure and/or fiscal stress. The UK economy is weak yet yields are rising, this suggests yields are rising due to fiscal worries or sticky inflation, in this case the FTSE 100 is more likely to fall. Rising yields is associated with rising borrowing costs for businesses and consumers and slower credit growth and investment could hit cyclical sectors (retail, real estate, industrials).