Markets on both sides of the Atlantic delivered mixed signals as the Federal Reserve held firm on rates while UK stocks powered to fresh highs on a strong earnings backdrop.
The Federal Reserve's (Fed) decision to hold rates steady was expected, but Jerome Powell's pushback on September cut hopes caught markets off guard. The Fed chair described policy as "modestly restrictive" but insisted it was premature to discuss reductions, effectively cooling trader expectations for near-term easing.
This hawkish tone weighed on United States (US) equities, with the Wall Street (Dow Jones) falling 0.38% and the US 500 (S&P 500) slipping 0.12%. The US Tech 100 (Nasdaq 100) managed a modest 0.15% gain, helped by tech strength. The divergence reflects ongoing uncertainty about the Fed's next moves and their global implications.
In contrast, the FTSE 100 hit another record high, buoyed by a stellar earnings season. The index's 0.5% weekly gain puts it on track for its longest winning streak since 2018, driven by standout performances from heavyweight constituents.
Rolls-Royce led the charge, surging 12% to fresh records after raising guidance across multiple divisions. The engineer's remarkable 94% year-to-date gain reflects its transformation from pandemic laggard to market darling, benefiting from defence spending, civil aerospace recovery, and artificial intelligence (AI)-driven data centre demand.
Shell also contributed to the FTSE's strength, rising 3.5% despite a 32% profit decline. The £3.5 billion buyback announcement overshadowed weaker trading margins, highlighting how shareholder returns can trump operational headwinds in today's market.
US economic data painted a solid but slowing picture. Second quarter gross domestic product (GDP) rose 3% annualised, beating forecasts, though underlying domestic demand showed signs of cooling. Automatic Data Processing's (ADP) 104,000 private payroll additions in July exceeded expectations, setting up Friday's crucial jobs report as a potential market mover.
The data supports the Fed's cautious stance, but also raises questions about whether Powell is behind the curve if economic momentum continues fading. For United Kingdom (UK) investors, the implications are significant given the pound's sensitivity to Fed policy shifts.
President Trump's latest tariff blitz added another layer of complexity, with 50% duties on copper pipe imports triggering a 2% decline in the S&P 500 materials sector. Mining giants like Freeport-McMoRan tumbled 9.5%, while UK-listed miners including Glencore and Anglo American also felt the pressure.
The selective nature of these tariffs suggests a more targeted approach than some feared, but creates fresh uncertainty for commodity-exposed stocks on both sides of the Atlantic.
After-hours trading offered encouragement for tech investors, with Microsoft and Meta surging over 6% on strong quarterly results. This late rally could spillover into Thursday's session, potentially benefiting UK tech names and growth-oriented sectors.
With Amazon and Apple reporting Thursday, and Friday's US jobs data looming, the stage is set for continued volatility as markets digest mixed signals from policymakers and corporate boardrooms alike.
Key events to watch:
The contrasting performances between US and UK markets this week highlight the importance of regional monetary policy divergence. While the Fed maintains its restrictive stance, the FTSE 100's record run demonstrates the power of strong corporate fundamentals and shareholder-friendly policies.
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