FTSE 100 snaps winning streak ahead of Powell speech

​​​FTSE 100 breaks winning streak as caution prevails

​The FTSE 100 snapped its impressive four-day winning streak, declining modestly as investors adopted a more cautious stance ahead of this week's key events. The benchmark index had been riding high after hitting record levels, but yesterday's session saw profit-taking emerge.

​European markets broadly followed suit, with the STOXX Europe 600 falling as financial stocks came under particular pressure. However, the UK market showed some resilience compared to continental peers, suggesting domestic factors are providing some support.

​UK banks actually bucked the European trend, with Lloyds and Barclays outperforming despite broader financial sector weakness across the region. This divergence highlights how domestic UK sentiment remains more constructive than the broader European mood.

​The FTSE's performance reflects the market's current state of suspension ahead of Powell's Jackson Hole speech. Investors appear reluctant to make significant moves until they hear clearer guidance on Fed policy direction.

​Wall Street retreats as rate cut bets fade

​Across the Atlantic, Wall Street provided the template for yesterday's global weakness, with all three major indices closing lower. The S&P 500 fell 0.4%, while both the Nasdaq 100 and Dow Jones declined 0.34% as traders reassessed their rate cut expectations.

​The decline came as market participants dramatically scaled back their September rate cut bets. Odds have slipped to 79% from nearly 100% just last week, reflecting a significant recalibration of Fed expectations.

​This shift in sentiment has been building over recent sessions as investors grapple with mixed economic signals. The market's initial enthusiasm for aggressive easing has given way to a more measured assessment of what the Federal Reserve (Fed) might actually deliver.

​The broad-based nature of the US decline suggests this wasn't isolated sector weakness but rather a wholesale repricing of monetary policy expectations.

​Powell's Jackson Hole speech holds key to market direction

​All attention now turns to Fed chairman Jerome Powell's Jackson Hole appearance, where investors desperately seek clarity on the central bank's easing trajectory. However, Powell faces an increasingly complex balancing act that could disappoint markets hoping for dovish signals.

​The Fed Chairman must weigh recent weak jobs data against persistently sticky inflation, creating a challenging backdrop for clear policy guidance. Added to this mix is mounting political pressure from President Trump, further complicating the Fed's messaging strategy.

​Markets are particularly sensitive to any language around the speed and magnitude of potential rate cuts. Even subtle shifts in Powell's tone could trigger significant moves across asset classes, especially in rate-sensitive sectors.

​The speech comes at a critical juncture for monetary policy credibility. Any suggestion that the Fed might be less aggressive in cutting rates than markets expect could extend current equity weakness and push yields higher.

​Retail sector struggles despite mixed earnings picture

​Yesterday's session highlighted the challenges facing the retail sector, with Walmart providing a stark example of how demanding current market conditions have become. The retail giant fell 4.5% despite actually raising its full-year guidance.

​Walmart's decline came after missing immediate profit forecasts, demonstrating how markets are currently punishing any disappointment regardless of forward-looking optimism. This suggests investors are becoming increasingly focused on near-term performance rather than management guidance.

​Technology sector extends recent weakness

​The technology sector continued its recent underperformance, though the pace of selling appeared to moderate compared to previous sessions. Nvidia, Meta, Amazon and Advanced Micro Devices (AMD) all extended losses as fundamental questions about valuations persist in a higher-rate environment.

​Nvidia's continued decline reflects broader concerns about artificial intelligence (AI) valuations and whether current prices reflect realistic growth prospects. The semiconductor giant has become a proxy for the entire AI trade, making its movements particularly significant for sector sentiment.

​Meta and Amazon's weakness suggests that even the largest technology names aren't immune to the current reassessment. Investors are questioning whether these companies can justify premium valuations when the Fed appears less likely to cut rates aggressively.

​Growing regulatory concerns add another layer of uncertainty for technology shares. Investors worry about potential tighter oversight of the sector, creating an additional headwind for an area already grappling with valuation questions.

​Economic data complicates Fed's decision-making process

​Yesterday's economic releases provided mixed signals that likely contributed to market uncertainty and may influence Powell's Jackson Hole messaging. US business activity accelerated in August, suggesting the economy maintains momentum despite broader slowdown concerns.

​Existing home sales also rose unexpectedly, providing another data point suggesting economic resilience. However, this strength creates complications for the Fed's easing plans, as robust data reduces the urgency for aggressive rate cuts.

​The combination of stronger economic indicators pushed Treasury yields higher, adding pressure on equities. Rising yields make bonds more attractive relative to stocks, particularly affecting growth sectors that had benefited from the low-rate environment.

​This yield move reflects the market's ongoing struggle to price appropriate Fed policy. Strong economic data suggests the central bank may have more flexibility to be patient with rate cuts, contrary to recent aggressive market expectations.

​Asian markets reflect global caution

​Asian markets showed restrained trading overnight, with MSCI's Asia ex-Japan index managing only a modest 0.2% gain. The subdued performance suggests regional investors are taking their cues from Wall Street's weakness while awaiting Powell's guidance.

​South Korea's Kospi provided a bright spot with a solid 1% gain, while China's CSI 300 managed to extend its recent winning streak. These moves suggest some regional markets are finding support from domestic factors rather than global sentiment alone.

​Japan's Nikkei 225 posted a marginal 0.1% gain with the Japanese yen holding steady against the US dollar. The yen's stability comes despite broader dollar strength, highlighting Japan's unique position in current market dynamics.

​The mixed Asian performance underscores how regional factors increasingly matter in driving individual market moves. While global themes like Fed policy remain crucial, local economic conditions are providing divergent paths for different markets.

​Market outlook: Powell speech dominates near-term direction

​Today's focus will centre entirely on Powell's Jackson Hole appearance, with market volatility likely to spike around the speech timing. Any hints about September policy moves could trigger significant reactions across asset classes.

​The Fed Chairman's comments will be particularly crucial for rate-sensitive sectors including technology and real estate. These areas have shown the highest sensitivity to Fed communications, making them key battlegrounds for immediate market reaction.