Cautious FOMC outlook helps boost market sentiment

• European markets higher after UK data dump.

• Cautious FOMC outlook helps boost market sentiment.

• Earnings season starts to warm up.

European markets are enjoying a strong start this morning, as a cautious FOMC and falling energy prices provide a backdrop to a raft of UK economic data released before the European open. This morning saw a raft of UK data, headed up by the 0.2% September GDP release which brought a welcome shift out of negative territory. However, the UK remains at risk as the impact of higher rates feed through into the economy. Declines across industrial and manufacturing production tally up with the negative manufacturing PMI status in the economy, signalling continued contraction on that side of the economy. However, bad news appears to be good news for markets, with short-term economic weakness further easing concerns over any additional easing from the Bank of England.

The past week has been dominated by a number of comments from FOMC members, stating that the tightening effect of rising treasury yields could lessen the need for a final rate hike. That cautious approach carried through into the FOMC minutes yesterday, with a less hawkish tone helping lift risk sentiment as a result. PPI factory inflation data out of the US highlighted the impact of the recent crude oil gains, with the September reading coming in at a worrying 0.5% thanks to higher food and energy prices. This highlights the threat posed by any continued crude upside, with the weakness seen over the course of this past week helping to ease concerns around a secondary inflation surge. The US session will once again be dominated by inflation speculation, with US CPI expected to reverse lower after two consecutive months of upside. However, there is a risk that we see the PPI experience replicated as rising energy prices run the risk of pushing US consumer prices higher to the detriment of market sentiment.

This week marks the beginning of earnings season, with the big banks ramping things up tomorrow. Once again, the energy stocks are expected to provide a drag on the wider earnings picture, with tech stocks hoping to provide a continued boost thanks to AI earnings. With recent concerns growing that we are seeing a slowdown in consumer spending growth, this will be a chance to see exactly how strong the US consumer is in the face of rising costs.