Weight of expectation for rate cuts shifts to Fed after stronger-than-expected UK growth figures and Tesla shares plunge over product delays

“It’s hard to believe it has only been a week since Labour’s landslide election victory changed the UK’s political makeup. There’s been no shortage of big announcements from Number 11 but the main economic news impacting London markets is rooted in the past, with faster than anticipated economic growth in May slashing expectation of an August interest rate cut by the Bank of England,” says AJ Bell Head of Financial Analysis Danni Hewson.

“Add that to cooler than expected inflation over in the US and it’s created an economic stew that has boosted the value of the pound.

“For many of London’s blue-chip companies a strong pound is less than optimal and is one of the reasons that the FTSE 100 ended Thursday below pre-election levels, though it has opened on the front foot today. By contrast the more domestically focused FTSE 250 was up almost 3% on its polling day close.

“Right now, a strong economy is a bit of a double-edged sword for MPC policymakers assessing which way they will jump come 1 August.

“Whilst markets have become more optimistic that a rate cut from the Fed is in the offing come September, with the CME’s FedWatch tool showing a 90% expectation, the odds of a September UK cut have fallen back to just 71% and the odds of a cut next month are down to just over 50%.”

Tesla

“The latest CPI print led to many US investors rotating out of big tech stocks into smaller caps but it was Tesla that captured investor attention with reports that its Robotaxi launch would be delayed. Shares plunged 8.4% in the company’s biggest one day percentage drop since the start of the year.

“Elon Musk’s EV company had been back in favour with investors over the past couple of weeks since it reported Q2 deliveries above expectations.

“Concerns about a lack of enticing new models have dogged the business and the original August date for the Robotaxi was dangled like a carrot to investors worried over reports that the Model 2 would be cancelled. Added into the mix in the last few hours was the unveiling of a new rear wheel drive version of its long-range Model 3 vehicle in the US.

“But the question is how much of an impact has the 10% cut in Tesla’s workforce had on its ability to push through exciting new options? Its next earnings call in just over a week is likely to be a feisty one as investors push to understand what is deliverable and by when.”

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