Lunchtime market roundup: Stocks mixed as Fed hike seen more likely

Stock prices in Europe were mixed on Monday afternoon as it appeared increasingly likely that the US Federal Reserve will announce a rate hike next week, meanwhile the UK chancellor announced that the economy was "turning a corner" ahead of the budget at the end of October.

"Many of the headlines from the dominant AI theme remain positive, and that supported gains for South Korean stocks, but investors are having to contend with the potential for an interest rate hike at the US Federal Reserve's meeting later this month," AJ Bell analyst Dan Coatsworth commented.

"Though jobs reports in the US have become increasingly unpredictable and volatile, the latest robust reading could indicate the economy is running a little too hot for the Fed's liking. Chair Kevin Warsh and his colleagues might adopt the pose of a latter-day Goldilocks sizing up a steaming bowl of porridge."

Financial markets in New York are closed for Labor Day on Monday, taking some impetus away from the equity market.

The FTSE 100 index traded up 19.70 points, 0.2%, at 10,850.79. The FTSE 250 fell just 8.12 points at 24,576.59, and the AIM all-share added 1.70 points, 0.2%, at 801.61.

The Cboe UK 100 was up 0.2% at 1,078.92, the Cboe UK 250 was flat at 21,372.22, and the Cboe small companies was down 1.1% at 18,700.22.

The CAC 40 in Paris was flat, while Frankfurt's DAX 40 fell 0.3%.

The pound rose to USD1.3539 early Monday afternoon, from USD1.3522 at the time of the London equities close on Friday. Against the euro, sterling was higher at EUR1.1642 against EUR1.1636.

Versus the dollar, the euro was higher at USD1.1625 from USD1.1614. Against the yen, the dollar slumped to JPY154.64 from JPY156.03.

The dollar was weaker despite Federal Reserve rate hike bets increasing. According to the CME FedWatch Tool, there is a 60% chance the central bank hikes next week Wednesday. A month ago, that likelihood stood at 44%.

Analysts at Barclays noted recent days have seen "Fed expectations oscillate", on dovish words from Christopher Waller "that contradicted [Chair Kevin] Warsh's hawkish message and a stronger-than-expected jobs print". Waller is a member of the Federal Reserve Board of Governors.

"In contrast, hikes by the ECB and BoJ are all but certain," Barclays analysts commented.

Ahead of the ECB decision, numbers on Monday showed the eurozone economy grew more strongly than previously estimated in the second quarter of 2026.

Seasonally adjusted gross domestic product increased by 0.6% in the euro area in the second quarter from the first, accelerating from no growth in the first quarter.

UK Chancellor John Healey insisted the UK economy was "turning a corner" as he promised to control government spending in next month's budget.

In his first major speech since taking over at the Treasury, Healey acknowledged the impact of high government borrowing costs and promised to address the rising burden on businesses.

Healey sought to present an optimistic assessment of the UK's economic future despite the impact of global crises including the war in the Middle East and Russia's invasion of Ukraine.

In a speech in Coventry ahead of next month's budget, the first since Andy Burnham entered 10 Downing Street, Healey said: "The prime minister and I are in lockstep in our commitment to meeting the fiscal rules at the upcoming budget, to balancing the books with a buffer to protect against uncertainty.

"To controlling borrowing to bear down on inflation and reducing long-term pressures on our public finances."

A barrel of Brent surged to USD96.82 midday Monday from USD95.18 at the time of the London equities close on Friday. Gold traded at USD4,389.17 an ounce, down from USD4,439.40.

Iran's top negotiator on Sunday threatened a more forceful response to any further US attacks after Tehran targeted American warships in their latest round of clashes.

Iranian parliament speaker Mohammad Bagher Ghalibaf, who has acted as chief negotiator in talks to end the war, said Sunday that "the era of proportionate responses has come to an end".

"Any aggression against Iran's interests and security will receive a faster, more intense and more painful response," he added, in a speech carried by state media.

Tehran's top security chief, meanwhile, said Iran would establish a "prohibited zone" near the Strait of Hormuz in coming days.

Meanwhile, Russia did not rule out fresh, three-way talks with Washington and Kyiv on the Ukraine war, after a visit to Moscow and Kyiv by US negotiators Steve Witkoff and Jared Kushner.

Russian and Ukrainian negotiators last met for US-mediated talks in February, in Geneva, but failed to reach an agreement on the thorny issue of territory.

Russia "does not rule out the resumption of the trilateral format, but it is too early to say anything about the venue or the exact dates at this stage," Kremlin spokesman Dmitry Peskov told reporters.

In London, shares in Ferrexpo shot up 27% as it returned to trading. The iron ore pellet producer operates in Ukraine so it has been caught in the crosshairs of the conflict.

It has restarted production at its operations in war-torn Ukraine. It suspended production of iron ore products from its mining and pelletising operations in Ukraine last month amid "the ongoing threat of attacks in and around Ukrainian ports".

"Given the well documented attacks currently taking place on ports and vessels in the Black Sea, the company intends to focus on exports to customers in Europe," it said.

Standard Life rose 1.9%. It reported a stronger-than-expected half-year profit and says it is on track to deliver on guidance. The London-based retirement savings provider said its attributable pretax loss in the first half of 2026 widened to £272 million from £209 million a year prior, though total income surged to £21.73 billion from £8.60 billion.

Adjusted operating profit shot up 25% on-year to £563 million from £451 million, Standard Life said, topping the company-compiled consensus of £541 million.

On AIM, Kefi Gold & Copper slumped 39%. The gold and copper exploration and development company reported a "serious security incident resulting in multiple fatalities" at the Tulu Kapi mine in Ethiopia.

"The safety and wellbeing of the company's employees, contractors and surrounding communities is the company's highest priority. Accordingly, the company has immediately suspended project development activities while it engages with relevant community representatives, Ethiopian government authorities, and security stakeholders to determine the appropriate conditions for a safe and orderly resumption of activities," Kefi said.

It will not resume development activities until "appropriate measures have been established". It said it is too soon to assess how the suspension affects the project development timetable.

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