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FTSE 100 hits 7500 for first time

The UK stock market reached a new milestone today when the FTSE 100 hit 7500 for the first time. Investors seem to be feeling confident about the outlook for Britain under what is expected to be the biggest Conservative party majority since Margaret Thatcher. On Tuesday The Labour Party released its manifesto with the slogan ‘For the many not the few’.

 

Data from the ONS showed price inflation in the UK at its strongest since 2013. Rising inflation tends to make stocks relatively more attractive to bonds, which could make the next big hurdle for the FTSE of 8000 more achievable.

 

A smaller than expected loss and stronger guidance from telecom giant Vodafone was enough to offset poorly-received results from budget airline EasyJet. The drop in the pound proved to be a significant problem for the EasyJet bottom line. If there is a silver lining, a rise in the summer bookings suggests consumers are prioritising flights over other discretionary spending.

 

US tech wants a Trump tax holiday

US stocks opened higher with another fresh record for the Nasdaq and S&P 500 before giving up the early gains. It has been the tech sector that has gained the most in the first four-and-half months of Donald Trump in office. This runs counter to the narrative that industrial and financial companies will be the biggest beneficiaries from a fiscal boost. 13F filings have shown some of the biggest investment managers piling into the biggest US tech firms including Apple, Amazon, Google and Facebook. One explanation is that the market is losing confidence in Trump who is facing a political backlash in Washington but there could be a more credible one. Tech company earnings continue to grow and so do their huge overseas cash piles which could be repatriated under a Trump tax holiday.

 

Pound can’t sustain inflation gain

The British pound rose after data showed UK inflation at its highest since 2013 but was unable to sustain the gains. CPI now stands at 2.7% y/y, above 2.4% y/y average earnings growth. Inflation above wage growth has negative implications for consumer spending and outlook for the British economy. The cost of living squeeze will likely be enough to dissuade the Bank of England from acting to control the higher inflation with rate hikes.

 

Euro benefits from shift in political instability

The euro soared across the board with EURUSD easily breaching 1.10 and EURJPY hitting a 1-year high. Gross domestic product data showed the Eurozone economy growing at 1.7% y/y. It’s hardly blow your socks off growth in Europe but it is being viewed positively in the context of fading European political risk. Since currencies are always a play on the relative strengths of two economies, the rising threat of political fallout in the US under Donald Trump is another boon for the euro.

 

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