The FTSE 100 continues to break more records that Usain Bolt! We have now had 12 days of record highs; the previous record was nine. That was set in 1997 post Toy Blair’s appointment as prime minister. The FTSE also recorded the longest run of successive all-time peaks since its inception in 1984. Looking back at history this bodes well for the medium-term performance of the FTSE 100, although some correction may be in order in the short term. The fall in the value of sterling has taken some of the credit for the recent performance of the FTSE 100, the performance of the more domestic-focussed 250 index has not quite matched that of the FTSE 100. However, the run did continue even as the pound recovered at the end of the week. The FTSE 100 gained 1.5% this week, the pound lost around 0.5% against the US dollar.
The S&P 500 of leading US companies had more of a mixed week, closing Friday pretty much where it started the week. There are mixed signals coming from various asset classes. The Trump reflation trade that has seen gold fall, equities rise, the US dollar rise and bonds fall, has except for equity prices seen some reversal in the past week.
If Brexit had not already taken up a lot of ink, and cloud space, Tuesday’s speech from Theresa May will add to the count. On Tuesday Theresa May is expected to deliver “more details” of her plans for Brexit. The pound tends to weaken as the topic of Brexit rises. There is some speculation it will do so again as analysts anticipate that Theresa May will, publicly, continue to take a hard-line stance. Traders could well be tempted to put pressure on sterling ahead of the speech. We know how markets are supposed to work, buy on the speculation, sell on the news. Theresa May will understand her comments will be watched by currency traders and may not want to put further pressure on the pound. Therefore, the prime minister could present a slightly more conciliatory position than expected. What odds sterling finishes the week higher than where it starts?
Equity markets remained resilient on Friday post some mixed import export data from China. This week there is the usual selection of data on the strength of the US economy. On Tuesday, we get December’s inflation data. Inflation is forecast to climb to 1.9% year on year for December, close to the Federal Reserve’s 2% target. Should the rate climb above the Fed’s target the reaction of the bond market will be of some interest to equity investors.
Likewise, for the UK economy inflation data on Tuesday. Analysts are forecasting a jump to 1.5% year on year in December as the impact of the weaker currency works its way into pricing. Later in the week we get retail sales data for December.
Company earnings will start to dominate market sentiment as more banks report this week as well as heavyweights such as IBM.