A sunny bank holiday did not impress the FTSE 100

The United Kingdom basked in glorious sunshine over a Bank Holiday weekend, a rare and wonderful thing. There have been umpteen studies on the impact of weather and the stock market performance. Are markets more likely to rise on sunny days and fall on rainy days? Some studies suggest that people are more likely to be risk takers on sunny days, which would suggest that markets could do better, however, an academic study suggests the jury is out on this as an investment strategy. The FTSE 100 on Tuesday was largely unimpressed by the sunshine, as equity indexes remained largely unchanged over the day.

The S&P 500 climbed on Friday as did the dollar and the oil price. The oil price rallied rose as Donald Trump announced he will pull out of the Iran nuclear deal. The decision did not need be made before the 12th of May, on whether to renew a waiver on sanctions first implemented in 2012.

Later in the year, the midterm elections will take place, tonight four primary elections may give some clue as to the outcome of the midterm elections and who could control the US House and Senate at the end of the year. Currently, the Republicans do. Interesting the approval rating for Donald Trump is rising, it probably could not have gone much lower. The Presidents approval rating stands at 44%.

Other notable events in the past few days, Argentina who recently managed to raise debt maturing in 100 years’ time, raised interest rates to 40pct this week as inflation climbs by 25% and called in the IMF. In the weekend FT John Authers discusses the possibility that this could be a sign emerging markets are once again under strain. This is rather reminiscent of Norman Lamont’s attempt to defend the pound in the early 1990’s, which eventually failed.

One possible sign some look for a market top is a significant increase in merger activity as it’s possibly a sign of excessive risk-taking and an increase in leverage. This year so far 1.7tn dollars of deals have been announced. Previous records were set in 2007 and 2000, both points where stock markets peaked. Deals are 63% higher than this time last year. Part of the explanation may be Donald Trumps tax changes and the continued access to cheap money at a time investors are becoming more comfortable with the global economy.

The last point of note is the US dollar, continues to climb, another example of an asset price that is moving in the direction that causes the most pain.



Posted on May 8, 2018 .