Get 40% Off
💰 Buffett reveals a $6.7B stake in Chubb. Copy the full portfolio for FREE with InvestingPro’s Stock Ideas toolCopy Portfolio

DAX 12,900, UK COL Squeeze

Published 06/14/2017, 12:02 PM
Updated 04/25/2018, 04:10 AM
GBP/USD
-
DE40
-
ITX
-
BWY
-
DX
-

Investor’s rekindled attraction to European assets was on display again as Germany’s benchmark equity index struck a new record high. The DAX rising above 12,900 for the first time coincided with a breakout from a price consolidation in place since the first round of the French election in early May. In a sense, the political fallout in the UK since the snap election has added to the attractiveness of shares on the continent.

UK stocks: Bellway, WH Smith

New record highs on Wall Street helped catalyse a global recovery in risky assets that UK stocks were able to participate in, thanks in part to a weaker pound. Insurers, homebuilder and retailers were amongst those contributing most to the gains. A well-received report from Bellway (LON:BWY), including expectations for 10% growth in home completions by July budged the entire sector higher. Flat sales but higher profits at WH Smith is a result that might become more commonplace across the retail sector. Higher inflation is good for wider profit margins it’s just that shoppers just won’t buy as much. Bucking the trend, Zara-owner Inditex (MC:ITX) reported a big rise in earnings during the first quarter thanks to its fast fashion, small budget appeal.

The pound: COL squeeze, election fallout

The double whammy of an intensifying cost of living squeeze hitting the UK population and an aggressive approach to euro clearing from the EU knocked back the British pound. British consumers face a pincer movement attack to their spending habits. On one hand there’s the rising prices reported on Tuesday and on the other hand, the slowing average earnings growth reported on Wednesday.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

The EU has written a draft law to swipe euro clearing out of London after Brexit. The move is really without merit because in a digital world, expertise, not geography should play the decisive role on the location of clearing. After all, dollar clearing is done here, not New York. The loss of euro clearing would be a significant blow because it would further cloud the outlook for the financial industry, a large component of the UK economy. We have said from day one that Brexit will have winners and losers, euro clearing looks like it will be the latter.

The dollar: Soft data, Fed decision

A double dose of soft economic data sent the US dollar plunging and gold rallying before the Federal Reserve rate decision. Slowing inflation and flat retail sales add to the growing sense that today’s meeting could see the last US rate rise this year.

We would be in a state of shock if the Federal Reserve didn’t lift interest rates at its meeting later today. This will be the third rate rise since Donald Trump took office. Movement in the dollar will depend on what kind of signal policymakers give about the next hike, possibly in September. The US economy has not been firing on all cylinders but the Fed risks losing credibility if it backed off from a rate hike when it’s been so heavily intonated. A ‘dovish hike’ seems most appropriate, which may not be enough to generate enthusiasm for the dollar.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Latest comments

My Articles(1062)
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.