Another day, another new record for the FTSE 100 and another pound worth less in dollars. A further devaluation of the pound, which fell to its lowest against the dollar since the ‘flash crash’ in October, nudged Britain’s equity benchmark above 7300 for the first time. It was a 12th successive day of gains.
Needless to say, UK stocks are well over-extended in the short-term and this strength will give way in the near future. Still, while Brexit pains hamper the pound, we expect the FTSE to trot higher still in the first quarter.
Sainsbury’s Surprises With LFL Sales Gain
Christmas cheer continued at British supermarkets. Sainsbury's (LON:SBRY) led the sector higher after well-received Christmas sales numbers. Like for like sales rose 0.1%, beating expectations of a -0.6% fall. Including today’s gains, shares of Sainsbury’s are up 15% in the past three months. The strong performance of Sainsbury’s shares confounds the idea that firms with mostly domestic earnings will suffer following Brexit. If domestically focused firms are on form and multinationals with earnings in dollars benefit from a weaker pound, the gains in the FTSE match the fundamentals.
Gains were being made across Europe but a soft open on Wall Street kept global risk-taking in check. Germany’s DAX index was bolstered by a rise in Volkswagen (DE:VOWG_p) shares after the car maker agreed a draft settlement with US authorities for $4.3bn and an admission that it broke the law.
Trump Presser Takes On A Golden Hue
The chance of all hell breaking loose at Donald Trump’s first press conference as President-elect saw investors take to the side-lines in the lead-up. The scheduling of the press conference to begin at 4pm GMT was perfectly designed for those in London looking for an interesting market close.
The subject matter in this press conference says a great deal about what’s to come in the first 100 days of President Trump. It’s the second big test for Donald Trump after his acceptance speech to be Presidential.
An emphasis on business-friendly tax cuts and deregulation could be the trigger markets have been waiting for to breach 20,000 in the Dow Jones. The unsubstantiated dossier implying Donald Trump is compromised by Russian spy agencies skews the risks towards an anti-media, anti-China, wall-building tirade. A distraction from the core issues to get the US economy growing faster would disappoint equity investors.
Carney ‘Makes It Rain’ For Cable Bears
An improvement in manufacturing and industrial production in November was more than offset by deterioration in the UK’s trade balance. Exports were up but imports reached an all-time high. The much-touted advantage of a weaker pound for the British economy is that it boosts exports. So to see imports rise more than exports is a worry.
BOE governor Mark Carney didn’t go as far in his admission of faulty forecasts after the EU referendum result as chief economist Andy Haldane. While Mr. Haldane said the Bank of England had its “Michael Fish moment”, Mr. Carney says it “made the weather” after the Brexit vote. There was some signs of a step back from Carney with his assessment that the FPC doesn’t view Brexit as the biggest risk to the UK economy and that stability risks will be greater for the continent. Overall though, the Bank of England still seems in no rush to lift interest rates and that will keep the pound under pressure.