Tuesday saw one of the largest drops in the FTSE 100 in several months as the index failed to make a break above its previous all-time high. The market is consolidating back around the 7500 level this morning with a decline in the pound providing some support as sterling depreciates against all its major peers.
Politics weigh on the pound
With the Bank of England rate hike last week failing to drive the pound higher the onus is now on positive political developments to support the currency, and recent developments are increasingly worrying. Reports this morning that PM May is set to lose a second cabinet member within a week bring questions of political instability to the fore once more. International Development Secretary Priti Patel is set to be fired according to some newspapers, less than a week after Defence Secretary Michael Fallon resigned amidst a sexual harassment scandal.
A hindrance rather than a support
With economic data proving fairly strong on the whole - although a sharp recent drop in retail sales could be seen as a possible alarm bell - and the BoE tightening policy for the first time in a decade there appears to be limited scope for upside surprises on this front. This may have led some to believe that the greatest potential positive developments for sterling going forward are far more likely to come from the political side, but this too, is now looking more likely to be a negative. The recent political turmoil is present without even the mention of Boris, who found himself in hot water once more yesterday, with the Foreign Secretary making highly inappropriate and insensitive comments regarding Nazanin Zaghari-Ratcliffe who is currently under arrest in Iran.
SSE (LON:SSE) surges on talk of merger
Two the largest energy providers in the UK have announced plans for a mega-merger with SSE and Npower discussing a deal that would be worth around £7B. The news saw a strong move higher in SSE’s stock heading into yesterday’s close although this morning has seen some paring of the move with shares currently little changed on the day. Should the deal go through Britain’s Big Six providers would become a Big Five and they conglomerate would have around a 24% share of the domestic electric market as well as a 19% hold of the gas equivalent.
Turbulent trade for Airlines
Two of the worst performing blue-chips today are easyJet (LON:EZJ) and BA parent company International Consolidated Airlines Group (LON:ICAG) with both seeing drops of around 2%. Both these airlines have enjoyed a strong run higher in the last couple of months as the collapse of rival firm Monarch and wide-ranging flight cancellations from Ryanair (LON:RYA) seemed to free up some capacity and decrease competition in the saturated European short-haul market. However, the marketplace remains challenging and with oil prices hitting their highest level in more than two years this week, operating costs may well rise going forward.
US inventory data to drive oil
This week has seen further gains for the oil price with both Brent and WTI, the two international benchmarks for crude prices, hitting their highest levels since the summer of 2015. Rising tensions in Saudi Arabia threaten to disrupt what has traditionally been seen as a placid political backdrop in the world’s largest oil producing nation and with Gulf stocks losing close to $7B in the past 72 hours it is clear that that anti-corruption clampdown has worried markets. This afternoon sees the weekly DOE inventory data released from the US with a second consecutive decline expected. Barring 3 successive increases during September when the hurricane damage to refineries dampened demand, there has been a strong downtrend in US inventories going back more than 6 months. Even with the rises seen in September 24 of the past 30 releases have shown negative prints and another decline seen today would further reinforce the notion that the supply glut which precipitated the crash from above $100 a barrel back in 2014 is being reduced further and that demand is now once more outstripping supply.