Despite a strong open for the FTSE, with oil prices slipping and the pound at a two-week high versus the dollar, the index was unable to cling onto gains, dipping towards the final bell to close 0.3% higher.
Oil fell towards the end of the European session after reports emerged that OPEC could lift its oil output by 1 million barrels a day and as US stockpiles showed an unexpected build in US stockpiles. Crude stockpiles increased by 2.1 million barrels in the week to June 1st versus a decline of over 4 million barrels the week earlier. As we move closer to the OPEC meeting we expect volatility in oil to puck up. Investors are going to be watching careful to see whether OPEC takes action to help bring the price of oil down from recent three-year highs.
Pound strikes 2 week high
Brexit optimism in addition to risk on sentiment amid easing trade tensions helped lift the pound to a two-week high versus the dollar. The US Treasury Secretary Steven Mnuchin attempting to convince the President that Canada should be exempt from trade tariffs, in addition to moves by China to appease Trump with the offer to buy some $70 billion worth of US goods has helped thaw tensions in the eyes of the markets, resulting in an easing of geopolitical risk which is ultimately boosting sentiment.
Brexit optimism also helped lift the pound to $1.3443 as optimism increases that Theresa May and her war cabinet will find a way to resolve the Irish border issue, although no actual details on the two proposals being put forward have been given.
Taper talk boosts the euro
The euro struck a two-week high versus the dollar as multiple sources reported that the European Central Bank will debate the end of the QE programme at its meeting on June 14th. The news comes just as political turmoil in Italy and Spain eased and the new Italian government announced that it has no plans to leave the eurozone. The timing is therefore most likely opportunistic by the ECB, given that the euro had dropped over 3.5% in May a window of opportunity appeared to get the ball rolling.
This is the first time that the programme has been mentioned this year. Whilst the euro has been elevated versus the dollar for much of the year, any talk of winding down or ending the programme would have lifted the euro higher, making inflationary pressure hard to come by. The heavy fall in the euro to a 10-month low, provided the space to bring the topic into the room without impacting on inflationary pressures.
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