Both the FTSE 100 and pound are little changed on the day after yesterday’s trade saw notable reversals late in the session. The pound was under pressure yesterday morning and supportive of the early surge in the FTSE 100 before these initial moves reversed into the European close.
BoE speeches in focus
Yesterday’s reversal in the pound came after some hawkish comments from Bank of England (BoE) member Kirstin Forbes, with the rise in the currency weighing on stocks. A transcript of a speech that Forbes was set to deliver in Leeds stated that she believes an interest rate rise could soon be warranted. Whilst she is one of the more hawkish members on the rate-setting panel, the comments were seized upon by pound traders which saw the currency recover from being 100 pips down against the US dollar around Midday to end up higher by 50 pips. This afternoon’s speech in Birmingham from BoE Deputy Governor Jon Cunliffe may now take on a greater importance as traders search for more clues as to the future path of monetary policy.
European political risk continues to rise
The spread between Italian and French government bond yields compared to their German counterparts hit multi-year highs this morning as the growing political uncertainty threatens to shake up the Eurozone. Last summer’s Brexit vote has remained as the biggest driving force on UK sensitive assets for the past 8 months, but the growing threat of anti-establishment politicians succeeding in upcoming elections on the continent could have a major impact on these shores. As the US presidential election highlighted, the UK is inextricably linked to foreign developments and despite the vote to leave the EU last summer, UK markets remain vulnerable to external forces. With the French Presidential first round elections still over two months away the recent developments surrounding Francois Fillon are likely to only serve as a precursor for what is to come, with news yesterday that he was continuing his bid despite the scandal surrounding his wife’s pay contributing to the surge in yields on French debt.
Broker upgrade sees Rolls-Royce (LON:RR) rise
A repeat of the “buy” recommendation from Citigroup on Rolls-Royce shares has seen the manufacturing firm’s stock rise by almost 3% today and currently lead a list of the biggest gainers on the FTSE 100. Taylor Wimpey (LON:TW) and Barratt Developments (LON:BDEV) are also both higher with the housebuilders adding to Tuesday’s gains. A drop in the oil price has seen Royal Dutch Shell (LON:RDSa) decline by approximately 2% since last night’s close, with this afternoon’s Department of Energy inventory data from the US threatening to show yet another large build and suggest that the OPEC and non-OPEC output cuts are having limited impact when it comes to reducing the supply glut.