The leading UK stock index has continued to make tentative gains this morning, with the FTSE 100 edging higher above 7300. The pound has been relatively quiet also, briefly dipping below 1.3350 and the weekly low against the US dollar before recovering somewhat.
Carney hails BoE independence but recognises limits
Today marks 20 years of the Bank of England (BoE) autonomously controlling interest rates, and Governor Carney has spoken in favour of the two-decade long independence at an event in London marking the milestone. Carney stated that the independence has provided the central bank with the tools to help deal with both the financial crisis and Brexit but cautioned that there are limits to what impact monetary policy can control. The reaction in the markets to the speech was relatively subdued with the pound drifting down to its lowest level against the US dollar since the last BoE decision. The fall in the pound in recent trade is in contrast to the rise seen in UK bond yields with the 10y Gilt rising to an 8-month high of 1.40% this morning - a rise of almost 50 basis points in recent week. This could be seen to suggest that recent sterling declines are more down to an appreciation in other currencies rather than weakness emanating from the pound itself.
Barclays (LON:BARC) adds to recent gains
The rise in UK government yields is seen as positive for the banking sector, with higher rates meaning the potential for greater operating margins. In light of this it is little surprise to see Barclays sitting atop the FTSE 100 leaderboard with a gain of more than 2% today, following on from the recent gains. Lloyds (LON:LLOY) and HSBC are also both higher on the day, but RBS (LON:RBS) is failing to join in the rise and in falling around 1% is one of the worst performers of all the blue-chips. The impact of Gold futures hitting their lowest level in a month during the Asian session can be seen in Fresnillo (LON:FRES) with the stock currently changing hands at its cheapest price since early May.
Has the US dollar bottomed out?
The US dollar has extended its gains seen this week, with a trade weighted index rising this morning to its highest level of the month.There have been several subtle fundamental boosts for the greenback of late with the latest being further details on the highly anticipated tax reform revealed by president Trump last night. The main takeaway from a market perspective was the announcement of plans for a substantial slashing of corporation tax to 20% from 35% previously and although this is above the 15% level Trump campaigned on, it still represents a potential boost for the buck. However, it should be noted that these plans are yet to be ratified by lawmakers and given the difficulties seen in repealing Obamacare there is still enough doubt around that this reform won’t enjoy an unobstructed passage through government and therefore the market has not seen a large reaction to the news. There is a temptation to look at the last Fed meeting, hawkish Yellen comments and now this tax reform announcement as reasons to suggest a recovery lies ahead in the US dollar, but for now the gains appear to be more corrective in nature after significant year-to-date declines rather than the start of a sustained recovery.