Despite a brief spell in the red after midday, the FTSE moved higher. Gains in house builders boosted by the Chancellor’s extension to help to buy, blowout earnings from BP (LON:BP), combined with a weaker pound and stronger start on Wall Street overshadowed softer miners and disappointing results from Reckitt Benckiser (LON:RB).
The pound sunk versus the stronger dollar as a lack of developments over Brexit unnerved investors just as the S&P rating agency warned that a no deal Brexit would spark a recession. With the clock ticking the risk of the UK crashing out of the EU in a disorderly Brexit is growing. This fear is starting to be reflected in the value of the pound.
Until recently pound traders had appeared complacent that a deal would get done, keeping the pound relatively elevated, around $1.30. Yet the reality is starting to sink in, that there is a very real possibility that a no deal Brexit could very soon be a reality.
S&P warn over no deal Brexit
The warning from the S&P echoes previous warnings from businesses leaders and leading economists. The picture painted by the rating agency was dismal, with a recession forecast, unemployment rising to levels last seen in the financial crisis, house prices falling by 10% and inflation jumping to 4.7%. These stark figures come just one day after the Chancellor's optimistic budget.
The pound is now trading over 11% lower from its peak in April and its lowest level since mid-August.
Investors will now look towards tomorrows consumer confidence data, which unlikely to prompt the bulls to buy in. Thursday’s Bank of England’s super Thursday will attract a good amount of attention. However, pound traders are fully aware that the health of the UK economy rests solely on the UK’s ability to seal a deal with the EU.
US consumer confidence at 18 year high
Also working against the pound was a significantly stronger dollar. The dollar rallied as US consumer confidence hit a fresh 18 year high, unexpectedly climbing to 137.9. Analysts had expected confidence to dip slightly to 137.9. Despite the recent rout in the stock market, US consumers confidence grew at the fastest pace since 2014. Higher confidence means Americans are spending as strong jobs market supports households. As we head towards the midterm elections, it is clear that Americans are confident in their outlook for the economy.
Fiat Chrysler saw surprisingly good earnings performance
A bumper performance in North America has helped offset weakness in Europe and Asia to drive a surprisingly good earnings performance at Fiat Chrysler (LON:0QXR). Investors hoping to share in the spoils of the Magneti Marelli sale haven't been let down, with €2bn in special dividends now heading their way.
Fiat Chrysler is selling more pick-up trucks than rivals in the US, as customers embrace new design tweaks and show they're prepared to pay for distinguishing features like electric motors that can improve fuel efficiency. There are still plenty of headwinds facing Fiat Chrysler and its rivals in the auto industry: chief among them new trade tariffs that are crimping sales in China. But today's result builds on the positive valuation implications of the Magneti Marelli deal to indicate investors may have been too harsh on the sector this year.
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