The FTSE 100 is edging higher this morning and showing a gain of 6 points at the time of writing. The market has now recovered all of the losses seen since May called a snap election and is back within 2% of all-time highs. The pound is little changed on the day and has fallen back into its prior range, after a brief foray higher against the US dollar towards the 1.30 handle was met with some selling.
Stocks and pound rise in tandem
The much vaunted inverse correlation between the pound and UK blue-chip stocks has weakened of late with external factors boosting global risk sentiment and outweighing the recent strength seen in sterling. The chief cause of the increase in appetite for risk assets has been the victory of Macron in the French elections and stocks in London have ridden higher on the coattails of their continental peers, with all-time highs printed in the last week on benchmarks in Paris and Frankfurt. Even though we are now entering a seasonally weaker period for stocks, with the sell-in-May adage directing traders to exit long positions, stocks remain in a strong uptrend. A look back over recent history reveals that seasonality actually has a stronger effect in June on the FTSE 100 with the greatest number of monthly declines in the past decade coming in June rather than May.
Markets getting complacent?
As is often the case in bull markets there remains several potential threats that could end the recent rally. WIth the US volatility index on a record streak of closing below 11 for the 12th consecutive day it is clear that there is little caution being shown amongst traders. From a UK perspective, expectations for a large increase in the Conservative majority leave the balance of risks for the upcoming election skewed to the downside with there being far more scope to disappoint rather than exceed current market forecasts. Overseas, with the current political situation in Europe seeing potentially disruptive outcomes avoided attention may now drift back across the Atlantic to the United States and the Trump administration.
Trump heading for his own Watergate?
Last night Trump ordered the firing of FBI director James Comey following a report from deputy Attorney General Rod Rosenstein which highlighted Comey’s handling of the FBI probe into Hillary Clinton’s emails as the main reason for the sacking. The irony is that this investigation into the presidential nominee for the Democrats was seen by many as contributing to Trump’s victory and when you consider that Comey was also tasked with leading the investigation into Russian interference in the US election - again believed to be in Trump’s favour - the move becomes even more controversial. Despite protestations that the investigation will continue, critics have been quick to point out similarities to president Nixon firing Archibald Cox in October 1973 who was the special prosecutor looking into the burglary that would eventually lead to the President's resignation in the face of an impending impeachment.
The markets have shown little reaction to this news and also looked through some aggressive rhetoric from North Korea last night in which Pyongang threatened to turn strategic assets of the US “to ashes”. Both of these are stories that could develop in the coming weeks and months and may ultimately cause the next sell-off in stocks, but for the time being it remains a case of onwards and upwards as the global bull market continues to climb a wall of worry.
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