FTSE to 8000?
A weaker pound, a further easing of tensions between US and China and stronger commodity prices encouraged the FTSE to continue its steady rise towards its 8000 target. Now just 100 points away, with momentum on its side and the pound looking more fragile than it has for a while, 8000 is a very reasonable target.
The inverse relationship that exists between the pound and the FTSE thanks to a large percentage of FTSE firms earning revenue outside of the UK, is expected to help the FTSE break higher into uncharted territory towards 8000, sooner rather than later. After weeks of softer than forecast UK economic data, most recently a fall in factory output to the lowest level in two years, plus Brexit uncertainties and a BoE that is happy to sit on the side-lines, key factors are aligned for a soft pound and another push higher by the FTSE.
With the harsh weather conditions well behind us, the outlook for the economy is looking up, according to the BoE, making an August rate hike once again a possibility. Should investors start to believe that the August hike is well and truly back on the table, the pound could start to pick up off year to date lows, making it harder for the FTSE to reach 8000. With this in mind, the FTSE’s final move higher to 8000 needs to be in the bag sooner rather than later to guarantee a hit, otherwise a stronger pound is likely to prevent that psychological level being struck this summer.
CPI in focus
Inflation data tomorrow could provide a strong clue as to whether the outlook for the pound is improving. CPI data is expected to show that headline inflation remained constant in April at 2.5%. Core inflation which takes out more volatile items such as food and fuel is expected to have dipped lower in April to 2.2% from March’s 2.3%. Whilst this expected dip in core inflation is good news once again for the consumer, pound traders will see it as a step further away from an August rate hike. Under this scenario we expect the pound to take another hit, whilst the FTSE could step higher.
Retailers Suffer Losses
Whilst almost all sectors on the FTSE traded higher, retailers were standout losers as investors digested more evidence of the struggling high street. Marks and Spencer (LON:MKS) topped the loser board after announcing over 100 store closures as part of its turnaround strategy. As footfall on the high street continues to drop, store closures are one of the easiest way is to scale back on costs.
Tesco (LON:TSCO) closes Tesco Direct
Tesco will be closing down its loss-making Tesco Direct website. UK consumers have experienced a harsh winter in more ways than one. The intense squeeze that consumers have felt as wage growth stalled, and prices climbed higher continues to be played out across the high street. The closing of the loss-making Tesco Direct website, underscores those struggles which are weighing on retailers and making the need for streamlined profitable retail operations even more essential. Tesco closed over 1% lower.
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