Two volatile trading days into the week and the FTSE seems to have come up for a bit of air. The positive impetus came from a stronger close on Wall Street after comments from the Federal Reserve which the market interpreted as a signal of an imminent rate cut.
The forward market in currencies is now pricing in potentially as many as three interest rate cuts this year which may be slightly optimistic given that the US economy is currently fairly stable. The US economy is expanding at 3.2%, up from last year when GDP growth was 2.6%, and despite calls from President Trump for the Fed to start cutting rates more than one increase may be a bit of an overkill.
In London, house builders and home improvement companies are leading the FTSE higher, as are airlines and travel companies. Shares in Anglo-US cruise operator Carnival (LON:CCL) were in demand ahead of a dividend payout next week but this could end up being short lived now that the US has banned cruises from the US to Cuba, a punitive move for Cuba’s support of the regime in Venezuela.
China concerns
The IMF has cut this year’s economic forecast for China from 6.3% to 6.2%. While investors would have preferred to see more expansion in China rather than a slight slowdown the decrease is smaller than many have feared given that the trade restrictions between China and the US have been in place for months and that more are yet to come.
Slightly more worryingly the IMF expects this rate to moderate to 6.0%, not only because of trade tensions but also a slowdown driven by internal domestic reasons.
Sterling in limbo ahead of leadership contest
Sterling is trading slightly higher but remains within a tight channel with traders keeping a close eye on the Tory leadership contenders.
The prospect of a harder pro-Brexit stance that could include the option of a no-deal exit from the EU is keeping the pressure on the pound. With 12 candidates for the post currently in the running the range of policies that they represent is wide-ranging but the likelihood of a conciliatory candidate taking up the position seems low.
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