The FTSE 100 notched up another all-time high to round off a record-breaking week of gains. As has become the custom in the first few trading days of 2017, gains in the UK stock market were mirrored by a weaker pound sterling.
There was a strong rebound in the pharmaceutical shares which sold-off in the wake of Donald Trump’s press conference. Markets have pared bets the President-elect’s hostile attitude to drug pricing would spill over to international markets. There will be some relief that The Donald’s daily twitter attack was centred on fake news and Hillary Clinton’s email investigation instead of the US auto, pharmaceutical and defence industries.
Ahead of his inauguration as US President in one week’s time, Donald Trump tweeted that the allegations against him are “Totally made up facts by sleazebag political operatives.” If there’s any takeaway for markets, it’s build in a @realDonaldTrump risk premium into your investments.
Homebuilder Barratt Developments (LON:BDEV) and Kingfisher (LON:KGF) were top risers whilst disappointing economic data from China and a downturn in the price of gold hurt mining company shares including Randgold Resources (LON:RRS).
BofA a good start to bank earnings
Bank of America (NYSE:BAC) reported earnings per share ahead of estimates in results that bode well for other money-centre banks. The interest rate rise in December didn’t affect fourth quarter results but BofA were quick to capitalise on the current thematic trade that net interest rate margins will improve as yield curves steepen. New CEO Tim Sloan is yet to make his mark at Wells Fargo (NYSE:WFC) as the fake accounts scandal contributed to weaker than expected earnings.
Shares of UK-listed banks including Barclays (LON:BARC), RBS (LON:RBS) and HSBC (LON:HSBA) responded positively to the US results. Bank-laden European benchmarks like Italy’s MIB haven been the biggest beneficiaries of the improved outlook for the financial sector. Shares of Italy’s UBI (LON:0LBN) gained over 9% on Friday with it set to buy three smaller banks that were rescued by the government.
Sterling soft before Theresa’s Tuesday
This week the pound dropped to a three-month low against the dollar and a two-month low versus the euro. Next Tuesday Theresa May will set out the long-awaited approach the government will take before triggering article 50. The PM has difficult balancing act of trying to offer some more clarity to the British public, parliament and financial markets without losing the upper hand in negotiations with the EU.
If the Prime Minister confirms the UK will leave the single market in a “Hard Brexit”, the British pound could drop below 1.20 against the dollar, and quite possibly into “flash crash” territory soon thereafter. More likely the PM will be a little coyer. The uncertainty of being unspecific is not good for sterling either, but leaving the door open to staying in the single market should support the pound.
There is a lot of UK economic data on tap next week too, but it will likely play second fiddle to politics. On Tuesday there is inflation data, Wednesday unemployment data and Friday sees the release of retail sales data.