After five consecutive lower closes against the US dollar, the pound is gaining ground in early trade as it attempts to end its worst losing sequence in almost 2 months. The macroeconomic outlook for the currency remains bleak but news filtering through that yesterday the Bank of England purchased only £1.12 billion worth of gilts - which was £52 million less than they wanted - has raised a few concerns as to the logistics of the recently announced QE expansion. After closing at its highest level of 2016 yesterday the FTSE 100 is little changed so far this morning.
QE concerns
The BoE has moved today to address any worries surrounding its latest stimulus measures by stating that it will incorporate the shortfall within H2 of the current 6-month purchase programme. In the grand scheme of things the failure to complete its order book is likely to be largely insignificant for the bank but nonetheless it has provided an opportunity for the pound to attempt to recover some of the recent losses. In addition to the disappointing auction, bearish sentiment has been fairly extreme of late, and the short trade on sterling is certainly crowded. This isn’t to say that we’ll see a sustained recovery anytime soon, but some pullbacks in the prevailing downtrend are entirely feasible as shorts look to cover and lock in profits after the strong recent declines.
FTSE pauses after recent gains
The FTSE 100 is trading flat on the day so far with the market seemingly consolidating after a strong recent run higher. The peak from yesterday represents approximately a 20% rally from the low the day after the EU referendum - which let’s not forget was only just under 7 weeks ago. This scarcely believable rally has shown very little by way of pullbacks as the bulls have charged on almost unabated since the low on the 24th June. Whilst some of this move can be explained away by the drop in sterling which boosts stocks earning their revenues outside these shores (almost 80% of FTSE 100 revenues are not sterling denominated), there is clearly more to this rally than a simple case of foreign exchange gains.
Insurers amongst the best performers
The stocks of companies in the insurance sector are rising today after yesterday saw some strong selling in particular for Legal & General following the release of its half-year results. Whilst Legal & General leads the way higher today, several other insurers occupy places close to the top of the FTSE 100 with Prudential (LON:PRU), Direct Line and RSA Insurance Group all currently firmly in positive territory. At the other end the troubles of late for Pearson (LON:PSON) and Hikma Pharmaceuticals (LON:HIK) look set to continue with these two the worst performing shares at the time of writing.