This morning has seen the main economic releases from the UK, in what is a quiet week of data points, come in a little better than expected and support Monday’s gains in the pound. The FTSE 100 is higher by around 10 points but remains close to the 7500 level.
Sterling making tentative gains
The pound is edging higher today and looking to build on Monday’s gains. The release of above forecast data from both the manufacturing and construction sectors is a pleasing development for the UK economy and will soften the blow somewhat of last week’s disappointing PMI readings for these industries. According to the latest positioning data from the Chicago futures market, speculators have turned bullish on the pound with net long positioning at its highest level since the September 2014 Scottish referendum. Speculative positioning is often viewed as a contrarian indicator but this is more true when it is at extremes. Even though net longs are at a 3-year high, there have only been 8 weeks when the positioning has been net positive and in this time period the pound has been in a fairly constant state of decline. The scale of the positioning is not really too extreme in terms of a crowded trade and the 3-year high is more a reflection of the pessimistic view that hedge funds have taken of the pound in recent years. A better example of positioning acting as a contrarian signal would have been back in Q1 of this year when net shorts were at historical extremes and the spate of short covering since has provided a significant proportion of the buying pressure that has supported the subsequent rise in the pound.
BAE Systems (LON:BAES) to cut 2000 jobs
Investors have reacted negatively to news that BAE Systems will streamline its management and cut almost 2000 jobs, with the stock falling lower by almost 1% on the day. The redundancies will come as part of a sweeping restructuring plan which will lead to around 6% of the firms 33,000 UK employees finding themselves out of work. Unions have already called on the government to take action to save the jobs, with the employees representing one of the biggest industrial workforces in the country. Several of the biggest risers among the blue-chips come from the banking sector with Lloyds Banking Group (LON:LLOY) and RBS (LON:RBS) both higher after broker upgrades. Fresnillo (LON:FRES) and Randgold Resources (LON:RRS) are also in positive territory as Gold futures hit their highest level of the week above $1290/oz.