FTSE snaps winning run: Euro lower amid growing fears for German economy

The FTSE snapped a six-day winning streak on Wednesday after Trump dented risk appetite with his nothing new State of the Union Address last night. Traders had been optimistic that Trump would provide further details on developments in US – Sino trade relations, instead little sign of progress saw investors adopt a more cautious approach to trading on Wednesday.

The FTSE snapped a six-day winning streak on Wednesday after Trump dented risk appetite with his nothing new State of the Union Address last night. Traders had been optimistic that Trump would provide further details on developments in US – Sino trade relations, instead little sign of progress saw investors adopt a more cautious approach to trading on Wednesday.  

In addition to weaker sentiment, a stronger pound was also working against the FTSE. A fire at Ocado’s flagship distribution centre pulled shares 7% lower and financials were out of favour following a disappointing outlook from France’s BNP Paribas. On the plus side house builders were putting in a strong performance following better than expected results from Barratt Developments. The house builder rallied 2.6% on higher first half volumes, whilst calming investors nerves over Brexit uncertainties.

Pound Steady Despite No Brexit Developments
The pound moved higher across Thursday, paring some losses from the previous session. Whilst Theresa May is no closer to securing any variation on her current Brexit proposal, at this price pound traders are still confident that the UK won’t crash out of the EU with no deal in place. Reports that the cabinet have been discussing an 8-week extension to Article 50 is providing a floor for the pound. Attention will now turn to the Bank of England’s monetary policy announcement and quarterly inflation report tomorrow. However, with Brexit clouding vision the central bank has their hands tied as far as policy is concerned. We expect further warnings over a no deal Brexit and the one hike a year mantra until Brexit uncertainty has cleared.

Euro lower as Germany heads towards recession?
The euro extended losses for a third straight session as more evidence pointed to Germany heading towards a technical recession. German factory orders feel sharply for a second consecutive month. An unexpected decline in December of -1.6% means that factory orders are down 7% year on year. As the market digests mounting evidence that Germany is struggling amid trade tensions, a slowdown in global growth and Brexit, the euro fell lower. The German economy contracted -0.2% in the third quarter, evidence is pointing towards a continuation of that slowdown into Q4. The euro was weaker across the board. Versus the dollar, support is holding up at €1.1380. Disappointing German industrial production figures tomorrow could see the euro target support at $1.1300.


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.