FTSE closes higher as North Korea summit infuses hope

The FTSE closed in positive territory Monday, up 0.88%, and US stock-market indexes were trading tentatively higher at the time of the London close recovering from the fiasco that followed this weekend’s G7 summit in Canada which failed to deliver any agreement over trade tariffs between the US and some of its key trade allies.

Instead the focus shifted to the widely anticipated meeting between President Donald Trump and North Korean leader Kim Jong Un in Singapore Tuesday which, if successful, could result in the country opening up to its Asian neighbours and the rest of the world and seeing new trade and business links being forged.

Central banks to take centre stage this week

The Federal Reserve will start a two-day meeting Tuesday and is widely expected to announce a further rate increase on Wednesday, the seventh in this cycle. The Fed should provide some insight into its assessment of the economic conditions in the US including the inflation outlook. 

It may make comments on how it plans to balance the effects of reduced tax rates with the anticipated international trade difficulties that will follow once the US starts applying higher trade tariffs on imports of steel and aluminium at the beginning of July.

The European Central Bank policy makers are also meeting this week and are expected to decide on the schedule for the reduction of the ECB’s asset-purchase initiative which has been in place since the financial crisis.

Oil markets digest report of higher Saudi output

After two years of keeping oil output on a tight leash Saudi Arabia started increasing production to make up for a loss from OPEC members Iran and Venezuela. 

Following an agreement with Russia, the world’s largest producer ahead of Saudi, the kingdom increased output to 10 million barrels a day while Russia also upped its production level in the first week of June to 11.1 million barrels. 

It remains to be seen if the new production levels will just cover the previous loss of output from other countries or if they will create oversupply. The first reaction from the market was fairly neutral with Brent crude trading 0.3% higher. 

In the US WTI crude traded up 0.8% even though domestic data showed US oil producers have increased the number of active rigs for a third week running.

UK factory output sees steepest fall in six years

The output from UK factories showed the sharpest monthly decline since 2012 indicating that the weakness in the UK economy in the first quarter of this year has continued into the second quarter. 

This will be a cause of concern for the Bank of England which has postponed a decision to increase rates at its last meeting and after the current set of economic numbers may decide to do so again at its next meeting.