FTSE closes higher as pound sinks

After spending most the day hugging the flatline, the FTSE finally picked up in the afternoon, lifted higher by continued weakness in the pound versus the mighty dollar and by hopes that the City could retain some benefits post Brexit. 

The FTSE climbed to within a whisker of 7400, a level last seen in early February.

Dollar is king

The dollar extended gains to fresh five-week highs, lifted by rallying yields, which were just shy of 3%. 

The recent rally in metal prices, and oil prices hitting fresh four-year highs have stoked fears that inflation in the US will pick up sharply, raising interest rate hike expectations. 

The dollar has rallied over 0.5% higher versus a basket of currencies as it targets key resistance at 91.00, whilst GBP/USD has plummeted over 2% over the past week, now trading below the psychological level $1.40. GBP/USD has taken a beating as a hat-trick of weaker than forecast data last week, in addition to a more dovish sounding BoE, combined with rallying US yields has dragged GBP/USD over 400 points lower from its Tuesday high of $1.4377.

Demand for equities weaker on raising rate expectations

Fears of a steeper pace of policy tightening by the Fed also dampened demand for US equities leaving the Dow and the S&P little changed in early trade and the Nasdaq marginally lower.

The last time that yields pushed up to 3% was at the end of January, which was followed by a correction in equity markets, as fears of higher interest rates impacting on companies dampened demand for stocks. 

So far the US equity indices haven’t fallen so heavily compared to early February and this could be down to the phenomenal earning season that we are seeing so far. Over 82% of S&P 500 companies that have reported so far have surprised to the upside, showing that the markets are strong enough to comfortably sustain more rate increases. 

This week is set to be the busiest week so far in US earning season with 170 companies due to report. A strong showing this week could keep the equity markets supported even if yields move above the 3% threshold.

Alphabet under the spotlight

Investors are selling out of Google parent Alphabet ahead of its Q1 results due after the bell this evening. 

Regulation is expected to be a primary concern and is at the forefront of investors’ minds after Facebook’s recent data scandal and ahead of European privacy laws which are due to take effect in May. 

Analysts are expecting adjusted earnings of $9.30 per share on $24.3 billion revenue. Analysts target price is $1270, a 17.9% increase from where it was in early trade on Monday.