FTSE ends Lower Despite US Fresh Record Highs

The FTSE slipped lower on Tuesday, despite a weaker pound and ignoring the lead from the US, where the Dow Jones and the S&P reached fresh record highs. Heavy weight commodity shares led the charge southwards, tracing the price of commodities lower, whilst weighing on the FTSE. 

The FTSE shed 0.2%, whilst oil, copper and base metals all pulled back from recent highs. The mining sector was the biggest loser, shedding 2.7%, whilst oil and gas producers also dropped over 1.3%. 

Inflation drops pulling pound lower 

The pound also spent the day in negative territory, as UK inflation eased back in December. Consumer Price Index (CPI) data showed that that inflation dropped to 3%, from 3.1% in November and core inflation, which strips out more volatile items such as food and fuel, dropped by more than expected to reach 2.5% in December, down from 2.7% in November. Following the release, the pound dropped against both the dollar and the euro, as lower inflation makes any monetary policy tightening less likely. 

The pound is currently trading at $1.3775 having bounced off the low earlier in the session. Supported by a weaker dollar, GBP/USD is holding comfortably above the 20 SMA with downwards potential appearing limited. A push above $1.3780 could open the door to further gains, with resistance seen at 1.3820.  

US indices reach fresh milestones 

US investors came back to the markets with vigour on Tuesday, pushing the US equity indices to fresh milestones. The Dow Jones broke above 26,000 for the first time, it has rallied from 25,000 to 26,000 in just 12 days. Meanwhile the S&P500 has touched 2800 for the first time and the Nasdaq also hit a fresh record high. 

The US markets have had an exuberant start to the new year as factors such as the tax reform bill, a strong start to earnings season and optimism over global growth, have aligned to produce this incredible up trend, which is showing few signs of slowing down.  

Homing in on Q4 earnings, United Healthcare posted better than expected earnings and sales, boosting the tock by 2.4%. The healthcare sector was the top performer on the S&P. Citigroup also reported adjusted earnings ahead of expectations and revenue inline with forecasts. Citigroup is up 0.6%. 

 All in all, earning season is off to a strong start, of the S&P companies that have reported, 69% have beaten EPS expectations, whilst 85% have beaten top-line expectations. US equity indices are trading at an all time high, but valuations so far are supporting these levels.