FTSE Eyes 7 000 amp Beyond

Will the FTSE-100 finally surpass the 7,000 level and join the rest of major global indices in breaking new records? UK fundamentals seem to agree.

According to Citigroup’s Economic Surprise Index, the UK tops the US, Eurozone, Canada and Australia this week. This also applies for three months ago and a year ago.

UK real two-year yields currently stand at 1.26%, well above those in the Eurozone, US and Japan at -0.47%, -0.98% and -3.6% respectively.

The UK continues to lead the US, Germany, Eurozone, Canada and China in both the manufacturing and services Purchasing Managers’ Indices surveys since at least last summer.

Despite low inflation, labour markets continue to tighten every month, either via a declining unemployment rate or the number of unemployed. This week’s release of the Purchasing Managers’ Index showed a decline to a 3-month low of 57.7 in June, down from 58.6. But the report also showed the PMI’s employment rising to a record high of 58.8 from May’s 56.2. According to this week’s services, construction and factory surveys, UK GDP may be estimated to reach 0.8% in Q2, which would match Q1’s GDP.

Expectations of a BoE rate hike have moved forward to February from May of next year.  The notion that the BoE could contain any potential overheating in the housing market via macro-prudential policy, rather than outright rate hikes may not hold sway in the face of prolonged declines in unemployment and further gains in the aforementioned surveys.

FTSE to regain 14-year highs 

In comes the FTSE-100, the sole index from the G7, which has yet to regain its record high from 14 years ago. In fact, it has yet to regain its 15-year high reached 17-months ago, unlike most other global indices, which have hit new records. But considering the fact that the FTSE-100 is trading at all-time lows relative to the indices such as the Dow Jones Industrials Index and the Dax-30 and the index is 3% above its 55-week moving average, compared to 9.3%, 9.9% and 5% for the S&P500, Dax-30 and Nikkei-225, making the case for higher upside in the FTSE-100 remains a sustainable endeavour. Only 2% is left for the 7,000 figure to be hit and this is likely to be surpassed by end of Q3.