Pound weakness supports FTSE; investors look to Powell

Shares across the globe extended their negative start to the week on Tuesday, whilst the dollar rallied, and investors looked ahead to Federal Reserve Chair Jerome Powell’s testimony before Congress tomorrow

The FTSE has been faring better than its European counterparts, thanks to the sinking pound. Whilst the Dax and the Eurostoxx 50 were down around 0.8% and 0.3% respectively, the FTSE less at 0.2% lower on the day.

Ocado delivering impressive results secured it a place on the top of the FTSE leader board, gaining 6% across the day. 
Melrose was the biggest decliner dropping some 7%, although the exact cause for the selloff remains unconfirmed. With the stock experiencing its worst session in 5 years we would expect a direct negative news report to have hit the wires. So far this hasn’t been the case. 

Pound drops to 2 year low
The pound was offering support to the FTSE. Sterling dropped to its weakest level in 2 years of $1.2440 as recession concerns coupled with fears over Brexit are proving too much for pound traders to swallow.
Today the BRC revealed that retail sales slumped -1.6% year on year, confirming that any wage rise UK households are enjoying is not being reflected at the tills.
Finally, the prospect a no deal Brexit is running high. The House Speaker Bercow preventing MP’s from voting on an amendment to stop the next PM from proroguing parliament for a no deal Brexit has done little for the prospect of avoiding a disorderly Brexit. In addition to the pound taking a hit, tourism stocks such as TUI, IAG and easyJet fell over 3%.

Up next:
FTSE traders will look towards UK GDP data and Federal Reserve Powell’s testimony for direction. A weak GDP reading could drag the pound to fresh 2 year lows which could offer support to the FTSE. Should Powell focus on the risks facing the US economy, US rate cut expectations could rise boosting stocks across the globe. The FTSE could be pushing above 7600 sooner rather than later.



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.