Weak pound drives strong FTSE100
Good Morning traders,
The main U.S. stock market indexes were down between -0.2% and -0.3% on Monday, extending their short-term fluctuations following last week’s Tuesday’s move down. But today, most Asian markets ended higher, oil reverses losses and the European markets are trading up more than +1%.
Investors will now wait for some economic data announcements, and all the eyes are on inflation data of the U.S. and U.K. The consumer price inflation (CPI) in the U.K. hit a near two-year high in September and came out higher than forecast as a weaker pound put upward pressure on prices, official data showed on Tuesday.
In an immediate reaction, GBP/USD traded at 1.2253 from around 1.2244 ahead of the release of the data, EUR/GBP was at 0.8990 from 0.8996 earlier and GBP/JPY exchanged hands at 127.46, compared to 127.36 previously. And London’s FTSE 100 gained another 1.13%, and is trading very close to the high time levels; part of the answer is that the decent growth of the FTSE 100 is itself a simple currency effect. Many of the 100 companies in the index are multinational miners, oil producers and global banks that do a large amount of business outside the UK. Often they do relatively little business here in Britain at all.
A large chunk of their revenues and profits are from overseas – 77 per cent of the total according to some estimates. Even allowing for the currency effect it does appear that the stock market has held up better than the currency. The values of US and UK-facing listed companies could also lurch lower if consumer confidence dries up. There has been little sign of that since the Brexit vote – but the fall in the pound will increase inflationary pressure, squeezing real disposable incomes and meaning Britons have less to spend.
On commodities, the oil prices were higher during European hours on Tuesday, following an overnight decline, as market players awaited details of a planned output cut by the Organization of the Petroleum Exporting Countries. A drop in the U.S. dollar away from seven-month highs also supported crude, as a lower greenback makes fuel purchases cheaper for countries using other currencies.
The German exporting companies in the DAX have an inverse relationship with respect to the eur/usd. Today the eur/usd is rising, so we can see a little negative correction in BMW. The important level of support is at 75.75.
Graphics by: www.etoro.com
The S&P 500 index remains close to its September lows of 2,120. The nearest important level of support is at around 2,100-2,120. On the other hand, resistance level is at around 2,140-2,150, marked by previous support level. Today we will see a significant positive rebound according to the futures indexes.
Graphics by: www.etoro.com
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