FTSE side steps the sell down

Summary

The FTSE 100 is among the few European markets benefiting from the dollar’s advance and shrugging off weak oil prices.

Surfing the dollar swell

Dollar buyers surf the swell in the wake of post-Fed chair Jerome Powell’s testimony for a third day after earlier doubts it would last. The yuan’s stabilisation last week turned out to be a pause. That weakens commodity related and currencies and EM FX, lifting the ceiling for the greenback incrementally. (See the Aussie’s return of its entire gain from surprisingly strong jobs data). Sterling’s tortuous attempts to stay above $1.30—the latest challenge was a batch of off-target retail data—also plays its part to keep this phase of dollar grind going.

Bi-polar FX sentiment

But Bi-polar FX sentiment could keep greenback progress intermittent for many months more. On the one hand, the U.S. economy is firing on all cylinders amid favourable yield differentials. On the other, investors aren’t convinced that ongoing yield-curve flattening is as benign as some FOMC members suggest. Still, trade-weighted dollar is up almost 8% so far this year (citation: St. Louis Fed). It’s the longest rising trend since a seven-month advance topped out in January 2017. Till the current one does, stop-start global currency pressure will prevail.

Dollar shields FTSE, EU markets exposed

The weak pound helps the FTSE take the lead so far on Thursday among equity indices. With news flow relatively low, two brokerage upgrades for Shell have caught investors’ eyes, despite oil prices drifting lower still. Unilever shares did a bait and switch which left consumer-facing sectors lower whilst the Anglo-Dutch institution rises. The stock began the session slightly down after reporting that pricing pressure had dented sales again. Awareness then filtered through that price increases were already done in many key markets. This will underpin the ‘back half’ of 2018. On that basis, the discount between forward and trailing price/earnings is attractive again. Disappointments from Publicis and SAP helps seal in negative sentiment around Europe’s other large stock markets. This exposes the drag from a relapse in Chinese shares hand in hand with unabated commodity metals selling and oil. U.S. stocks will largely follow suit, according to September index futures.

Watch Philly and Raab

The Philadelphia Fed Index out later, should not be overlooked. Regional activity gauges are being treated as key indicators of the potential impact of trade tensions thus far. There is some evidence backing reports in the Fed’s Beige book among other releases, that investment delays are increasing. New York’s index beat forecasts earlier in the week, though still fell. Philly is expected to rise to 21.5 from 19.9. For sterling, attention will be on newly minted Brexit Secretary Dominic Raab, who faces his first Brussels meeting in post later. There, Michel Barnier will garnish already well-flagged misgivings about the government’s latest blue print. Cable’s new $1.2984 trend low is in place though and profit taking has become increasingly frequent in the second half of the week.

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