Another storming open in Europe this morning with the FTSE 100 hitting yet another high. Shares in London are up 0.55 per cent to take it past 8,400, but for a change, it isn’t leading the way. On the mainland, shares in Frankfurt are up 0.6 per cent but it’s Paris off to a storming start rising 1.3 per cent. There were decent numbers overnight as well with Wall Street rising on Thursday as Treasury yields ticked back down. The Hang Seng was up 2.3 per cent despite new tariff threats, while the Nikkei rose 0.4 per cent.
So what has happened in London? Maybe that BHP bid for Anglo was what the market needed. Maybe it’s just the long-awaited closing of the valuation gap. Maybe it’s just finally there was enough attention on London after years of investors being rather cool – maybe everyone did a good job shining a light on how cheap the stocks were.
Yesterday, the Bank of England left rates on hold yesterday with a 7-2 vote split on the Monetary Policy Committee. Inflation forecasts for the next 2-3 years were revised down. Cuts are around the corner. Figures today show GDP growth exceeded expectations in the first quarter. IAG expects a summer boom in travel. Consumers are coping with higher rates and the inflation shock pretty well. Sterling was initially sold on the BoE decision but has come back since. My thinking is that June is a goer. Governor Andrew Bailey said a June cut is neither ruled out nor in. But he added that “it’s likely that we will need to cut bank rates over the coming quarters…possibly more so than currently priced into markets”. Always saying a little bit too much – there is a long way to go with the data.
Markets seem to be happy that the macro outlook is generally quite positive. Crashing recession avoided, cuts coming. It is not quite ‘Goldilocks’ but it is good enough. TS Lombard: “Goldilocks is wobbling ... a large miss on non-farm payrolls, weak PMI numbers, but the fat-left tail of Fed hikes has been removed. The next policy move is a cut; and even if that cut is still months away, we are already past the peak tightening impulse.”
President Joe Biden is set to announce new tariffs on China, possibly next week, targeting strategic sectors such as electric vehicles. Mainland Chinese stocks were more mixed in reaction to the tariff news with Shanghai flat and Shenzhen down half a per cent.
The Trader is written by Neil Wilson, chief market analyst at Finalto
