In the UK this morning, the FTSE-100 has drifted lower, ahead of this afternoon’s important weekly US jobless claims data. As we write, the FTSE-100 is down around 25 points, or 0.40% – although around a third of this decline is due to the aero-engine manufacturer, Rolls-Royce (which is not held in client portfolios), as their shares have fallen almost 9% this morning following a trading update.
Adding to this UK negativity is a stronger pound (it has this morning strengthened to $1.265) – with around two-thirds of the FTSE-100’s total revenue derived from abroad, a strong pound is bad for the FTSE-100 as it lowers returns for exporters and the value of overseas earnings.
This follows yesterday’s Summer Economic Update from the Chancellor of the Exchequer, Rishi Sunak. As we wrote yesterday (please see here), the statement wasn’t particularly substantial, more of a stop-gap until the more important Autumn Statement (which comes just after the furlough scheme has ended and we approach the end of the Brexit transition period). As a consequence, we believe that this will force the BoE into further monetary stimulus – potentially via negative UK interest rates.
Elsewhere, it was yet another positive day for China’s CSI 300 index. It closed this morning up a further 1.40% – taking its run of consecutive up days to 8 and brings its July’s gain to a whopping 16.25%. While it may appear a little exuberant, we have recently had some very encouraging economic data from China (the world’s second largest economy), which provides clear evidence that their economy continues to recover.
This, coupled with yesterday’s strong US mortgage applications data (which clearly suggested that Americans aren’t concerned about unemployment or coronavirus risks), underscores our expectations for a V-shaped economic recovery.
As we mentioned earlier, today’s market focus and economic calendar is dominated by the US weekly jobless claims – which we will update you about in tomorrow’s commentary.
Investment Management Team