Market update (20 April 2018)

Apr 20, 2018 Written by Gavin Pannu, MSTA, CFTe

FTSE remains bullish and sterling falls as a result of comments from the Bank of England.

A surprisingly dovish comment from Mark Carney led to sterling fall as the original view to raise interest rates has faltered. Mr Carney’s comments on mixed data this week and aiming not to provide specific dates but open to raising interest rates twice by 2019. Ahead of this comment the market had priced in an 85% probability of an interest rate rise in May. This could be seen as a way for Mr Carney to cool off current sterling prices as speculators bid on sterling leading to a bullish move since March.

The mixed data showed inflation in the UK was lower than originally estimated. Consumer price index fell to 2.5% from 2.7%. Overall inflation needs to maintain 2% according to Bank of England’s mandate. UK wages rose ahead of expectations rising to 2.8%. Retail sales added to sterling’s recent slump coming in short at -1.2%. Recent slowdown in the UK economy is likely to be a blip due to poor data from the retail sector as well as recent poor weather conditions.

Targeted missiles in Syria of suspected chemical weapon sites by US, France and the UK is not expected to escalate further war tensions. As Donald Trump states mission accomplish. Putin also was not looking to pursue further actions as missiles did not target Russian military equipment’s or base.

North Korean tensions also eased as Donald Trump confirmed recent talks with Kim Jong Un. CIA director Mark Pompeo had visited North Korea recently to discuss denuclearisation. The US administration also said they were prepared to walk away from the talks if a deal could not be reached.

OPEC meetings taking place currently will provide further guidance of a forward forecast of the energy market. Saudi Arabia targeting oil price of $80 a barrel. Markets anticipating no changes to a supply cutting deal even though the agreement’s original target is now within sight. Brent crude had risen this week by 4.3%.

Retail sector showed further signs of trouble. Debenhams slid sharply after profits slumped 85% following difficult Christmas and a sale slump caused by snowy weather in March. Troubled Mothercare chairman steps down following a decline in sales and talks continue with creditors. House of Fraser have brought in experts for a Company Voluntary Arrangement (CVA) to help develop a restructure plan which could involve store closures and job losses.

High commercial rents and business rates make it difficult for retailers whom require a high level of footfall. Recent sales have been poor as Christmas sales have been worse than expected along with poor weather conditions. Retailers have not been able to innovate but fault weather conditions whether it is too hot or cold. Retailers need to begin developing a strong online presence and have a restructuring plan in the early stages.