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Yesterday saw US and European stock indices surge higher once again. Renewed investor confidence comes despite a rash of hawkish comments from members of the Federal Reserve. These, along with the minutes of the FOMC’s April meeting, have raised the likelihood of a summer rate hike from the US central bank.
 
The FTSE100 has been a beneficiary of this recent move and yesterday it soared back above 6,200. The area around here has acted as both support and resistance over the last eight months or so, as can be seen in the chart below:

   PM Bulletin
   
We can see how significant the area around 6,200 has been since March this year when we look at the 4-hour chart below:
  

PM Bulletin  
  
Yesterday’s rally in the FTSE100 was quite broad-based as one would expect with the mining, energy and banking sectors being particularly strong. This makes sense given that we’ve just had a bounce in base metals and there was some better news from the banking sector. Shares in Lloyds Banking Group topped their taxpayer bailout break-even level for the first time this year. Also, international players like Barclays should benefit from wider borrowing/lending margins should the Fed raise rates this summer. The rally in crude oil has taken both Brent and WTI back above $50 which is a boost for the oil majors and the energy sector in general. Finally, the UK’s big corporations appear to be benefiting from polls showing a growing lead for the “Remain” vote in the upcoming UK referendum vote over the EU. Maintaining the status quo means less uncertainty for UK multinationals.
 
It will be interesting to see if the FTSE100 can consolidate and build on recent gains. Much will depend on how the major US indices behave over the next few weeks in the run-up to the Federal Reserve rate decision. In the meantime it’s possible that investors will want to reduce their market exposure ahead of Fed Chairman Janet Yellen’s speech tomorrow evening and that may keep equities in check ahead of the weekend. Ahead of that we have the first revision to US first quarter GDP. But next week is key as far as data releases and economic events are concerned. The ECB meets on Thursday while Manufacturing PMIs are due out from just about everywhere. Rounding things off, the latest US Non-Farm Payroll release is on Friday.
   
Much will depend on how the major US indices behave over the next few weeks in the run-up to the Federal Reserve rate decision
   
  

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Category: PM Bulletin


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