The FTSE, along with most European bourses climbed steadily higher across Thursday’s session. Recovering sentiment amid a pause in trade war rhetoric, and data showing that the US economy remained on a solid footing helped boost risk appetite after a tough couple of days in the markets. Equities gained whilst the safe haven trade into gold and the Japanese yen reversed.
FTSE Mib extends losses
Equity indices moved higher across the board, except for Italy’sFTSE MIB. Italy’s FTSE Mib shed a further 0.3% on Thursday, extending 1% losses from the previous session and putting the index on track for 2% losses across the week. Concerns over debt levels in Italy have returned to haunt traders after an ECB report earlier I the week sounded alarm bells over the levels of debt and slow growth that the country is experiencing. The FTSE Mib has been hit hard, particularly the banking sector. The fact that this negativity is being played out in the FTSE Mib and to a much lesser extent in the euro suggests that for now, this is predominantly an Italian issue rather than a eurozone wide issue. Should concerns over Italy ramp up, the euro could quickly fall sub $1.11 to fresh year to date lows.
US GDP 3.1% lifts sentiment
US GDP Q1 was revised marginally lower as expected to 3.1%. This was still a strong enough level of growth to keep investors placated and helped lift demand for riskier assets. Whether this move higher is sustainable could depend on the Chinese pmi releases on Friday. Manufacturing activity in China is expected to fall into contraction in May, dipping below the key 50 level. This will be the first glimpse of how the Chinese economy is holding up since Trump’s latest round of tariff hikes in early May. A notably weak reading will almost certainty send jitters through the markets as investors are particularly sensitive to data pointing to slower growth in the world’s second largest economy.
The US dollar climbed higher versus a basket of currencies for a fourth straight session. Whilst safe haven flows into the dollar had been supporting the buck earlier in the week, solid growth data was lending a hand on Thursday. Investors will now look towards US inflation data tomorrow for further clues as to the health of the US economy and potential next moves from the Fed.
Pound drops sub $1.26
The stronger dollar and increasing Brexit uncertainty sent the pound sub $1.26. Whilst Labour are pointing towards a second referendum, there is a good chance that the next PM will be a Eurosceptic. The possible outcomes for Brexit are once again wide open creating a level of uncertainty disliked by the markets. Pound traders see few reasons to buy into the pound right now and we don’t expect that to change over the coming weeks.
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