FTSE Little Changed After Recent Pullback; Sterling Looks To Extend Recovery

FTSE Little Changed After Recent Pullback; Sterling Looks To Extend Recovery

XTB  | Feb 08, 2019 11:13

Stocks here in London have begun the final trading session of the week little changed after a sizeable drop last time out, which threatens to derail the recent rally.

The pound is edging higher on the day after an impressive recovery from its lowest level in almost 3 weeks against the US dollar following an initial slide after the BoE rate decision.

Recovery in stocks coming under threat?

The size and scope of yesterday’s decline for the FTSE was one of the largest of the year so far, and given that there’s a gathering mountain of evidence to suggest that the global economy is slowing, the outlook for stocks going forward remains challenging.

The stream of economic data from the eurozone continues to flash warning signs, with this morning seeing Italian industrial production fall once more, catching most analysts off guard with the consensus calling for an increase.

Italy, the 3rd largest eurozone economy, has recently fallen into recession and with Germany seemingly on the brink of joining it, it is no surprise that stock markets in both posted their largest losses of 2019 on Thursday. The year so far has been a good one for equities with the declines at the end of 2018 drifting further back in traders minds as the relief rally has extended, but many of the causes for the losses remain in place and the real test of this move higher will be how the markets react when some selling returns.

After a soft start to the week sterling looks to extend recovery

Looking at the week on the whole, most the moves in sterling pairs have come from the other side of the cross. The Antipodean currencies have both fallen by more than 1% against the pound, while the US dollar and Japanese Yen have appreciated. The euro is pretty much flat and on balance there’s not been too much doing with the pound.

Soft PMI data from the UK, with the service sector of particular concern, weighed on the pound earlier in the week, but the subsequent recovery despite significant downgrades to both growth and inflation from the Bank of England is no doubt pleasing.

There does seem to be a quiet strength underpinning the pound at present as the markets continue to believe that the worst will be avoided on Brexit. While this narrative remains, there’s scope for a further steady appreciation in the pound despite the threat of numerous and highly significant potholes in the road ahead.


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