Record highs, oil rally and Debenhams’ crash

It’s onwards and upwards for global stockmarkets. The big three US indices all made record highs overnight, and many Asian bourses are now trading at their best in a decade. With economic data underpinning forecasts for strong global growth in 2018, traders are happy to keep buying risk assets. Don’t bet against the FTSE 100 (UKX) making a new high above 7,700.

Predicting the end of this equities bull market has proved a fool’s errand. Investors desperately short of alternatives treat each blip as a buying opportunity, and that’s unlikely to change, certainly near-term, until we see an acceleration in the pace of interest rate increases. Investors would have been well-served by the old City adage of ‘Let the trend be your friend’.

There are further gains for oil shares which continue to ride the coattails of a further increase in crude prices to levels not seen since mid-2015. There have been major outages over the past few months in the North Sea and Libya, and now markets are pricing in an outside chance that domestic tension in Iran could threaten supply.

Oilfield strikes look unlikely just now, but Donald Trump could use any brutal crackdown by the regime there to reintroduce sanctions. Do that and Royal Dutch Shell (RDSB) and BP (BP.), already at multi-year highs, will go better still.

That sterling’s week-long rally to a three-month high above $1.36 has unwound slightly is no surprise. Some Federal Reserve policymakers now favour more aggressive US rate tightening and, despite the likelihood of further rate rises in the UK this year, Brexit will be a recurring theme and a cloud over the pound until at least March next year.

While a sustainable rally will require a cracking deal for the UK in any post-Brexit settlement, negotiators have at least agreed to trade talks, which removes any obvious trigger for a serious lurch lower near-term.

Turns out Next (NXT) may have given retail sector investors a false sense of security yesterday. Debenhams (DEB) brought things down to earth with a bump, warning that the fourth quarter of 2017 was bookended by weak trade and that heavy discounting has damaged margins.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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