A dive below 7,300 earlier this month was hugely significant for the FTSE 100 (UKX). In technical terms, it was a major level of support, which now becomes an equally stiff area of resistance that creates a serious barrier to progress. Numerous attempts to break above the big figure have all failed as buying quickly dries up.
There are serious geo-political issues which must be overcome, too, not least the North Korea problem. Until it is, we’ll have to get used to regular bouts of selling when the rhetoric gets too dirty for traders. They certainly didn’t enjoy the rogue state’s latest H-bomb threat.
More hawkish US central bankers have also promised to start tapering Quantitative Easing from next month, causing some trepidation among investors. There’s also unease around policymaker’s confirmation that interest rates will likely rise again in December and three more times in 2018.
Backing for so-called ‘balance sheet normalisation’ – unwinding the Fed’s $4.5 trillion stockpile of assets – was unanimous and widely predicted. And Fed chair Janet Yellen is a safe pair of hands, promising to “gradually and predictably” taper. That should avoid any shocks from pulling the rug away too fast.
She’s managed things well so far, and there’s enough evidence here to keep investors onside.
Germany’s Angela Merkel has done equally well, and her popularity is tested again on Sunday when the chancellor seeks re-election. Few doubt she’ll do it, but there are still questions around the make-up of any coalition.
Theresa May has been the least impressive of these three ‘super women’, and there had been some nervousness ahead of her much-anticipated speech on Brexit in Florence. She can’t afford any slip-ups both politically and economically.
However, a hardline approach to extraction from the EU in her speech dumped the pound, giving the FTSE 100’s overseas earners a much-needed lift. Consensus is there’s not much new news, but currency markets just do not like the PM’s attitude to Brexit. And there you go, the FTSE 100 is back above 7,300! Let’s see how long it lasts.
It’s been a great week for Johnson Matthey (JMAT). Unimpressive since 2014, the shares surged by over 20% this week as bullish management outlined growth in the catalysts business for at least the next decade.
It also announced further cost cutting, aggressive forecasts for returns over the medium-term, and up to £200 million earmarked for battery material technology. Deutsche Bank thinks the shares are worth £36, up from £34.75 currently.
ITV's (ITV) done okay, too, adding 6% over the past few days. Optimism around the UK TV advertising market may have got buyers interested. If confirmed, it would likely trigger earnings upgrades and make the shares even more attractive. They only trade on around 10 times forward earnings and yield 5%.
Laggards engineer Babcock (BAB) and B&Q-owner Kingfisher (KGF) attracted bargain hunters after more positive updates on trading. We reported at the time the former was “too cheap to ignore”, but the latter “doesn’t scream value”.
With sterling still nudging $1.36, overseas earners on high valuation multiples like Diageo (DGE) and Unilever (ULVR) have fallen out of favour, as have some of the big dividend payers tobacco giants Imperial Brands (IMB) and British American Tobacco (BATS).
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