What a brilliant turnaround the FTSE 100 has enjoyed in recent weeks. Without question it’s back on the warpath again following the macroeconomic and geopolitical worries which caused market makers to evacuate in April, and it’s anyone’s guess as to how high it could go.
Up more than 5% since the start of June, Britain’s blue-chip index was recently trading above the 7,600-point marker for the first time in 11 months. It appears as if a smash through the record peaks of 7,877 points printed in May 2018 is inevitable, and here’s why it could well do so before July draws to a close.
The Iranian crisis escalates
A healthy (if unspectacular) uplift in the BP and Royal Dutch Shell share prices have helped fuel the Footsie’s ascent in that time. Collectively these shares account for 17% of the index’s total weighting and so movement here has carried everything forwards.
The oilies have risen on expectations of surging energy prices as the diplomatic crisis between Iran and the West escalates. Sure, Brent prices may have receded from their 2019 highs of around $75 per barrel hit back in April, but with the rhetoric from both sides of the political divide rising by the day, the threat of military action grows, action that would seriously destabilise oil supplies in the region.
Some particularly serious news emerged on Tuesday when it was announced that Iran had breached the 2015 nuclear treaty with Western nations. The reason behind this breach? A recent step-up in nuclear enrichment which caused uranium stockpiles in the country to rise above permitted levels, moves made in response to new sanctions placed by the US.
And Tehran has vowed to raise production of the radioactive material even further, putting it on a collision course with President Trump, who’s claimed that the world’s fifth-biggest oil producer is “playing with fire.”
Despite serious fears about oversupply in the crude market, there’s plenty of scope for Shell and BP’s share prices to rise even more in the near term.
Boris Johnson becomes PM?
The likely coronation of Alexander ‘Boris’ Johnson as prime minister on July 22 is another event that could drive the FTSE 100 to fresh highs.
Why? The likely impact that this would have on the pound as the odds of a disorderly Brexit subsequently increase, that’s why. Indeed, in a sign of his appetite to pluck Britain from the European Union under whatever circumstances, the MP for Uxbridge and South Ruislip pledged last week to “prepare confidently and seriously for a (World Trade Organisation) or no-deal outcome.”
A huge proportion of Footsie-quoted companies conduct their financial reporting in foreign currencies, meaning that any dive in the UK currency provides a handy tailwind to their bottom lines.
Johnson remains the overwhelming favourite to secure the keys to Downing Street, yet sterling is only fractionally lower since Theresa May announced her attention to vacate in late May. This leaves plenty of scope for fresh falls in the currency’s value in the days ahead, and as a consequence a fresh upswing for the FTSE 100.
