The FTSE 100’s receded a tad since I predicted it could hit fresh record tops around 7,900 this month. This means it needs to rise around 4% from current levels to hit new peaks, something which, on first consideration, may appear a big ask.
That’s not to say such a rise is impossible, given the plethora of political and economic worries which could well fuel such a chunky rise. It’s worth remembering too, that the Footsie rose by a similar percentage over the course of June to move in range of a new record.
Bad data
More weakness for the pound helped fuel the FTSE 100’s rise last month, the UK currency dipping as Boris Johnson pulled away in the Conservative leadership contest. As I explained before, the chances of an economically-damaging disorderly Brexit have increased as a result and pushed sterling to levels not seen since the start of 2019.
Fears over Britain’s extraction from the European Union aren’t the only thing that’s weighed on the pound however. A stream of terrible economic data — data which has been largely prompted by the Brexit issue — has also hit the value of sterling. And there’s still some key datasets which leave me, for one, fearing the worst.
Another sharp dip in official retail sales numbers like we saw in June, news that jobs creation has continued to cool, and key industrial and manufacturing production gauges striking new multi-year lows, are just a few possible scenarios that could drive the currency lower again.
What’s more, fresh concerns over the health of the domestic economy would also likely drive more investors into stocks with considerable overseas exposure. And of course, the FTSE 100 is jam-packed with firms plying their trade in foreign climes.
The Bank lowers rates
The Bank of England’s next set of Monetary Policy Committee (MPC) minutes could also smack sterling and boost demand for Footsie shares when they’re released on August 1. The so-called Old Lady of Threadneedle Street certainly got us biting our fingernails late last month when it slashed its second-quarter growth estimates, its prior forecast of a 0.2% GDP rise changing to predictions of no growth at all.
MPC members have been tempering their prior predictions of imminent interest rate rises in the wake of deteriorating economic data. In June’s minutes, it commented that the “downside risks to growth have increased” on the back of US-Chinese trade wars and the possibility of a no-deal Brexit. News from the Bank hasn’t exactly picked up since then either, with governor Mark Carney also tipping rate cuts to support the economy should a disorderly EU withdrawal happen later this year.
It’s quite unlikely the MPC will slash rates at the start of next month, but investors clearly need to be on guard for fresh cuts as we move through 2019. Clearly, such a scenario would heap more pressure on the pound and, most probably, provide the Footsie with some extra jet fuel too.
