The FTSE 100 has started February where it left off the previous month.
Following a hearty 4% rise in January, Britain’s premier share index has kept the momentum going on the first day of the new month and was trading above the 7,000-point earlier in the session.
The Footsie’s ascent since the start of 2019 can hardly be described as spectacular. But considering the bearishness that was swirling across financial markets at the back end of last year this start-of-year pop bodes extremely well. Indeed, I reckon the stage could be set for the index to top 8,000 points by the close of the year.
US, China building bridges?
One of the biggest issues to smack stock market confidence last year was the rising tension between the US and China over trade tariffs.
Pursuing more protectionist policies, and righting what he considers as historical economic exploitation by rival countries and trade blocs like the Chinese and the European Union, have been bedrocks upon which President Trump has built his political appeal.
But the heavy stock market losses of late 2018, along with signs of slowing economic growth in the US have seen Trump dial back his fiery rhetoric more recently and led to some tipping that a deal could be just around the corner. In fact, the same cooldown that Asia’s largest economy is experiencing is likely to toughen Chinese President Xi’s determination to sit down and hammer out a deal, too.
The FTSE 100’s charge back above 7,000 points today was in fact underpinned by a series of positive tweets from Trump in which he stated that “meetings are going well with good intent and spirit on both sides.”
Hopes of a breakthrough between the two nations possibly within a month would likely lead to further sizeable gains as China-sensitive sectors like the miners and energy producers surge, companies which constitute such a large proportion of the Footsie’s entire market cap.
Federal Reserve tempers rate hike talk
Hopes of less aggressive monetary tightening from the Federal Reserve following the raft of interest rate increases in recent years have also helped global stock markets to rise in recent weeks.
Signals from central bank chief Jerome Powell have been getting more doveish since the start of December, raising hopes that the cheap money won’t be choked off as badly as first feared and giving a boost to global economic forecasts.
Not even the most optimistic of us would have predicted the amazing u-turn that the Fed performed this week, though, when it removed text pledging more gradual rate rises from its most recent policy statement. Instead, Powell commented that the bank would take a more “patient” approach to raising rates in consideration of “global economic and financial developments and muted inflation pressures.”
The market had been pricing in another two or perhaps three rate rises in 2019. But on the back of that latest commentary from the Fed, such forecasts are now looking a little less certain. Should Federal Reserve action prove less active than previously predicted, and those trade talks I mentioned above also conclude successfully, then further heady gains could be in store for the FTSE 100.
