FTSE gains to start the week; Pound lower

Summary:

• Stocks rise on talk of fiscal stimulus

• FTSE back at 200 day SMA

• GBP drifts after no-deal report leaked

Equities have made a bright start to the new week with stock markets around Europe moving higher and US futures pointing to green open on Wall Street. Speculation of fiscal stimulus in Germany and the US in addition to some upbeat Trump trade tweets are providing a dual boost but investors may well feel a little skeptical as to the sustainability of these moves given their nature and the lack of tangible actions to support the headlines. The FTSE 100 has added 65 points at the time of writing and trades back at its 200 day SMA (simple moving average) - a key indicator for technical traders.      

The FTSE 100 has added 65 points at the time of writing and trades back at its 200 day SMA (simple moving average) - a key indicator for technical traders. Source: xStation      

Fiscal stimulus to take over the mantle?

Much has been said about the role that monetary policy may have played in the current slowdown in the global economy with no less than US President an outspoken and near-constant critic of his central bank. This will likely remain in the spotlight with the annual Jackson Hole symposium will begin in Wyoming on Thursday, but there’s been a couple of developments on the fiscal side recently that shouldn’t be overlooked. Reports on Friday afternoon that Germany were ready to break with their long standing conservative approach to fiscal policy sparked a swift move higher in both equities and bond yields before yesterday we got news that the White House was preparing a new round of tax cuts to boost the economy. 

While the news from Germany came as a bit of a surprise that from the US is not at all unexpected, with the Trump administration no doubt keen to provide a further boost to the economy in the run up to next year’s election. Inverting yield curves sparked a flurry of imminent recession headlines last week, but it’s worth noting that while this indicator has an impressive track record of forecasting economic contractions, there is often a significant lag between the signal and the event itself.   

Pound falls back on leader no-deal report

Sterling is trading lower against all its peers today after a good week last time out, with a leaked no-deal Brexit report in the weekend press doing little to aid a recovery. The so-called Project Yellowhammer document differs from previous forecasts in that it is not focused on the worst-case scenario - as was the BoE report - but rather is what Whitehall see a likely to occur should the UK leave the EU under a no-deal. The government has been quick to dismiss the report as outdated, claiming that provisions for additional spending since it was drafted will mitigate some of the concerns, but there’s no escaping the fact that the most contentious issues can not be solved simply by throwing more money at it; IE a return to a hard border in Ireland, chaos at ports etc  

The pound is sliding against most of its peers, with political concerns providing a headwind for sustained gains in the currency. Source: xStation