FTSE drifts after strong day for sterling

A strong day for European currencies has proven a drag on stock indices, with a Google fine hindering US markets

•  Europe pulls back on FX strength
• Google hit with record fine
• Bank of England seeks to mitigate credit risk

European markets have been trading in the red today, as gains for both the euro and sterling took the shine off proceedings for exporters. News that the SNP have formally abandoned their plan for a second referendum before the completion of Brexit has helped the pound’s ascent, with GBPUSD hitting the highest level in a week. The IMF cut their outlook for the US economy today, which when considering the negative path of core PCE inflation, makes a September rate hike increasingly unlikely.

US markets are feeling the effects of the record breaking EU fine given to Google as a consequence of their preference of their own products within the shopping comparison service. This is just the latest in a long line of tit-for-tat fines between the US and Europe, with Deutsche Bank, VW and Apple all feeling the sharp end of international law.

The Bank of England today instructed banks to set aside an extra £11.4 billion in response to the growth in consumer credit which has far outstripped household incomes. One only needs to take a look back to 2007/08 to see how detrimental a highly indebted population can be. With the risk of a Brexit slowdown looming, the potential of a sharp rise in credit defaults thanks to rising to unemployment means there is a clear need for banks to raise their capital buffer. Interestingly enough, it is the BoE who sparked this rush to take on credit, with lower interest rates lowering the cost of borrowing, lowering the benefits of saving, and stimulating the economy while raising credit risk.