After an early sell off the FTSE found its feet and traded higher across the course of the day, supported by a weaker pound, stronger retailers and a solid open in the US thanks to a booming start to earnings season.
The pound slipped back from its post Brexit vote high after wage data came in slightly softer than expected. Average earnings increased 2.8% in the three months to February, down from the 3% forecast. Whilst the pound sold off it has managed to remain above $1.43 as investor remains n confident that the Bank of England will still look to hike interest rates in May, particularly given that wage growth has overtaken inflation for the first time in over a year.
This is good news for the consumer who has been squeezed by rising prices and falling wages in real terms. A stronger consumer will give greater confidence to the BoE to hike rates, additionally a stronger consumer is also good news for the retail sector which has experienced a very challenging year.
The retailers on the FTSE put in a solid performance, boosted not only by news that the hard pressed consumer should be starting to feel an ease in pressure, but also but strong results from JD Sports and Primark owner Associated Brutish Foods.
US earning season boosts equities
As Russian tensions with the US showed signs of thawing, traders have switched their attention firmly back to earning season, which has has a phenomenal start. Netflix is trading over 6% higher, after beating expectations with 125 million subscribers. Meanwhile Goldman Sachs was also on the front foot after reporting better than expected earnings and revenue in the first quarter, sending the stock 0.5% higher.
Optimism stemming from earning season has successfully lifted the US indices back to levels not seen since March. Corporates are not only reporting figures that comfortably beat high expectations but are also very optimistic with their outlook. As geopolitical fears ease, and trade war fears are pushed back, the basis of the current rally depends on strong earnings and so far they are easily hitting the mark. After the close IBM and United Continental are among those firms reporting.
Inflation in focus
Traders will now turn their attention to inflation data which is expected to show that inflation remained constant at 2.7% in March. Any signs that inflation eased closer to the BoE’s 2% target could pushed the pound back towards its post Brexit high. Given the pound’s inverse relationship with the FTSE, a better than expected print could see the FTSE give back today’s gains.
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