FTSE moves back above 7200 but not out the woods yet

UK stocks have risen once more this morning, building on the gains seen so far this week. The FTSE 100 is higher by almost 50 points but despite the move higher the market remains susceptible to another swoon lower should risk sentiment sour once more. The Pound is a little lower across the board after some measured upside yesterday.   

Markets on tenterhooks ahead of US inflation data

The recent swoon in global stock markets began not long after the US employment report at the start of the month showed a larger than expected pick-up in wage growth, which is believed to suggest that inflation may begin to increase in the not too distant future. Many in the markets, and no less than previous Fed chair Janet Yellen, have been almost at a loss trying to explain why US inflation has failed to rise significantly in the past year, despite an expansionary fiscal policy and a tightening of the labour market. US yields have been rising with the 10-year hitting a 4-year high earlier this week at 2.9% and should there be be a higher than expected inflation print this afternoon then we could get another push to 3.0% here.

Rising inflation could threaten stocks

Whilst US yields have been rising on the whole since Trump’s election victory it appears that it is only recently that equities have paid attention to this, when they received a rude awakening earlier this month. Despite extraordinary monetary policy from the world’s largest central banks following the last financial crisis, there was for a long time a puzzling lack of inflation with deflation seen in the Eurozone and Japan. One of the conceptual fears surrounding QE before its widespread adoption was that it would generate runaway inflation and yet there has been very little by the way of examples of this yet. However, as the UK realised in the past 12 months, catalysts that drive inflation often occur with a considerable lag before the prices push higher and should the US be underestimating its inflation path going forward then a faster pace of policy tightening at the Fed may occur and this would likely impact badly on stocks. This afternoon the core CPI Y/Y is expected to fall to 1.7% from 1.8% previously but if we get a number higher than this then the focus will immediately shift to the stock markets and how they react.

BT and SKY rise as Premier league TV money falls

The era of constant growth in the broadcasting revenue for the Premier League has come to an end with the latest TV rights auction showing the first ever drop since its formation in 1992. Television broadcasters Sky and BT have won the right to continue screening games but the final bids were hundreds of millions less than the existing package. 5 of the 7 packages for covering the seasons from 2019-2022 have been sold for a total of £4.46B - a significant drop on the £5.1B seen in the last auction. The Premier League have taken the unusual step of holding back 2 of the packages, albeit the least attractive ones, stating that they were still to be sold with interest from multiple bidders. Sky’s investors have reacted positively to the news with the stock higher by over 3% and the biggest gainer on the FTSE 100. BT has also seen a rise, despite the less favourable outcome, with the share price rebounding after hitting its lowest level in over 5 years yesterday.

US tech giants remain on the sidelines

Premier League CEO Richard Scudamore had been hoping that the possibility of US tech giants such as Facebook or Amazon would enter the fray and push the latest auction into record territory, but if they do it appears their approach will be to dip their toes in the water rather than taking a full plunge. A recently announced deal between Sky and BT to allow subscribers to choose a sharing package and therefore negate the need to pay for both has certainly cooled their bidding war and taken some of the power away from the Premier League.It appears that Sky have achieved the better results in this auction with the firm securing 4 of the packages to show 128 games per season, at a 16% cost reduction on their current agreement. BT had previously appeared to be willing to challenge Sky’s position of dominance but they have seemingly taken a step back in purchasing just 1 package this time out and with them winning the rights for less games and having to pay a higher cost per event.