GBP declines help drive FTSE outperformance

Weakening European currencies have helped put both UK and mainland European markets on the front foot, while US equities come into focus thanks to a host of US bank earnings.

• European markets outperform amid dollar strength
• GBPUSD tumbles into 27-month low, sparking FTSE 100 upside
• US banks in focus, as fall in interest margins hurt sentiment 

European markets are outperforming their US counterparts today, as the recent impact of a weakening dollar begins to unwind. The notable effect of last week’s appearances from Powell have been easing back of late, with an improved retail sales figure providing markets with greater confidence that it will only be a 25-basis point move from the Fed. 

The decline of the pound has been the core driver of FTSE upside, with the threat of a no-deal Brexit becoming clearer than ever. With both Hunt and Boris citing the need to scrap the backstop entirely, they both ruled out one of the only obvious routes to a deal before the October deadline. With the UK economic picture declining, the chance of a no-deal Brexit on the rise, and the BoE expected to cut rates in such an event, it is not surprising we are seeing this kind of selling for the pound. 

US banks have been in focus today, as the US earnings season continued to gather steam with a particular focus on the US banks. It feels like US markets are ready for a new driver following the recent focus on US rates, and thus any themes that develop from each earnings release will help build an overall picture for traders. On the banking front, we have seen Goldman Sachs lead the way from a trading perspective, coming at an opportune time given the decision from Deutsche Bank to exit equity trading. However, there has also been a focus on net interest margins, which declined for both JP Morgan Chase and Citigroup.  Coming at a time when rates are expected to decline, the fall in net
 interest margins is worrying traders enough to cloud the positivity of better-than-expected profits.