Weak pound and rising energy prices lift FTSE

UK markets are outperforming their US counterparts, as dovish commentary from BoE governor Bailey and rising energy prices help to lift sentiment. Meanwhile, a host of economic data out of the US has provided a somewhat volatile day for the dollar.  

• FTSE 100 outperforms, as BoE governor Bailey maintains dovish outlook 
• Crude prices on the rise despite OPEC+ plan to raise production 
• Mixed US data sees weaker manufacturing PMI while initial jobless claims decline  

The FTSE 100 has outperformed its peers today, as dovish tones from the Bank of England helped to drive the pound lower. Despite warnings from the Fed that rising prices could ultimately draw forward the tightening phase for monetary policy, BoE governor Andrew Bailey instead laid out a confident stance that higher prices would be temporary in nature. While Bailey admitted we could soon see inflation hit 4%, the temporary nature of that rise should ensure the bank can remain accommodative throughout this economic recovery.  

Energy prices also helped bolster sentiment in the commodity-heavy UK market, with OPEC+ plans to raise production doing little to dent confidence as Brent hit a 32-month high. Despite Iraqi claims that OPEC are fully concentrated on the prospect of returning country to its pre-sanctions production levels, traders have been keenly focusing on the bigger picture given Russian and Kazakh hopes to raise production in the face of rising prices. While reports signal a likely 2 million barrels of additional production by year-end, that is actually lower than the 500k month production increase allowed under the previous OPEC+ agreement. Furthermore, speculation that the group could extend their production deal from April to December 2022 provides hope that production will be further managed to ensure control over energy prices. 

A mixed batch of data out of the US stifled the recent rise in the dollar, with a welcome decline in initial unemployment claims being somewhat undermined by rising continuing claims. Meanwhile, todays ISM manufacturing PMI has provided a somewhat worrying omen for tomorrow’s jobs report, with the employment element of the survey falling into contraction for the first time in 2021. With the ADP payrolls figure coming in below expectations, and the employment element of the manufacturing PMI in contraction, there is good reason to be cautious about forecasts of a 700k payrolls figure tomorrow.