Interactive Investor

FTSE 100 finally makes 12-month high

27th July 2016 14:11

Lee Wild from interactive investor

Finally, it's done it. After 12 sessions stuck in a 130-point range, the FTSE 100 today made a new 12-month high. It had threatened as much on a number of occasions over the past few weeks, and failure meant investors accustomed to significant volatility were growing bored.

Up 48 points Wednesday, the blue chip index traded as high as 6,772 lunchtime, beating the previous best on 5 August 2015 and its highest level since the final week of July last year.

And if the chartists are right, there's more to go for here. Technical analyst and Interactive Investor contributor Alistair Strang has been saying for months the FTSE 100 is heading to 6,900 and, on Monday, he wrote that anything above 6,740 "now points at 6,892 next with secondary 6,913 points".

As I wrote this morning, the anticipation of a new one-year best was there following events overnight:

Reports of Japanese Prime Minister Shinzo Abe's mega-stimulus package have stolen attention from the Federal Reserve ahead of tonight's US interest rate announcement and policy statement.

Abe's $265 billion (£202 billion) attempt to get the local economy going again is a bold move, and could be just the catalyst that risk assets like equities need to trigger another move higher Wednesday.

A much better quarterly report from struggling Apple is reason for optimism, too. But things are rarely straightforward these days and, while the Fed won't move this month, recent strong data could certainly tease more hawkish comment from policymakers. If that happens, watch the odds on a September rate hike shorten dramatically.

Over here, there's early demand for blue-chips, just a handful of points away from a new 12-month high, and the mid-cap index is now trading at its best levels since the Brexit crash.

Better-than-expected UK GDP data was a clear fillip. At 9.30am, we heard that the domestic economy grew by 0.6% during the second quarter compared with the first quarter, ahead of estimates for a 0.5% improvement. Annual growth of 2.2% exceeded the 2% pencilled in my economists.

Driving the number was a 2.1% surge in industrial output during the three months to 30 June surged, the best since 1999. Elsewhere, service sector growth slowed to 0.5% and construction shrank by 0.4%.

It's why this leg of the rally is not being driven by the usual suspects - defensive safe-haven plays like the utilities, tobacco giants and big overseas earners. Instead, undervalued housebuilders like Taylor Wimpey, Barratt Developments and Persimmon lead the charge; the former aided by encouraging first-half results.

Other domestic plays like supermarkets Sainsbury's, Tesco and Morrisons, and UK-focused lenders including Lloyds Banking are back in demand.

ITV topped the leaderboard, though, up 10% following a hike in six-month profit and promise to cut costs to stave off any post-Brexit downturn in ad revenue. And fund manager St James's Place is hot stuff after a decent first half. Crucially, net flows post-Brexit remain in line with the firm's medium term targets of 10-15% net per annum.

Recession imminent

Not everyone is so optimistic, however. Economists at Barclays continue to interpret post-referendum data as a cue for the UK economy to "imminently enter a shallow and prolonged recession".

"While we have no hard data for third-quarter 16 yet, the latest post-referendum business surveys are consistent with an imminent contraction in output, potentially stronger than we presently forecast."

That said, new chancellor of the exchequer Philip Hammond took the opportunity to repeat Bank of England governor Mark Carney's promise to throw everything at the economy to avoid a serious downturm:

"…along with the Bank of England, this government will take whatever action is necessary to support our economy and maintain business and consumer confidence," he said.

There is also reason for mid-cap plays to cheer, with the FTSE 250 at last surpassing its closing price on 23 June. The index is currently up 281 points, or 1.6%, at 17,350.

First-class manufacturers Morgan Advanced Materials and Renishaw lead the way, followed by second-tier housebuilders and a fully-recovered Metro Bank, up 9% Wednesday after halving post-tax losses in the second quarter and suffering no ill effects post the referendum.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.