Trump and Fed aim FTSE 100 at record high
Markets held their breath Tuesday as Donald Trump warmed up for his inaugural speech to politicians in Congress. While he failed to flesh out key election promises on infrastructure spending, tax cuts and deregulation, the president did give an overwhelmingly pro-business performance which has investors hitting the 'buy' button Wednesday.
Trump had already told us an increase in economic prosperity would fund $54 billion of extra spending on the US military. And, in a speech that was far more befitting a president than much of his behaviour since winning the crown, Trump did give enough on the big issues, while avoiding any comment on border-adjusted tax.
Crucially, and despite the lack of detail, there is obvious relief among traders that Trump chose not to dilute policy plans to get Congress on side. Seems he's not prepared to back down, yet.
But, while Trump hogs the headlines and stocks like US-focused equipment rental giant Ashtead (AHT) and Irish building materials firm CRH (CRH) do well, talkative American policymakers are making waves Wednesday.
Overnight, usually dovish New York Fed president William Dudley apparently turned hawk, claiming the case for further increases in US interest rates has become "a lot more compelling in recent months".
He told CNN that risks to the outlook were beginning to "tilt to the upside" and admitted that "sentiment has improved quite markedly". Earlier, non-voting San Francisco Fed President Williams said a hike in March "is on the table for serious consideration," repeating views expressed a month ago that "there's an argument to move sooner, rather than wait".
Markets have begun pricing in a hike in two weeks' time, but this is not a dead-cert, and there is likely to be plenty of discussion and disagreement until 15 March. That means volatility.
However, a rocket’s been placed underneath the dollar, sending sterling to a five-week low versus the greenback, making a 1.7% decline since Friday. A slowdown in UK manufacturing growth in February, confirmed Wednesday, also weakened the pound.
For the overseas earners that dominate the FTSE 100 it's a clear boon. And the index has just surged 66 points, or over 0.9%, to make a fresh six-week high just 24 points from an all-time best, currently set at 7,354.14*.
And this is where things get exciting. Technical analyst and Interactive Investor contributor Alistair Strang said on Monday that, while the FTSE closed last week in "quite dangerous territory", there was reason for "optimism".
"Should the market manage above 7,267 this week, we'd be looking for growth toward an initial 7,324 points with secondary, if bettered, at 7,425 points," wrote Alistair.
Elsewhere, the FTSE 250 is even nearer to a highest-ever, just 0.1% away from topping last month's 18,864.22.
For now, the bulls are firmly in control.
*The FTSE 100 broke above the previous high at 13:21 on Wednesday 1st March.
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