Interactive Investor

FTSE 100 just misses record high

25th May 2017 13:40

Lee Wild from interactive investor

Who said financial markets were boring? Hours after the S&P 500 made a record close - it missed an all-time high by fractions - the FTSE 100 came within four points of a new best and the FTSE 250 less than six points from 20,000. All that as we digest latest UK GDP figures, await an OPEC meeting this afternoon, and watch bitcoin double in a month and triple in two.

Minutes from the Federal Reserve overnight appeared to rubber-stamp a June interest rate hike, and policymakers hinted that US quantitative easing will be unwound gradually.

Optimism in the US spilled over into London trade first thing. And, despite a brief reverse, stocks here bounced on a mixed set of GDP figures.

The UK economy grew just 0.2% in the first quarter of 2017, according to a second estimate from the Office for National Statistics (ONS). That's revised down from 0.3% previously and compares with 0.7% growth at the end of 2016.

Amid ongoing weakness in the dominant services sector, annual growth was reined in, too, from 2.1% to 2%, and nearer the Bank of England's just-reduced forecasts for the full-year of 1.9%.

True, it looks embarrassing when Spain said earlier its economy grew by 0.8% in the first quarter and by 3% annually. A sharp slowdown in consumer spending is also worrying. However, this read on our economic health tends not to move markets sharply one way or the other. And at least business investment was up 0.6% to £43.8 billion.

Anticipation ahead of this afternoon's OPEC meeting in Vienna has got traders all aflutter. Saudi Arabia's oil minister Khalid al-Falih poured cold water on talk of deeper production cuts, knocking oil prices, which have risen sharply these past three weeks on hope oil exporters would curtail output further.

Likelihood is, that existing cuts will be extended by up to nine months. Watch for a result just before London closes at 4.30pm.

At lunchtime, the FTSE 100 is a dozen points adrift of a new peak.

Expensive defensives - Unilever and Reckitt & Benckiser - feature among the leaders Thursday.

Lloyds Banking Group's swollen ranks of shareholders - now including Neil Woodford and Mark Slater - will be excited by a move to 73.58p and within reach of a one-year high.

And investors have used a dive at easyJet following recent half-year results as a buying opportunity. Analysts at UBS called a trough in earnings, raising their price target by 28% to £14.25. Looking good, so far.

Perhaps if miners had played ball - most are lower after Moody's downgraded China from stable to negative - we'd now be talking about a new record for the blue-chip index.

And it may still come if Barclays' global equity strategist Keith Parker is right.

He points out that periods of low relative equity volatility have historically been followed by strong 12-month returns - six-month volatilities now are ow at 70-80% of their five-year average.

"While volatility is likely to revert higher, we find that 12-month forward US equity returns have averaged 10%-plus when relative equity vol is well below average," Parker says.

And while the FTSE 100 is understandably jumpy Thursday, the trend is still up. In fact, a convincing close above 7,516 (the higher red circle on the chart below) would suggest a chart breakout, and further upside.

The lower red circle shows what happened following the last breakout.

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.