FTSE 100 crushed as Pound leaps higher

7 November, 2016

While the impending US election vote is continuing to drive all headline attention, the FTSE 100 concluded the week losing over 1.4% and dipping below the psychological 7000 milestone level as a result of the British Pound surging higher following optimism that the UK Government have hit a wall following the recent High Court ruling in their attempts at speeding up the UK’s exit from the European Union.

With the High Court ruling that the process of exiting the European Union can’t begin with the vote of Parliament, previous concerns that the UK was going to be led to a “Hard Brexit” from Prime Minister Theresa May have been dashed to the side for now. I still expect buying interest in the Pound to be subdued as the ruling simply puts the brakes on the previous concerns that the UK Government would rush ahead to leave the EU, but the indications that the divorce is not being accelerated is providing support to the UK currency.

What I personally find interesting when monitoring the investor reaction to this news, is that it is becoming clearer and clearer that the FTSE 100 and British Pound are mirroring each other’s movements in an opposite direction in the same way we have experienced in the Nikkei and Japanese Yen for years. The High Court ruling should actually be seen as  a positive for the UK economy, and as such for the FTSE 100 but investors are driven in the modern era by different types of yields and it looks like the FTSE 100 and British Pound are being hedged against each other.

WTI Oil below $45

We can call this going full circle. The price of WTI Oil has now returned below the levels of the shock at a preliminary agreement being reached nearly two months ago, as a result of a lack of confirmation that OPEC will confirm a change in production this month. Investors have now taken all profits off the table when it comes to Oil, and the credibility of the OPEC Committee is being called into question as a result of the ongoing lack of clarity over whether there will be a change in production output this month.

These losses for the Oil markets are getting more and more violent, we might even be at risk to entering another bear market. The situation with OPEC is to be polite, just confusing and a failure to carry through with the previously announced preliminary cut will likely continue to alert sellers to drive the commodity even lower down the charts.  

Despite the aggressive selling, there is still some faint optimism that OPEC will be able to set an output quota at its next meeting and confirmation of this is needed to bring investor attraction back towards oil.

FBI U-turn to encourage market rebound?

The major news as we head into an historical week is that Federal Bureau of Investigation (FBI) Director James Comey has stated that a review of new evidence provides no reason to change its earlier decision that Hilary Clinton should not face charges related to the use of her private email server.  This has provided encouragement for the markets to begin a rebound away from the losses last week, most noticeably resulting with the Dollar charging higher across the FX markets.

Investors might be tempted to price this news as encouragement that Hilary Clinton will be declared as victorious and this why the markets are expected to continue pointing higher as trading gets underway in other trading sessions on Monday.

I would personally add that this news does not confirm that Clinton will win, and there be a risk that some damage has been done to credibility following this ongoing drama being in the headlines for such a long time and with voters probably deciding already who they will elect as the new US President. Either way, I am expecting further swings for the markets with this possibly being in either direction until the outcome of the US election is confirmed.

USDCNH resumes gains

The Chinese Yuan has been one of the biggest losers from the resumption in Dollar strength overnight following the news from the FBI over Hilary Clinton. The USDCNH appears on its way to returning to milestone highs close to 6.80 at the time of writing. 


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