Shell leads FTSE higher as Yellen aids stocks

June 7, 2016

Stocks rose on Tuesday, matching gains on Wall Street after a cautious Fed Chair Yellen signalled policy tightening was likely to stay on hold in the short run. A policy of easy money from the Fed is positive for equities, whilst any resulting dollar weakness is supportive of commodity prices.

The focus on US monetary policy meant gains on the FTSE 100 were in line with other European indices whilst two polls showing a lead for the UK remaining in the EU caused a spike in the British pound.

Yellen’s omission of the phrase "in the coming months" for when the next rate move can be expected was taken as a signal that the June and probably July FOMC meetings are off the table. Even if US data improved, there’s probably not enough time to prepare the markets for a July hike. Yellen was generally optimistic on the US economy, saying gradual rate rises were appropriate and that she was not attaching too much significance to any single monthly report. The Fed Chair appears to think the awful May payrolls report is an aberration but wants more data to support that thesis before hiking rates.

Cable jumped 200 pips, back towards its highest levels this year, after two polls showed a narrow one-point lead for the Remain campaign. The pound’s gains quickly faded with the price spike attributed to a “fat finger trade.”

Oil and gas contributed the most to the FTSE’s gains after crude oil closed at a new 2016 high and Royal Dutch Shell announced a further cut to spending plans and more expected savings from its merger with BG Group. Shell’s conservative spending plans go some way to allay concerns that the cost of the merger with BG Group will mean an eventual cut to the dividend.

US stocks look set for a stronger open, building on the highest close this year for the S&P 500 with news that Hillary Clinton has secured enough delegate support to become the Democratic Party presumptive nominee. Mrs Clinton has been the clear favourite in the Democratic race from the beginning but, as Wall Street’s chosen candidate, there will be some relief once she’s properly in contention for the White House.

Shares of Yahoo could be active on the open after it said Verizon bid $3.0bn for its web assets only, excluding patents and real estate.

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