UK Equity Benchmark Reaches Record High

Daily Analysis - 15/05/2017

Weaker Pound and AstraZeneca Momentum Push the FTSE 100 to New Heights

The benchmark FTSE 100 ended last week on a record high, and has extended the bullish momentum in early Monday trade. Weakness in the Pound alongside strength in drug major and industry heavyweight AstraZeneca helped consolidate the gains.

FTSE 100 Primed to Outperform

Sterling fell to a one-week low on Friday after the Bank of England lowered its 2017 growth outlook to 1.90% for the United Kingdom. That development led to a rally in shares of multinational corporations that book most of their profits and sales abroad. Meanwhile, AstraZeneca PLC gained the most since April of 2014 after reporting positive results from its late-stage study of cancer treatment Imfinzi.

Shares of Royal Dutch Shell also contributed to the FTSE 100’s advance, surging on the back of strength in crude oil prices as the likelihood of an oil output cut extension from OPEC later in the month rises. With the index breaking out above the strong resistance around 7370, 7500 looks like the next immediate resistance level on the upside. FTSE 100 futures were last seen above the key psychological level of 7400.

China Factory Output Misses Forecast

In another sign that the infrastructure spending boom is waning, Chinese industrial output and fixed asset investment grew at a slower than expected pace, adding to indications that momentum in the world's second-largest economy is beginning to slow. China’s factory output increased 6.50% in April from a year ago, missing the consensus forecast of 7.10% growth. Fixed-asset investment increased 8.90% during the first four months of the year, also below expectations of a 9.10% rate of expansion.

Growth in output slowed on the back of falling steel and iron ore prices amid concerns of rising inventories and government efforts towards deleveraging. Policymakers have cut their growth target to around 6.50% for the remainder of the year as they try to push through painful reforms to contain risks stemming from years of debt-fuelled stimulus. After falling late last week, USDCNH is gaining in early trade, trending just shy of 6.9000.

US Consumer Sentiment Brightens

Although CPI inflation pulled back during the latest reading, consumer sentiment in the US surprisingly improved in early May on lower inflation and favorable outlook for wages according to a leading private survey. The University of Michigan's Consumer Sentiment Index recorded a preliminary May reading of 97.7, up from the final April figure of 97.0, beating the consensus estimate of economists of 97.0.

The Index of Current Economic Conditions remained flat for the month at 112.7, while the Consumer Expectations Index edged higher to 88.1 from 87.0 in April. The University of Michigan conducts a monthly survey of about 500 consumers to gauge their attitudes toward personal finances, inflation, interest rates and unemployment. In the meantime, S&P 500 futures are currently perched just below the key resistance at 2400 after sliding lower 4 out of 5 sessions last week.

Eurozone Records Surprise Drop in Industrial Output

Compared to market expectations of an increase, Euro Area industrial output declined for the second straight month in March amidst a sharp drop in energy production. The European Union's official statistical agency, Eurostat, reported factory production in the unified currency bloc falling by 0.10% on a monthly basis through the end of March despite recording an annualized increase of 1.90%.

Both of those figures missed analyst expectations of growth of 0.30% and 2.30% respectively. The unexpected dip is, however, unlikely to alter the growth outlook for the region, with preliminary estimates currently suggesting a healthy 0.50% expansion in the first quarter with any acceleration in economic activity helping build the ECB’s case for gradual policy tightening. EURUSD is trading mostly flat Monday, with the pair currently hovering around 1.0930 after rallying on Friday.

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