The FTSE 100 reached 18 month highs on Friday in low volume trade as global stocks continue their rally. The FTSE 100 hit 6928 before falling back, unable to break to new highs after disappointing US retails curbed the bulls’ enthusiasm for risk assets.
London’s leading index has enjoyed a sharp rally since the Brexit vote as investors position themselves in blue chip ‘bond proxy’ stocks. Bond proxy stocks promise reliable cash flows and are set to receive a boost to their bottom line from a weaker pound.
Fresh catalysts for global stocks
However, with earnings season coming to an end, investors may start to turn their attentions to upcoming Federal reserve minutes. Janet Yellen will deliver the Fed’s opinion on the economy and indications of whether they are ready to hike rates.
This Wednesday the Fed will release the minutes from the meeting in which they left rates unchanged in late July. Key US economic releases have been mixed since the last Fed meeting which could reduce the relevance of the views laid out before a bumper Non-Farm Payrolls number and poor retails sales figures.
Given the void of other major data points this week, markets may look Wednesday’s minutes for direction.
Record highs
Last week, all three major US indices broke to record highs on the same day. This was the first time since the dot com boom of 1999 – it didn’t end well for markets then. Major indices fell ten percent over next month and were 40% down by the end of 2002.
Direct comparisons are difficult to make. The dynamics of the market then and now are very different and the recent highs are modest, made in low volume trade typical of a sedentary August.
The oil price has stumbled in recently as US shale has come back online raising fears of another supply glut.
Oil majors have had their rallies capped by the drop in oil and further declines could trigger a correction. BP (LON:BP) and Royal Dutch Shell (LON:RDSB) have fallen the percent from their highs. The two have the potential to drag the FTSE 100 with down them if they were to fall further due to their large market caps.