FTSE 100 on track for record-breaking run

January 10, 2017

Equity markets started the New Year in the same way they finished 2016, with the FTSE 100 posting another week of gains. In the UK the service sector PMI rose to 56.2 in December from 55.2 the month before, indicating than acceleration in the rate of growth. This is the highest level since July 2015. Given the service sector is the largest component of the economy the shorter term economic outlook remains positive. However, increasing inflationary pressures, potentially lower earnings growth and higher consumer debt levels may put downward pressure on PMI readings over the coming year.

FTSE 100

Last week the US saw employment figures for December released. While the December reading of 156,000 new jobs was lower than the 178,000 expected by economists, upward revisions to previous months did not leave the market disappointed. The unemployment rate edged higher to 4.7% as expected. More encouragingly, a measure of part-time workers wanting to work full-time but are unable to for economic reasons fell to the lowest since 2008. Ultimately, higher employment and a tighter labour market has led to accelerating wage growth, posting a 2.9% annualised gain in the month. This metric will be closely watched by the Federal Reserve when making interest rate decisions.

 

The Chinese currency, the Renminbi, saw a sharp appreciation in both the onshore and offshore versions of the currency last week. As many domestic and international investors have seen the currency as a one-way devaluation bet, the move will have come as a wakeup call. The Chinese authorities are likely to have intervened in the market to send a message to speculators not to become too complacent. The annual allowance of $50,000 that is given to Chinese citizens to withdraw capital from the country has been renewed and may spark a surge of currency outflows.

 

Index Open Close Change % Change
FTSE 100 7142 7210 68 0.95%
S&P 500 2238 2276 38 1.70%
Dax 11481 11599 118 1.03%
Cac 40 4862 4909 47 0.97%
Nikkei 225 19114 19454 340 1.78%
UK 10 Year Gilt Yield 1.25 1.353 0.103 8.24%

 

The UK manufacturing output and trade balances will be announced this week along with US PPI and retail sales figures.