FTSE 100 has best week in 5 years

July 4, 2016

Last week the FTSE 100 had its best week in almost five years. Shares which were oversold in the aftermath of the referendum result rebounded strongly (housebuilders, banks) and global companies (consumer discretionary, oil & gas) continued to do well as the benefit of overseas earnings were appreciated. Share price performances will continue to be polarised as the effects of a volatile currency are priced in and further information about the outlook for the UK economy comes through.

FTSE

Gilts

UK gilt yields continued to test new lows as rate cuts and potentially more quantitative easing become more likely. Furthermore, the March 2018 gilt was trading at minus 0.003% at one stage meaning that the UK joined countries such as Germany and Japan having government bonds trading at less than zero. Although the UK government lost its last AAA rating last week, it is encouraging that investors are still very willing to lend money, for the time being.

Corporation Tax

The Chancellor, George Osbourne, has come out with several statements over the last week. He initially signalled that there would need to be further tax rises and spending cuts to ensure that the borrowing was kept under control. However, subsequently the 2020 target for achieving a balanced budget has been scrapped and further reductions in corporation tax rates down to as low as 15% have been announced for the medium term. With government borrowing costs falling the Chancellor may also be looking to support the economy by targeted government spending increases as business investment falters.

Index Open Close Change % Change
FTSE 100 6138 6577 439 7.15%
S&P 500 2032 2102 70 3.44%
Dax 9557 9776 219 2.29%
Cac 40 4007 4218 211 5.27%
Nikkei 225 14952 15682 730 4.88%
UK 10 Year Gilt Yield 1.033 0.869 -0.164 -15.88%

 

US June non-farm payroll figures are announced on Friday along with the unemployment rate. These will be closely watched, following the significant miss last month.