The FTSE 100 index broke through 6,700 this week, hitting a one-year high and closing at 6,712 at Thursday’s close. Meanwhile, the domestically focused FTSE 250 has near enough erased its post-Brexit losses. Investors were encouraged by stronger-than-expected gross domestic product (GDP) data and also by the fact the US Federal Reserve (Fed) is continuing to hold fire on an interest rate increase. Life post-Brexit appears to be continuing without too much gloom, despite people’s fears. The question is: How long will it go on?
Standing firm
The Fed made no change to interest rates at its meeting this week. Aberdeen Asset Management investment manager Luke Bartholomew commented: “It’s no surprise there’s no hike today. But some of the blockages to a hike have been lifted. The language today suggests they’re less worried about the risks out there than they have been.” At least one hike this year is very much back on the table. The major complication, however, is the US presidential election in November and the uncertainty it brings – a factor which could weigh on business and investor confidence.
Despite the uncertainty in the run up to the Brexit vote the UK economy outperformed expectations in the three months to the end of June, expanding by 0.6%. But while GDP growth accelerated from 0.4% in the first quarter, economists see this as something of a “last hurrah”. A 2.1% increase in industrial production and a 1.9% expansion in manufacturing output were the standout contributors.
Nevertheless, market expectations, as highlighted by sterling’s precipitous decline, are pointing towards a UK interest rate cut. On Tuesday Martin Weale, a member of the Bank of England’s rate-setting monetary policy committee, warned the economy was in a worse state than he expected just a week ago.
Bigger pharma
In company news, GlaxoSmithKline this week announced plans to invest £275 million at three of its British sites in order to meet growing global demand for new medicines. There had been speculation that the pharmaceutical giant would scale back investment in the UK following the EU referendum result. Against that, some have attributed the announcement of 3,000 job cuts and 200 branch closures a Lloyds Bank to Brexit fallout.
Fears of further turmoil in the energy market were heightened after Shell’s second quarter results fell dramatically short of expectations. Profits were down 72% in an environment of low prices that chief executive officer Ben van Beurden described as “a continued significant challenge across the business”. However, shareholders will have breathed a sigh of relief at the news the dividend would remain unchanged at last year’s level. Whether this state of affairs is sustainable is debatable; the company’s debt leverage ratio has increased from 12.7% to 28.1%. There is also speculation that Shell’s $30 billion asset disposal plan, implemented to offset its recent $54 billion acquisition of BG Group, could be delayed.
And finally…
A moggy from Nottingham found himself in a spot of hot water this week. Bengal crossbreed Bobby used one of his nine lives after settling down for a catnap in his owner Lisa Keefe’s washing machine. Believing the pesky puss to be out in the garden, Ms Keefe set the machine to a 60-degree cycle and closed the door. Only when she heard a “loud thudding noise” coming from inside the appliance did she realise that her pet was close to catastrophe. Luckily, Bobby was found to be unharmed after a quick spin down to the vet’s surgery. We’re sure Ms Keefe will paws for thought before she does her next load of laundry
