The FTSE 100 closed 0.5% higher at 7,700.97 as the Bank of England Governor Mark Carney and his colleagues opted to keep UK interest rates on hold at 0.5%.
Next Tuesday (15 May) Carney may face further scrutiny as he testifies on rates, inflation and the economy to MPs (see Economic update). The same day average earnings data for the UK, which helps influence interest rates, is released by the Office for National Statistics, followed later by US retail sales. On Wednesday (16 May) US building permits are out. This is an excellent gauge of construction activity going forward because obtaining a permit is one of the first steps involved in constructing a new building. Wednesday also sees an update on US crude oil inventories, these may help determine whether the current strength in oil prices is maintained. If there is a large draw in inventories it could drive prices even higher, while a big build would likely prompt the opposite move.
The oil price reached new highs for 2018 this week as US president Donald Trump pulled out of the Iran nuclear deal and vowed to impose new sanctions on the OPEC member. Iran’s oil exports were reduced by more than 1m barrels a day between 2012 and 2015 amid sanctions from the US and EU to force Tehran to negotiate over its nuclear programme. It subsequently increased oil production after sanctions were lifted following an agreement on nuclear activities.
That extra oil production now looks like it could be partially withdrawn. In turn, speculation over reduced oil supplies has served to push up the oil price. Oil stocks are being lifted by the commodity price movement including Premier Oil (PMO), BP (BP.) and Royal Dutch Shell (RDSB). Perhaps even more significantly, Trump has said the US will act against countries which trade with or support Iran, threatening a wider impact from the move. The net result was that Brent crude traded at its highest level since November 2014 at around $77 per barrel.
The shifting expectations over interest rates have put pressure on sterling and the currency markets could well be influenced by Bank of England Governor Mark Carney’s testimony to MPs next Tuesday (15 May). The FTSE 100 index has been outperforming several of its global peers in recent weeks and a key factor has been a decline in sterling amid continuing ructions over Brexit and weak UK growth figures. A fall in the pound increases the relative value of its constituents’ overseas earnings.
Higher oil prices should be good for oil and gas companies. Investors can gain exposure to a basket of US oil firms through exchange-traded fund Source Energy S&P US Select Sector (XLEP) which has an ongoing charge of 0.3%.
15 May – One of the UK’s largest real estate investment trusts, Land Securities (LAND), is set to report its results for the 12 months to 31 March 2018. Look for an update on the valuation of its portfolio as its stock currently trades at a material discount to net asset value implying the market reckons that valuations have been set too high.
15 May – It has been six months since fancy cakes seller Patisserie (CAKE:AIM) reported on trading and investors will be keen to see if its performance has come under pressure amid a difficult consumer backdrop. The market looks to be expecting good news when the Patisserie Valerie owner reports its half-year results given its shares hit a two-year high at 417p earlier this month.
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