The FTSE 100 followed up yesterday’s Wall Street gains as easing factory gate prices from across the pond suggested the Fed is nearing the end of its battle with inflation.
Resulting strength in sterling versus the dollar, with the UK currency hitting a 10-month high against its US counterpart, weighed on the index a little thanks to its heavy exposure to overseas earnings which are relatively diminished by a higher pound.
AJ Bell investment director Russ Mould said: “Sterling’s recovery from near parity to the dollar in the wake of the disastrous mini-Budget in September 2022 has been Lazarus like.
“The recent banking crisis started across the Atlantic with the collapse of Silicon Valley Bank and the US regional banking sector is perceived as more vulnerable than UK banks.
“All eyes will be on the big US banks as they kick off the first quarter reporting season later today. The potentially dicier outlook for US institutions means the Federal Reserve may have to prioritise its role in preserving financial stability over pursuing further rate hikes to firmly stamp out inflation. Consequently, the market is now pricing in at least one more rate hike from the UK versus no more from the Fed in the near-term.
“The euro also hit a one-year high against the dollar, whose weakness was also good news for gold which shone brightly and neared record levels.
“The precious metal is also being supported by expectations the rate hiking cycle is nearing an end, reducing the relative attractiveness of alternative assets like bonds and cash. These are not likely to see further material increases in their respective income streams, with income being an attribute gold does not offer.
“It feels like there are few areas the big tech companies don’t compete these days and Amazon has entered the generative-AI race with the launch of its new platform Bedrock.
“The company is remaining fairly neutral in this battle for now, unlike Microsoft and Alphabet, merely providing the computing power through its Amazon Web Services cloud business and the ability for clients to access AI start-up technology.”