The FTSE 100 rose early on Monday as the positive momentum from its 10-session winning streak continued to cover up for ongoing trade uncertainty and the UK’s own fiscal position, which could well mean more tax hikes by the year’s end. Key UK earnings updates are scheduled this week from the likes of BP, HSBC, AstraZeneca and Shell. These large caps have the potential to move the market.
European markets were also higher with the Dax and Cac both firming up after a decent session in Asia and Wall Street closed the week with another strong-tech-led rally on Friday. Key earnings from four of the Mag Seven are on deck this week – these will be pivotal for the market’s next move. Tariff impacts, cloud & AI spend and ad revenues will be the main things to watch from Apple, Amazon, Microsoft and Meta.
The S&P 500 finished last week at 5,525, not far below where it was before ‘liberation day’. The Vix is back below 25. Markets are taking a very short-term view of the trade situation and seem to assume the narrative is that Trump has blinked. This is simply not the case. I refer you to the important speech by Treasury secretary Scott Bessent last week, in which he made it abundantly clear that tariffs are just one – albeit big – weapon being deployed to completely remake the world economic order. The value of the dollar, he said, was not to do with the daily price on a Bloomberg terminal.
Markets appear way too complacent at this stage – tariffs are on pause, not cancelled. Markets are behaving like the latter. Certainly the direction of travel can be ascertained, but we don’t know what happens next. Because this is not a game of chicken that Trump is losing right now.
If the status quo is not sustainable, don’t expect Trump to stop just because of some market action. He will press on until there is systemic risk popping up. And traders and investors be warned – the conditions that existed to create such wild swings in equity markets have only been reinforced by the rally.
The FTSE’s 10 consecutive rises represent its best run since 2019. From its April 9th closing price of 7,679.48, blue chips have added about 760pts or so, or about 10 per cent.
The index was oversold and has benefited from a broad relief rally of sorts. The news flow on tariffs has been incrementally more positive, while the Fed has hinted at being ready to cut rates in the coming months.
But it’s also the case that the FTSE has a lot of defensive characteristics. It should be noted that when markets are stressed, capital preservation becomes even more important and some big dividend payers could be attractive.
The relative shelter from volatility is highlighted by the fact that in the period since 9 April, while the FTSE has made slow and steady progress, the S&P 500 has seen one daily decline of almost 3.5 per cent, and two more in excess of 2 per cent.
It may also be that the UK is benefiting from a broad reallocation of global capital from the US to elsewhere. BofA has noted the remarkable flip from “US exceptionalism” hubris to “US repudiation”, with 304 stocks in the S&P 500, and 58 in the Nasdaq 100 now trading below their 2021-22 highs. Sterling has gained about 4.5 per cent against the dollar since 9 April.
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By Neil Wilson, investor strategist at Saxo UK
