The FTSE 100 is once again proving to be a safe haven for investors as the index shrugged off a plethora of risks, including elevated oil prices, geopolitical developments and Trump’s latest volley of tariffs.
Despite these potential banana skins, the FTSE 100 was 0.15% higher at the time of writing.
“Tariffs are back on the list of concerns for global stock markets as the White House brings in a new swathe of levies to replace temporary measures which had just expired,” said AJ Bell investment director Russ Mould.
“The Trump administration was always likely to look for another route to introduce a new round of tariffs after the ruling in February from the Supreme Court that the previous set were illegal.
“But, while the outcome won’t come as a complete shock to markets, it is nonetheless another unwelcome source of uncertainty as sentiment is buffeted by the renewed conflict between the US and Iran and concerns about levels of expenditure in the tech sector.”
The FTSE 100’s gain on Friday was that bit more notable because oil prices were still hovering near $100.
Oil prices rising above $100 could prove a real headache for investors. Just a couple of weeks ago, Brent was back down to $70 a barrel and market pricing had significantly reduced the chance of interest rate hikes around the world.
But we’re in a dramatically different place now with tensions escalating day by day in the Middle East and oil prices making interest rate hikes a near certainty for major central banks.
One would question whether this is fully priced into markets. Many will be hoping that Trump once again ‘chickens’ out and quietly return to the negotiating table as he has done on many occasions. There is, however, no sign of that yet.
So, equity traders are faced with a conundrum. Do they sell to avoid the economic fallout of higher interest rates later in the year or hold on in hope of a resolution? We all know the rapid surges higher in stocks enjoyed on prior ceasefire deals.
UK-focused investors have a bit of breathing space after a lower-than-expected inflation reading this week reduced chances of a rate hike in the near term.
“June’s unexpectedly large fall in the UK’s headline CPI rate to 2.6% is widely expected to provide MPC members with enough cover to continue their wait and see approach, and looking at market expectations today, only a few investors are pricing in a surprise hike,” said Danni Hewson, AJ Bell head of financial analysis.
The good feeling around inflation was reflected in FTSE 100 stocks on Friday, with JD Sports topping the leaderboard and housebuilders carving out respectable gains.
Much better-than-expected UK retail sales would have helped JD Sports’ cause and shares were 3% higher. Airtel Africa was the top faller, losing 3.8%.