Will the FTSE 100 reach 7000?

CityAM, 24th September 2014:
There is a chance that improving growth and super-loose monetary policy could push the FTSE 100 to 7,000. The Eurozone tail risk continues to recede. The European Central Bank’s (ECB) commitment to do whatever it takes has helped calm financial markets. Confidence has improved, and business surveys have risen and point to an exit from recession soon. In the US, meanwhile, growth could accelerate towards the end of the year as it leaves the worst of austerity behind. The ECB has committed to keeping the monetary taps open for an “extended period”. And the Fed could easily err on the side of caution when timing a tapering down of quantitative easing. Business surveys have surged in the UK recently, and any dovish words, as demonstrated last week, can have a positive effect on equities. The Bank of England is likely to introduce formal forward guidance early next month, reinforcing the dovish credentials of new governor Mark Carney. Robert Wood is UK economist at Berenberg Bank.
Given the relatively uninspiring global fundamentals, it would be a tall order for the FTSE 100 to reach 7,000 by the end of the year. We might now be witnessing a pick-up in the UK economy, but FTSE 100 companies derive around 70 per cent of their profits from overseas. Worldwide growth is likely to be insufficient to ignite appetite for base metals and oil – and this will be reflected in the profits of prominent energy and consumer companies listed on the FTSE 100. India and China are expected to slow down further, with large fiscal deficits and limited scope for stimulus. In the US, Federal Reserve chairman Ben Bernanke may have offered a more dovish tone during his last speech, but the Fed may still taper quantitative easing later this year. Forward guidance from the Bank of England and the European Central Bank, meanwhile, is unlikely to match the market influence of the Fed’s potential tightening. Brenda Kelly is an analyst and market commentator at IG.

Company website: www.directmarkettouch.com

Facebook | LinkedIn | Google+

Leave a Reply