The FTSE 100 continued its positive start to the New Year last week as the combination of sterling weakness and a below forecast inflation print helped propel the domestic index to a fresh record high. In late September, sterling exchanged hands at a rate of £1.00 for every $1.34 but economic and fiscal challenges has prompted a relatively sharp revaluation with the pound hovering below $1.22 prior to Friday’s close. With the bulk of FTSE 100 companies generating their revenues in international markets, weakness in the domestic currency enhances their earnings as profits are translated back into sterling. A cheaper pound also makes domestic share prices more attractive for overseas investors, another supportive factor for the market last week. A drop in the headline Consumer Price Index (CPI) figure provided an additional kicker with inflation slowing to 2.5% in December, a modest 10 basis point (bp) reduction on the prior month, but a move in the right direction nonetheless[1]. It provides the Bank of England (BoE) with some much needed ammunition ahead its first monetary policy meeting of the year in a few weeks’ time when interest rates are expected to be cut once again.

Positive momentum was seen across most major equity markets last week with US indices rebounding from their prior week’s slump. The S&P500 climbed +2.9% in dollar terms with strong corporate results and slower inflation the notable drivers whilst value stocks outperformed their growth counterparts. Back in Europe, the MSCI Europe ex UK index added +3.1% (local currency) with those lower inflation prints lifting optimism around the path for central bank interest rates. Moving to Asia, Chinese equities concluded the week in positive territory, the Shanghai Composite rising by +2.3% (local currency) on the back of better-than-expected GDP data. One market to buck the positive trends seen elsewhere was the Nikkei 225 in Japan which shed -0.7%, likely on the back of an uptick in the value of the yen.

As for commodities, oil prices gained for a fourth consecutive week despite a pull back on Friday. Brent crude rose by +2.8% to $81.00 a barrel with increased sanctions on Russian oil producers by the outgoing Biden administration creating some concerns around supply disruptions. Gold also advanced with the precious metal adding +0.9% to $2,717 an ounce, with traders buoyed by the lower US CPI reading and hopes that the Federal Reserve accelerates its rate cutting plans. 

Week Ahead

Source: Workspace DataStream, 20/01/25

[1] ONS – Consumer Price Index December 2024

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