FTSE 100 hits new record high helped by five-month low for pound
The FTSE 100 has ended a long wait to achieve a new record high.
The index, which comprises the 100 most valuable companies on the London Stock Exchange, closed Monday’s session on 8,023 points following a jump of 128 points or 1.6%.
That was the highest closing sum since February last year when the 8,000 barrier was breached for the first time in its history.
The previous record stood at 8,012.
The performance on Monday was driven by a strong showing for companies across the board, particularly financial and consumer-linked stocks such as those for retailers.
Money latest: Five big lenders hike mortgage rates at same time
The index has been gaining ground in recent weeks on growing hopes for a cut in UK interest rates as inflation eases – with strong evidence that the economy has turned a corner after the recession during the second half of last year.
Analysts credited the push for a new high on two main factors; confidence that a major escalation in the Middle East conflict will be avoided and a weakening in the value of the pound against the US dollar.
Sterling is trading at five-month lows against the greenback at just $1.23 and was half a cent down on the day.
This is a consequence of dollar strength as opposed to pound weakness as expectations are growing across the Atlantic that the Federal Reserve’s expected interest rate cuts are further down the track than had been predicted.
Higher interest rates tend to be supportive of a currency which, in this case, is the world’s reserve currency.
A weaker pound helps FTSE 100 constituent companies which make money in the United States.
That is because it boosts their bottom line when those dollar earnings are booked back in the UK and converted back to pounds.
The City of London has been fighting to defend its territory since Brexit
The FTSE has largely lagged growth among its rivals since Brexit and was tamed by a succession of economic shocks but has been reclaiming some ground this year due to perceived low valuations versus competing stocks overseas.
Its lack of technology companies – which have tended to perform best globally since the pandemic – has been another factor behind the FTSE’s malaise.
Trading hubs also point to a competitive disadvantage through a 0.5% transaction tax on share purchases in UK firms.
Please use Chrome browser for a more accessible video player
AJ Bell investment director Russ Mould is asked if the weaker pound has contributed to Monday’s record high for the FTSE 100.
The index traditionally struggles during times of world economic uncertainty as its 100 constituents are dominated by firms whose fortunes are directly linked to demand for basic commodities such as mining and industrial stocks.
However, the signs of growth starting to emerge are a positive, not only for the FTSE 100 but also pension pots.
The broader and more domestically-focused FTSE 250 is yet to climb back above the 20,000 points level but it saw gains of 1% on Monday.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said of the prospects ahead: “With growth in the UK not shooting the lights out, and inflationary pressures showing signs of easing, there is still optimism around about the prospect of interest rate cuts coming later in the summer, which appears to have helped the FTSE 100 climb higher.
“As lower borrowing costs are forecast later this year, amid a slightly more positive outlook for the economy, housebuilders have also headed sharply higher amid hopes that stronger demand will return for new homes.
“Ocado, J Sainsbury, Next, Marks and Spencer and Tesco have also been lifted amid hopes for more clement conditions for consumers.
“A handful of FTSE 100 listed companies, which breached record levels earlier in the month, are on course to climb back up to those highs, such as Rolls Royce and BAE Systems. Aerospace stocks have been pushed higher by ongoing conflicts and post-pandemic demand.”
Business
Vivergo: How US-UK trade deal could bring about collapse of huge renewable energy plant in Hull
The smell of yeast still hangs in the air at the Vivergo plant in Hull but the machines have fallen quiet.
More than 100 lorries usually pass through here each day, carrying 3,000 tonnes of wheat. It is milled, fermented and distilled. The final product is bioethanol, a renewable fuel that is then blended into E10 petrol.
This is a vast operation. It took several years to build, with considerable investment, but it is on the verge of closing down. Management and staff are holding out for a last-minute reprieve from the government but time is running out.
It’s been a turbulent journey. The plant was already being annihilated by US rivals, losing about £3m a month. Vivergo and Ensus, based in Teesside, blamed regulations that enable US companies to earn double subsidies.
They were pushing for regulatory change but then a killer blow: The US-UK trade deal, which allows 1.4 billion litres of American ethanol into the UK tariff-free (down from 19%).
“We’ve effectively given the whole of the UK market to the US producers,” said Ben Hackett, managing director at Vivergo.
“If we were to have the same support that the US industry has, if we could use genetically modified crops, we wouldn’t need that tariff. We would be able to compete. If we had the same energy costs. We wouldn’t need those tariffs.”
The government has the weekend to come up with a plan that could keep the business running. If it fails, Vivergo will begin issuing redundancy notices to its 160 staff.
Ben Hackett
It’s a devastating prospect for workers, many of them live in Hull and are nervous about alternative opportunities in the area.
Mike Walsh, a logistics manager who has been working at the plant for 14 years, said: “It’s not a great place to be at the moment. It’s a very well paid, very high-skilled role and they’ve (Vivergo) given everybody an opportunity in an area that doesn’t pay that well…. The jobs market isn’t as good as what people would like. So it does impact the local economy.”
He called on the government to “help us, save us, give this industry a future”.
His colleague Claire Wood, lead productions engineer, said: “I moved here after a career in oil and gas for 10 years, partly because I want to be part of the transition to renewable fuels. I can see so much potential here and it’s absolutely devastating to know that this place might be closed very, very shortly and that all that potential just goes away.”
Thousands more could be affected. Haulage companies may have to lay off truck drivers and farmers could also suffer a blow.
Vivergo makes bioethanol using wheat. That wheat is bought from farms from Yorkshire and Lincolnshire.
Claire Wood
The National Farmers Union has sounded the alarm, saying: “Biofuels are extremely important for the crops sector, and their domestic demand of up to two million tonnes can be very important to balance supply and demand and to produce up to one million tonnes of animal feed as a by-product.”
Another bioproduct is carbon dioxide. The gas can be captured and used to put the fizz in drinks or injected into packaging to preserve food.
If Vivergo and Ensus were to go, Britain would lose as much as 80% of its output of carbon dioxide. Supplies are already tight across Europe, meaning this decision could compound shortages across a range of sectors, from meat-packing to healthcare.
The industry is calling on the government to help. Vivergo says it needs temporary financial support but that the government must create a regulatory and commercial environment in which it can thrive.
It says rules that award double subsidies to companies that use waste product in their bioethanol must be changed. At present, these rules are being used by US companies that make ethanol from Uldr – a by-product of processing corn. They argue this is not a genuine waste product.
Read more money news:
Something for everyone in latest economic data
Claire’s falls into administration
Lola’s Cupcakes bakes £30m takeover by Finsbury Food
Another option is to grow the market. Industry leaders are calling on ministers to increase the mandated renewable fuel content in petrol from 10% to 15% and for an expansion into aviation fuels. That would allow British companies to carve out a space.
The government has been locked in talks with the company since June.
It said: “We will continue to take proactive steps to address the long-standing challenges it faces and remain committed to a way forward that protects supply chains, jobs and livelihoods.”
However, the time for talking is almost over.
Mr Hackett said he had no idea how the government would respond but he was firm with his stance, saying: “In times of global uncertainty, losing that energy certainty and supply from the UK is a problem.
“I think what they’re missing out on is the future growth agenda. We’re the foundation on which the green industrial strategy can be built. We make bioethanol that today decarbonises transport. Tomorrow it will decarbonise marine. It will decarbonise aviation.”
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Sports2 years agoButton battles heat exhaustion in NASCAR debut
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike