Airlines put the FTSE into a descent

Early gains for the FTSE 100 have dissipated, while US markets have begun the week in uncertain form.

An easyJet plane
Source: Bloomberg

FTSE continues to underperform

Airlines are heading the losers in London, as easyJet’s downgrade takes International Consolidated Airlines Group with it as well. The overarching story for the FTSE in 2014 is one of underperformance versus other indices, with regular bid talk perhaps the only saving grace for the index so far this year. Diageo was trotted out as another possible this afternoon, with SABMiller the suggested suitor, but the overall impact was muted.

A stronger pound does take its toll on UK firms bringing profits back home, and for now the FTSE’s international element, so handy in times of obvious economic growth, is now holding it back.

Mixed start for US markets

A choppy start to the session saw US markets fall, then rise and then fall again, although the Nasdaq 100 is still a favourite among traders, with the tech index making new highs in early trading, aided by another good day for stock market newcomer GoPro.

A weak reading on Chicago PMI hit sentiment, but with non-farms on the calendar this week traders are merely in search of excuses for opportunistic selling.

The last dregs of end-month rebalancing are taking place, which accounts for the directionless wobble seen, but the pattern for the week in Wall Street seems to have been set for the coming days – much activity, but little progress.

Gold slips from $1320

We have seen gold slip back from $1320, but what appeared to be a safe bet on increased geopolitical tensions doesn’t look so secure at the moment. Iraq has faded somewhat, since the Iraqi army has begun engaging the rebels on a more effective basis, and the monetary policy environment still offers little hope for long-term gold gains. Long positions in gold have been on the increase in recent weeks, but this has not been enough to carry it through $1320, leaving it open to a steady drift back in the direction of $1300.

NYMEX is edging through Friday’s low, but so long as $105 holds the 2014 trend remains safe. Like equity markets, dips in NYMEX have been treated as buying opportunities since January, with $110 still a potential target over the summer months. 

Pound finds fresh buyers

The pound has found fresh buyers against the US dollar with a break of the mid-June high signalling the start of a fresh move in the direction of $1.71. The latest consolidation in GBP/USD has come to an end, and an absence of commentary from Bank of England policymakers would provide the ideal conditions for the fundamental uptrend to reassert itself. We can expect nervousness as the pair approaches six-year highs, but the ubiquitous ‘buy on weakness’ mantra is at work here as well.


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