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FTSE rallies as Trump speech sends dollar higher

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FTSE rallies as Trump speech sends dollar higher
 

The FTSE 100 rallied 119 points to close 1.6% up at 7,382 boosted by a weaker pound as US president Donald Trump's first major policy speech to Congress and a hawkish tone from Federal Reserve policymakers sparked a rally in the dollar.

The UK blue-chip index once againg  broke through the 7,300 level as the pound fell to $1,237, down from $1.243 at yesterday's close. A weaker pound tends to boost the FTSE 100, whose members rely on overseas markets for around three-quarters of their revenues.

Trump's speech was light on new details, and failed to flesh out his claims last month that he was set to unveil 'phenomenal' tax policies.

But he stuck to his economic growth rhetoric, reiterating a pledge to spend $1 trillion on infrastructure, and although offering no firm numbers on tax reforms, referenced 'massive tax cuts for the middle classes'.

He also indicated he could support speaker of the House Paul Ryan's 'border tax' plans, which he has previously labelled 'too complicated'.

'Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes, but when foreign companies ship their products into America, we charge them almost nothing,' he said. Those plans, if enacted could spark a strong rally in the dollar.

Wall Street resumed its rise this afternoon with the S&P 500 advancing 1.4% to 2,397.

Kathleen Brooks, research director at City Index, said Trump's speech had raised expectations for interest rate hikes from the US Federal Reserve.

'Even if the speech did lack detail the president still wants Congress to pass a $1 trillion infrastructure spending programme, something he has a chance of getting through,' she said.

'There was some expectation that Trump's spending plans could be delayed for a year or so - the fact the president has laid them out at this early stage gives the Fed the green light to normalise monetary policy to counterbalance a boost to fiscal spending.'

A further boost to the dollar came from a hawkish tone struck by two Federal Reserve policymakers. New York Fed president William Dudley said the case for a rate rise had become 'a lot more compelling' and that 'the risks to the outlook are now starting to tilt to the upside'.

San Francisco Fed chief John Williams meanwhile said a hike would receive 'serious consideration' at the next meeting.

Investors rushed to price in a March interest rate hike following the comments. Money market futures now point to a 70% chance of higher US rates next month, up from 30% yesterday.

'A March hike would no longer be a market surprise - about the only credible excuse left to the Fed to delay hiking on 15 March,' said Ron Carnell, economist at ING.

US-exposed companies and miners rallied to the top of the FTSE 100 as copper prices rose, boosted by rising manufacturing growth in top metals consumer China and buoyed by Trump's infrastructure plans.

Ashtead (AHT), equipment hire specialist, sped 5.7% higher to £16.80, with mining giant Glencore (GLEN) not far behind, up nearly 5%.

Building materials group CRH (CRH) gained 4.9% at £28.27, after beating 2016 earnings forecasts, with chief executive Albert Manifold telling Reuters the group, which derives 60% of revenues from the US, was well positioned to benefit from Trump's infrastructure spending. 

Precious metals miners Fresnillo (FRES) slipped 0.9% at £14.51 as the safe haven appeal of gold and silver waned amid the bullishness sparked by Trump.

On the FTSE 250, Mitie (MTO) jumped 8.6% after the pest control, property cleaning and security services provider sold its loss-making home healthcare business for a nominal £2.

International Personal Finance (IPF) was the biggest 'mid cap' faller, dropping nearly 11% as the consumer credit lender reported a 20% slump in profits, weighed down by tough regulation in its key Poland market.

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