It has been another record breaking period for the FTSE 100, with the share index showing an all time high on Monday. The index rose by a full 19 points on the day, closing at 7,454 – a percentage increase of quarter of a percent. While banks made up some of the biggest gainers, commodities firms helped bolster the index as the price of Brent crude oil leapt up over 2 percent to $52.17.
While most talk in the UK at the moment is about the upcoming general election, this hasn’t stalled the bearish mood on the London Stock Exchange, where investors are encouraged by a better global economy with low interest rates. With a lot of the companies included on the FTSE 100 international businesses, this index is less sensitive to UK politics and the strength of the pound on forex markets.
In fact, gains on the FTSE 100 often correlate to the pound depreciating, as this is a boon for dollar earning businesses on the LSE. It is important to remember that the LSE is the most ‘globalised’ stock exchange in the world – with companies from over 70 countries listed – and so the political and socioeconomic matters that influence the pound do not carry as much weight on its share indices.
Amongst the global concerns contributing strongly to the upswing on the FTSE 100 were BP, which saw a 1 percent rise on Monday, and Dutch Royal Shell, who were up 0.4 percent.
One of the main reasons energy companies and oil firms have been performing so well this week is due to the announcement by the Russian and Saudi energy ministers. The announcement claimed that the OPEC plans to cut oil production and avoid a further supply glut, and this would be continued into 2018. Both OPEC and non-OPEC oil producing nations had agreed to production cuts aimed at stabilising oil prices, and these were first implemented at the end of 2016.
While these measures did help, it became clear a longer agreement was necessary to maximise and maintain the benefits. However, as LaithKhalaf, a representative of Hargreaves Lansdown told the BBC on the matter, ‘the cartel appears to get diminishing returns each time it announces a reduction in output.’ This could mean that the stabilising effects have begun to smooth out and there isn’t such a jump into oil investment each time production limits are extended. It remains to be seen whether future announcements regarding the OPEC agreement will cause similar price changes.
It is clear that commodities prices have had a really big impact on the stock market in this period, and that this has been far greater than even the impact of the general election. With the pound not doing anything especially interesting at the time (it rose slightly against the dollar but was down against the euro), oil prices have certainly been one of the most important drivers on the market.
Of course, even on a good day, the LSE has some losers, and the FTSE 100’s growth was tempered a little by the travel companies – both Tui and Thomas Cook were among the worst performers on the record breaking day.
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