The FTSE 100 Index has wavered in the past few weeks and continued to underperform its top global peers like the S&P 500, Kospi, and the Nikkei 225. It has barely moved in the past three months. This article highlights some of the top catalysts for the Footsie this week.
FTSE 100 Index to react to Keir Starmer’s announcement
The main catalyst for the FTSE 100 Index will be the upcoming statement by Keir Starmer today. According to The Guardian, Starmer is expected to resign as the UK Prime Minister, possibly before autumn. He will share his calendar for stepping down in the morning session.
Starmer has struggled to grow the economy, a highly difficult task considering that the government has little capacity to do so. He had no ways of cutting taxes as doing that would have surged the country’s deficit. Instead, he went against his campaign promises and hiked taxes, irking many supporters.
Starmer also appointed Peter Mandelson to be his US ambassador. Mandelson resigned after he appeared multiple times in the famous Epstein files. All this led to a major election defeat of the Labour Party in the recent local elections.
Starmer will now be replaced by Andy Burnham, who won a parliamentary election last week. However, as we have seen before, chances are that he will not serve a full term as he will become the seventh prime minister in ten years.
The main concerns among investors is that the UK is now becoming ungovernable and there is no easy way out.
Falling British pound
The other key FTSE 100 news this week will be on the falling sterling pound. The GBP/USD pair has slumped to 1.3165, its lowest level since March this year. It has dropped by close to 5% from its highest point this year.
The pound dropped because of the divergence between the Fed and the BoE. The BoE left interest rates unchanged at 3.75% in its meeting last week, with 7 committee members voting in support. Officials were unclear on whether the bank will hike or cut rates later this year.
On the other hand, the Federal Reserve decided to leave rates unchanged, with many officials hinting that they will hike rates later this year to contain the stubbornly high inflation rate.
The falling British pound has a mixed effect on FTSE 100 companies. Some of the companies with large overseas businesses, like GSK, AstraZeneca, BP, Shell, and mining giants like Anglo American and Antofagasta, benefit from a weak sterling. That’s because they make their money in USD, which boosts their sterling-based earnings and dividends.
US and Iran ceasefire and falling oil prices
The FTSE 100 Index will also react to the new developments between the US and Iran. Officials of the two countries met in Switzerland and started their nuclear talks that will last 60 days.
They also agreed to ensure that the ceasefire in Lebanon will remain. That will be a hard task as Israel is committed to disrupting these talks, which explains why Netanyahu intensified his attacks against Lebanon during the weekend.
Crude oil prices dropped after traffic at the Strait of Hormuz increased during the weekend despite Iran announcing its closure. Looking forward, the issue will be highly volatile, with any new development having a major implication on the FTSE 100 Index.
Many companies are exposed to the issue. Some of the top ones are IAG and Rolls-Royce, which are large players in the civil aviation industry. FTSE 100 banks like Lloyds, Barclays, and HSBC have also been highly exposed to the war.
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