Market buzz: FTSE adds 200 points over week, dollar facing 'volatile weeks'

1635: The FTSE 100 closed 59.89 points or 0.83% higher at 7,294.70 on Friday, adding 202.5 or 2.9% over the week.

The pound is off it's lows from earlier in the afternoon, but still down 0.3% against the dollar at 1.4055 but up 0.2% on the euro at 1.1294.

1631: The dollar is facing a volatile period in the coming weeks and months as the market attempts to reconcile conflicting influences, say Rabobank's currency analysts, with the euro likely to remain well supported by the bloc's strong economic fundamentals.

"The turmoil that rocked equity markets earlier in the month was triggered by a spike in inflationary concerns. The prospect of a sharper increase in US rates played on anxieties about USD liquidity and led to a pick up in the value of the greenback."

Even though bond yields have remained at higher levels, the dollar index has subsequently given back these gains and dropped to 38-month lows versus the euro and to 15-month lows against the yen.

"Although higher interest rates are generally a supportive influence for currency markets, the USD is being undermined by a rise in concern about US fiscal disciplin...We are of the view that the USD will be able to gain ground against a number of high yielding currencies over the medium-term."

1356: The bear market in cryptocurrencies is fading, says analyst Naeem Aslam at Think Markets, as the suggestion of new regulations in various countries is "no longer powerful enough to maintain selling pressure".

"One strategy traders have used to find the bottom has been monitoring the flow of negative and positive news. When you see that bad news is not impacting the price any more, that’s usually the sign that there is no more blood left in the trade and the only side going to pop is the upside.

"However, some conservative investors want to see positive headlines before they jump back in. Both approaches have their own merits and depending on the investor’s appetite, neither supersedes the other."

Aslam felt the newsflow in the cryptocurrency market was changing, with "more positive headlines than the negative ones" but if the question is "which crypto", he adds Ripple to the hitherto market leader of Bitcoin. This comes after Santander announced that their upcoming mobile payment app will use Ripple’s xCurrent tech (not XRP token, Aslam stresses), while the UAE exchange has signed up to use the RippleNet product to make cross-border payments and, most importantly, Saudi Arabia’s Central Bank announced plans to work with Ripple on a pilot program to assist the country’s banks in trying the technology after the Bank of England began a trial with Ripple last year.

"These positive stories, looked at together, seem to have stemmed the tide in crypto markets: but have they done so permanently?" he wonders.

1308: WPP is again one of the top risers on the FTSE 100 this afternoon amid a recent improvement in the ad market.

"Recent advertising trends have been better than expected across the board," says Goldman in a note to clients today. "We expect 2017 to have ended on a more positive note in most TV markets based on our conversations with industry participants, read-across from recent results and comments from large advertisers.

"We see a slightly more positive outlook for 2018 (1H weighted) helped by easy comps and sports events."

The structural outlook still varies to a great degree by market, analysts say, with viewing and pricing trends "key".

TV ad trends "have decoupled more meaningfully from macro indicators over the last year, exacerbating structural concerns over the outlook for TV. We saw greater decoupling in Germany and the UK but more resilience in France, which partly reflects differences in TV viewing and pricing trends.We would expect such divergence between Northern and Southern Europe to continue in the near term."

1251: Global equities are higher and look set to close the week higher after bouncing back from the sell-off last Friday. "There is still much debate about whether another bout of volatility is required to properly clear out vested interest from such a period of protracted complacency, and whether equities are still overvalued even after a 10% correction," says Mike van Dulken, head of research at Accendo Markets.

He said the more gradual rebound this was was "perhaps more trustworthy" than last week, but that politics and monetary policy outlook are "still both very much in play".

The FTSE 100 up 52 points or 0.7% at 7,287.01, led by HSBC ahead of its results next week and with MvD noting higher bond yields and that Chinese insurer Ping An has upped its stake by another 37m to put its stake at 6.2%.

"The FTSE 100 is nearing the 7300 apex of a bearish rising wedge," he says, peering around at technical levels. "The DAX 30 has broken out from its downtrend to trade sideways 12300-12500. Dow Jones Futures are in a new rising channel above 25200. Gold is nearing potential resistance from $1366 Jan highs."

1138: Bonds don’t have more fun, says Bank of America Merrill Lynch in the weekly 'flow show' note beloved by traders in London, coming off what was the "fifth largest week ever" of bond fund redemptions, hitting $14.1bn, while equities recovered with $5.9bn of inflows after a record $30.6bn week of outflows.

Chief investment strategist Michael Hartnett noted the "credit cracks" appearing with the first week of simultaneous outflows from investment grade, high yield and emerging market bonds since Trump election and the second largest week of credit outflows ever.

Hartnett notes the 10.7% drop in global equities was followed by fierce 7.6% buy-the-dip rally - "flows illustrate dogged belief in higher growth/higher rates/weaker US$ backdrop". The outperformance of stocks versus credit "= Fed fund expectations rising", while renewed inflows to tech, financials, materials, Japan "= inflation/deflation barbell still popular", and emerging market debt/equity and high yield outflows "= most popular way to play rising yields" following the Great Rotation from bonds to stocks.

The brief summary ended: "Tops are a process, troughs are a moment: tops take time to form; greed is harder to kill than fear; EPS remains key bull catalyst for equities over bonds & credit; rates, US dollar, and wage growth appear not yet high enough for inflection point in global EPS and Big Top in risk assets…but we think it’s coming; meanwhile marvel at Bitcoin’s ability would lead both the recent top and the recent low in risk asset prices."

1050: Tesco's £3.7bn takeover of food wholesaler Booker is coming under more pressure after the supermarket giant's shareholders were advised to vote against the tie-up by advisory firm Institutional Shareholder Services on Thursday.

The influential ISS said in a statement on Friday it saw "limited potential benefit" from the merger, going as far as to say the deal "does not warrant support at the current terms".

Sandell Asset Management, a US activist hedge fund that holds a 1.75% stake in Booker, recently claimed that Tesco was attempting to pick up Booker "on the cheap".

1037: Following the ONS retail sales data for January earlier, fresh data emerges from BDO. This shows total like-for-like retail sales in the week ending 11 February were down 1.32% versus a poor base of -6.54% for the same week last year.

In the week before Valentine’s Day, BDO "retailers saw little advance amour from consumers as wet weather blighted Saturday trading in many areas". In-store sales were down despite overall footfall nudging up year-on-year this week for the first time in the year-to-date.

1038: Looking at currencies the pound had a muted reaction to the underwhelming UK retail sale figures. Currency traders could also be mulling the new Brexit proposal from the Institute of Directors. The business lobby group said Britain should try to strike a deal on a partial customs union with the European Union once it leaves the bloc in March 2019. The agreement would cover industrial and processed agricultural goods and remove the need for UK manufacturing firms to meet ‘rules of origin’.

Meanwhile the euro reached a new three year-high against the dollar this morning with EU GDP earlier this week printing at the highest level since the financial crisis. Market analyst David Madden at CMC Markets notes that the continued weakness in the greenback was a continued boost for the single currency. "The US dollar index fell to a new three-year low, which tells us how pessimistic traders are on the currency."

Joshua Mahony at IG said the dollar weakness story has been "one of the most reliable trends of recent years". He said the pound's decline in the wake of yet more disappointing retail sales figures that were "another sign of flagging consumer confidence as the UK economy shuffles along in the slow lane" in contrast to the continued outperformance across the Channel.

1035: Poor retail sales numbers point to "cautious, squeezed consumers containing their spending" at the start of 2018 on the back of weak retail sales over the fourth quarter last year, says Howard Archer, chief economic advisor to the EY ITEM Club.

Following on from the weak set of PMI surveys for services, manufacturing and construction earlier this month, Archer says weak retail sales in January suggest that the economy may have lost some momentum at the start of the first quarter.

"We currently expect GDP growth to ease back to 0.4% quarter-on-quarter in the first quarter from 0.5% q/q in the fourth quarter of 2017 – although this is unlikely to deter the Bank of England from raising interest rates in May.

"The squeeze on consumers remains appreciable at the start of 2018, but it should ease as the year progresses due to inflation moderating and pay gradually trending up. We suspect that earnings growth could move above inflation during the second quarter and become more positive through the second half."

Archer expects the Bank of England to tighten monetary policy twice this year with 25 basis point increases in May and November, even though employment growth is likely to be slower in 2018 and consumer confidence fragile amid significant economic, political and Brexit uncertainties.

0945: More gloom for the UK retail sector, as figures for January from the Office for National Statistics fell short of expectations.

On a month-on-month basis British retail sales grew by 0.1% in January, while the consensus was for 0.5%. The annual growth rate was 1.6%, which was well below the 2.5% forecast.

0858: HSBC's fourth-quarter results are given a preview by Deutsche Bank analysts before being published next Tuesday. It is noted that these are the last set of results under CEO Stuart Gulliver. Deutsche forecasts underlying PBT of $3,636m, which would be lower than the third quarter due to lower revenues in the Global Banking and Markets unit, higher costs from the UK bank levy and higher impairments, assuming some exposure to troubled Steinhoff.

DB reiterates its 'hold' rating and nudges up its target price from 700p to 708p.

0844: The UK banking sector was the focus for analyst Michael Hewson at CMC Markets as he looks ahead to results announcements next week. Looking back to the end of last year "the general consensus was one of a mixed bag with concerns about rising consumer credit the main source of worry domestically", he says, though if it was not for the underperformance of Barclays it would have been a much more solid year for the sector.

Despite rising inflation expectations yield differentials have narrowed sharply from where they were at the beginning of 2017, Hewson notes, with the yield differentials between UK 10 year gilts and 2 year gilts remaining below 1%, despite being well above that at the beginning of 2017 when the gap was at 1.15%. This gap has widened since 15 January with the 10/2 spread on UK gilts rising from 0.73bp to 0.94bp now.

"The steepening of this gap from the end of last year is encouraging, but nonetheless there is a danger that the Bank of England appears to be worrying too much about the political noise coming out of the Brexit negotiations than the wider problems in the UK economy.

"The last 12 months have been fairly steady ones for the UK’s banks, and while we’ve seen a sharp drop in valuations in the past two weeks a higher interest rate environment is likely to be a positive one for the banking sector, at least in terms of margins.

"There is a wider concern when it comes to overexposure to companies with higher debt levels, as well as over indebted consumers, as recent events here in the UK have starkly highlighted. This is why Lloyds Banking Group, Royal Bank of Scotland and Barclays' latest and full year numbers will be of particular interest in the coming days."

Looking at the FTSE 100 this morning, it is up 43 points or 0.59% at 7,277.72 so far on Friday.

0835: The London open market report notes that early trade on Friday sees stocks tracking a fifth day of gains on Wall Street, with investors putting aside their worries about inflation and looked ahead to UK retail sales data. The FTSE 100 climbed 0.6% to 7,279.49 in the first half-hour of trading, while the pound was up 0.2% to 1.4131 against the greenback and flat versus the euro at 1.1272.

With little in the way of corporate news, investors will be watching out for the release of the latest UK retail sales figures for January at 0930 GMT.

The market report notes a few upgrades and downgrades moving stocks, including Aggreko was hit by a downgrade from Bank of America Merrill Lynch, but Restaurant Group was up after being lifted to 'hold' from 'reduce' at HSBC, Evraz benefiting from a positive Deutsche Bank opinion, ConvaTec, Standard Life Aberdeen and LSE all upgraded.

0830: The top riser on the FTSE 100 is SEGRO, up 4.25%. The property developer rallied after taking the wraps off what it described as another strong set of financial, operating and portfolio performance metrics for the 2017 year, with a record level of development completions during the period, almost all of which have been leased.