healthcare drugs pharma

Steady as she goes seems to be the direction for the FTSE 100 so far this year, as the main UK benchmark once again continued its gradual and relentless push to yet another record high as it recorded its longest winning streak since its formation in 1984.

The index also managed to post its 12th successive record close in a row, helped in no small part by a pound that sank to its lowest level against the US dollar since 7 October last year, and even though the pound managed to reverse those declines, the UK benchmark was able to hang onto most of the new gains.

There was a moment towards the end of yesterday’s trading when the gains threatened to come unstuck after comments from President-elect Donald Trump about pharmaceutical companies, and their pricing policies, which caused the sector to fall back sharply, however a resilient performance from other sectors helped support the index. The comments also caused US markets to round trip sharply, with the Dow oscillating between 19,830 and just below the 20k level a few times, with the 20k level continuing to remain elusive, however US stocks still managed to close higher with the Nasdaq posting another record closing high.

In Asia the lack of clarity from last night’s press conference appeared to act as a drag on sentiment as the lack of further detail and the President elect’s belligerent tone to the health care sector saw some light selling kick in.

We also saw a sharp sell-off in the US dollar in the wake of the press conference which can probably partly be explained by the fact that we didn’t get much in the way of policy with respect to future fiscal plans.

The reversal in the greenback fortunes yesterday certainly came at a fortuitous time for the pound which at one point was threatening a retest of the 1.2000 area despite some fairly decent economic data. The latest NIESR GDP estimate showed Q4 growth of around 0.5% while the manufacturing sector rebounded strongly in November, helped by a strong performance in the pharmaceutical and oil and gas sector.

The latest Treasury Select Committee sitting of MP’s also offered up a bit of a surprise yesterday with a bit of a change of tone from Bank of England governor Mark Carney about the risks that Brexit could have on the UK economy. While it wasn’t exactly a screeching hand brake turn it was still noticeable for being much more nuanced. Mr Carney told members of the Treasury Select Committee that policymakers no longer considered Brexit the biggest risk to the UK economy and financial stability. He went on to suggest that it was a bigger risk to the financial system in Europe echoing comments he made a few weeks ago when he said that Britain was the investment banker for Europe.

The members of the Financial Policy Committee did express some concern at the rise in credit growth which saw a rise of 10.8% in November, which if inflation starts to rise ahead of incomes might cause problems in 2017. This can’t have been entirely unexpected given that this was likely to be the most probable outcome of the decision in August to cut interest rates further, a decision which now appears even more questionable.   

Carney’s comments would also suggest that for all this week’s market concerns about a so called “hard Brexit”, and the weakness in the pound, the Bank of England would appear to be more sanguine about the path of events going forward.

EUR/USD – despite rallying from the 1.0460 area the euro continues to find itself capped at the 1.0620 area. We need to see a move back above the 1.0700 area to mitigate the risk of a move back towards 1.0340 as well as parity.

GBP/USD – despite hitting its lowest level since the 7th October at 1.2038, the pound managed to rebound strongly, closing above the all-important 1.2080/1.2100 support area. As such we should continue to range trade between 1.2100 and 1.2500. A move below 1.2000 though could well see a move towards 1.1800.

EUR/GBP – having dropped back below the 0.8700 area the risk remains for a move back towards the 0.8580 area, despite this week’s high at 0.8764. We need a move back through the 0.8720 to mitigate further downside risk.

USD/JPY – a sharp move lower to 114.24 has seen a sharp rebound, however this rebound needs to move back through the 116.20 level to argue for a return to the 117.00 area. A sloe below 114.80 is needed to target a move towards 111.00. Big resistance remains back at the potential double top formation highs at 118.65.

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