On Monday, April 22nd, the UK's FTSE 100 index closed with a significant surge of 1.62%, at 8,023.87 points, surpassing the historical closing high of 8,014.31 points set on February 20th last year, marking a new closing historical high after a 14-month interval.
The stock performance across various sectors was broadly robust on the day, particularly in the financial sector and consumer-related stocks such as retailers. In February of last year, the FTSE 100 index historically broke through the significant threshold of 8,000 points for the first time.
In recent weeks, the UK stock market has stood out globally, largely maintaining an upward trend. This contrasts sharply with the US stock market: although US stocks rebounded on Monday, as of last Friday, the S&P and Nasdaq experienced a six-day losing streak, marking the longest连败 in a year and a half; the Nasdaq alone fell over 2% on Friday, with a weekly cumulative decline of over 5%, marking four consecutive weeks of losses; the S&P fell over 3% for the week, the largest single-week drop since the collapse of Silicon Valley Bank.
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The strong performance of the UK stock market is macroeconomically attributed to investors increasingly anticipating that the Bank of England will cut interest rates as inflation in the UK eases. The UK interest rate swap market indicates that the Bank of England is expected to cut rates by 28 basis points by August 1st and by 58 basis points by December 19th. Additionally, there is strong evidence suggesting that the UK economy has improved after falling into recession in the second half of last year.
Analysts have mentioned that the market's expectation that the Middle East conflict will not escalate further, and the weakening of the pound against the US dollar, are the two main reasons driving the UK stock market to new highs. The current exchange rate of the pound against the US dollar is trading at a five-month low, at only 1.23.
The decline of the pound against the US dollar is due to the strengthening of the US dollar rather than the weakness of the pound. As inflation in the US rears its head, the market anticipates that the Federal Reserve will delay interest rate cuts, with the first cut occurring significantly later than previously predicted. Higher interest rates tend to support the currency.
The weakening of the pound is beneficial to the net profits of the FTSE 100 index component companies, as their earnings in the US will be boosted when converted back to pounds.
In recent years, the FTSE 100 index has generally lagged behind many other major stock indices, due to reasons including Brexit and the subsequent series of economic shocks; the lack of technology companies in the FTSE 100 index, which have been the best-performing since the COVID-19 pandemic; and the imposition of a 0.5% transaction tax on the purchase of UK company stocks, which is also a disadvantage for the UK stock market.
However, this year, due to the relatively lower valuation of the UK stock market compared to US stocks and others, it has performed relatively stronger.
The FTSE 100 index is composed of the 100 most valuable companies listed on the London Stock Exchange. It should be noted that traditionally, during periods of global economic uncertainty, the FTSE 100 index tends to perform weakly, as its constituent stocks are primarily those directly related to basic commodity demand, such as mining and industrial stocks.At present, the FTSE 250, which has a larger number of constituents and focuses more on the domestic UK market, has not yet returned to the 20,000-point threshold, but it also recorded a 1% increase on Monday.
Analysts say that although the FTSE 100 has lagged behind many market indices in the past, there is every reason for the index to continue to rise from here as long as there are no further adverse economic shocks:
Due to the fact that UK economic growth has not completely disappeared, and inflationary pressures have shown signs of easing, people remain optimistic about the prospect of interest rate cuts later this summer, which seems to help push up the FTSE 100.
In terms of industries, real estate developers' stocks have also risen sharply due to expectations of interest rate cuts, coupled with a slightly improved outlook for the UK economy, as investors anticipate a resurgence in demand for new homes.
The share prices of companies such as Ocado, Sainsbury's, Next, Marks & Spencer, and Tesco are also rising, as the market expects consumers to be in a more comfortable position. Aerospace stocks have risen driven by ongoing conflicts and post-pandemic demand.
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