Industrial Output Falls Yet FTSE Rises.
The Office for National Statistics yesterday released figures showing industrial output for October 2016 had fallen by 1.3%. Yet the FTSE 100 Index rose 1.8% to over 6,900.
Given the industrial turmoil expected of Brexit, why would markets rise, yet again the answer is the weakening pound.
We have covered this many times, but as the £ weakens, larger companies who majority trade is overseas and therefore a greater proportion of profits are converted from $ or € to a weaker £ meaning that profits are higher.
Our concern with all this is that sooner or later, Britain is more likely to face a “hard” Brexit rather than soft one. We cannot see the European Union offering UK access to single markets without freedom of people movement and more. Whilst we Brits think we are important to the EU, which we are, this is a bout a trade group many times the size of the UK, with many other interested parties who will not want Britain to have exactly the same or better trade arrangements that EU members that remain, if that were the case, they would all leave, certainly the larger ones would.
This is why we are still cautious about flag ship FTSE 100 companies and remain cash parked.