FTSE enjoying the weak GBP

The FTSE 100 has been flying high recently on the weak GBP. For those readers unsure of why the FTSE 100 rises when the GBP weakens here is a quote from part of a post I wrote at the start of the year explaining the relationship between the GBP and the FTSE:

The answer is primarily due to the foreign earnings that many FTSE 100 companies have. FTSE 100 companies earn a considerable portion of their revenues in USD. So, when the GBPUSD rate falls , the companies profits are increased.
Consider the following example:
  • A firm, like BP, owns a US operation
  • It generates $1m in profits
  • At GBP/USD of 1.25 the profits are worth £800K
  • At GBP/USD 1.00 they are worth £1m
So, the reason for the relationship is clear, as sterling weakens the USD profits become more profitable for the company, so the shares of the company increase in value on higher earnings. See the full article here.
FTSE enjoying the weak GBP

Labour Government a risk for utilities

Bloomberg had a piece yesterday mentioning some risk for the FTSE 100 going forward and it came on the back of the first dividend cut from Centrica since 2015. The point that the article made was that if a Labour Government came to power Centrica and otherUK utility peers would be in huge trouble if a renationalization plan ever materialised. My initial reaction is, sure, that would be a huge problem for the FTSE ,but what are the chances of a labour Government getting in as long as Corbyn is at the helm. Unlikely . With Boris's new bid to attract leave voters from the Brexit Party to the Conservative party. In the European elections the leave bloc (Conservatives, Brexit Party and UKIP) received 42.7% of the votes. The remain bloc (Greens, SNP, Lib Dem's Plaid Cymru, and Change UK) received 40.2%.I read an interesting article from the New Statesmen written by Dr Marius Ostrowski and he calculated that if the next UK election was decided purely on Brexit it would be an overwhelming conservative landslide. You can read the whole article here. Britain is heading for Brexit and that should keep the FTSE underpinned for now on the weakening GBP.