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Sterling regains pre-Brexit levels

January 2018

  • The pound strengthened to its highest level against the US dollar since the Brexit referendum in June 2016, rising above US$1.40. Although sterling was lifted by weakness in the US dollar, it also received a boost from mounting confidence over the UK’s economic outlook and hopes of a positive outcome for Brexit.
  • Elsewhere, outsourcing company Carillion went into liquidation after it was unable to obtain further funding. Its share price fell by more than 90% over 2017. Investor sentiment towards the sector was further undermined by a profit warning from Capita that prompted a 40% dive in the company’s share price. The FTSE 100 Index reached new heights during January, but ultimately ended the month 2% lower than it began. 
  • Sentiment in the US was undermined during January by a short-term shutdown of the country’s federal government as politicians reached stalemate over immigration. Although the standoff was eventually brought to an end once the Republican Party agreed to make concessions over immigration policy, the spending bill will only deliver three weeks of funding. 
  • Having hit a new record earlier in January, the Dow Jones Industrial Average Index dropped sharply at the end the month. Share prices in the health care insurance sectors were driven down by an announcement that  Amazon, Berkshire Hathaway and JPMorgan Chase planned to join together to set up a new health care company for their US employees in order to cut their health care costs. Nevertheless, the Dow Jones Industrial Average Index rose by 5.8% over January as a whole.  
  • During January, the European Union (EU) outlined its requirements for the UK during the post-Brexit transition period.  European Council President Donald Tusk urged the UK to reconsider Brexit, warning, “If the UK government sticks to its decision to leave, Brexit will become a reality – with all its negative consequences – in March next year”. In Germany, investor sentiment was cheered by preliminary coalition talks between Chancellor Angela Merkel’s CDU/ CSU Party and the Social Democrat Party. Over the month, the Dax Index rose by 2.1%, while the CAC 40 Index climbed by 3.2%. 
  • The Nikkei 225 Index rose during January to reach its highest level since November 1991, boosted by mounting optimism towards the country’s economic prospects and by strong performance from US indices. Over January as a whole, the benchmark index rose by 1.5%.

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