The FTSE 100 benefits despite signs of fiscal tightening

Despite concerns that the UK stock market would run out of steam after the Chinese authorities decided to tighten fiscal policy it would appear this is not the case at the moment. While the UK authorities have yet to increase interest rates we have seen the quantitative easing programme suspended and indeed the US government has tweaked a non-key interest rate higher. So why is the UK stock market performing better than many had expected?

While many issues affect the performance of shares in the UK it is worth remembering that many companies quoted on the London stock market have significant overseas exposure, often in dollars denominated its sales. The ongoing decline in the rate of sterling against the dollar has helped many of these companies when translating their income and profitability from dollars to sterling hence "a rosier picture". However, there are other issues which may well come into play over the next 12 months with US and European interest rates expected to move higher to rein in any uncontrolled rise in economies.

Historically stock markets have not performed well when the US government has increased interest rates, and while they have not tweaked the key rates this is likely to happen in the short to medium term.