FTSE 100 starts Q4 with big rally

Although equity markets are marginally higher, this is more a response to currency moves rather than fundamental investor confidence, with a stronger dollar helping the FTSE 100 start the week up, while a weakening euro is supporting European equities, despite issues in Catalonia.

Kevin Warsh may not be a name that many have heard of, but he is potentially about to be one of the most powerful men in the market, as the possibility grows that he may become the next Chair of the Federal Reserve.

Mr Warsh is perceived as a hawk, whereas Janet Yellen has been hugely dovish over her tenure, so this alone has seen bond yields and the dollar rise as investors contemplate a shift in direction.

Equity markets have been cossetted by global central banks since the financial crisis so the Fed Chair appointment is pivotal. There are other candidates still in the mix, so equity markets have not yet responded in any meaningful way, but shifting the dynamic towards higher rates and faster tapering could become a major negative for markets if Mr Warsh is confirmed.

Capacity being taken out of the market was always going to be good news for other airline stocks, with easyJet, Ryanair and Tui all enjoying a bounce Monday, but the collapse of Monarch does highlight serious issues for the airline industry.

The weaker pound has seen UK holidaymakers tighten their budgets and the increased threat of terrorism has reduced target holiday destinations and made these routes more congested and competitive.

Less competition is good news for airline share prices in the short term, but if Monarch's assets are simply repatriated to other carriers, the drop in capacity may not persist for long.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.