(Bloomberg) -- Strengthening crude oil prices and a falling pound are set to give Britain’s large-cap stock index a boost, according to Goldman Sachs Group Inc.
The FTSE 100 remains “very positively correlated” to oil prices, strategists including Cecilia Mariotti wrote in a note, adding that the bank’s commodities analysts expect further upside for crude.
With Brent prices briefly nearing $96 a barrel last week, it’s been a comparatively good month for the benchmark index, which has beaten most European peers with a 2.6% gain. Bloomberg Intelligence data shows analysts expect energy to generate 20% of its earnings in 2023. Shell Plc and BP Plc, which both have heavy weightings in the gauge, have risen 7.7% and 8.0%, respectively, this month.
The FTSE’s gain has also narrowed the valuation gap between London and Paris, as weakening sentiment around luxury goods drag on French stocks.
A weaker pound will benefit the FTSE 100, whose constituents generate about 75% of their sales abroad, the Goldman strategists said.
Sterling is down 3.9% against the dollar this month after easing inflation prompted the Bank of England refrain from raising interest rates further.
“We think this can be a tailwind for the FTSE 100, given its strong international exposure,” Goldman added.
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--With assistance from Michael Msika.
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