Markets are in a decidedly risk-on mood on Friday. Ignoring the risks from escalating tensions in Catalonia, European indices have opened higher across the board. Even the IBEX is just in the green.

The FTSE 100 is trading up and now eyeing a fresh record closing high above last Thursday’s close of 7,556.24. Currently it’s about ten points short. There is a touch of pound weakness at play with cable struggling to hold the $1.31 handle. Indeed the more domestically focused FTSE 250 is trading flat at around 100pts short of its all-time high of 20,251.24, also set on Oct 12th.

Nevertheless the broad-based gains for equities suggest this is a wider risk-on rally based on the progress in Washington.

The Trump trade has been reignited, so it seems. Tax reform is definitely back on - if it was ever off, thanks to the Senate approving of the Republican-backed budget Thursday night. This is a major step towards tax cuts as it allows the GOP to pass legislation without the need for any Democrat help.

Index futures leapt last night alongside bond yields and the US dollar as the Senate voted the bill through. On the FTSE the predictable gainers are the more international banks – Standard Chartered and Barclays among the leaders on hopes for rising global yields and interest rates as well as the weaker pound. Miners ex-Randgold and Fresnillo are also the chief risers.

Cable is weaker today partly because of the firmer dollar but also there are mounting doubts in the market about a November rate hike. Softer retail sales maybe a factor but ultimately these can be looked through as consumer spending remains OK for now.

What really has traders less certain are the remarks from Bank of England Deputy Governor Jon Cunliffe, who said there is no strong case to raise rates soon. That means at least two policymakers won’t vote for a hike in November but the balance still tilts mildly in favour of the hawks and a hike. But from a position a month ago when a 25 basis point increase was virtually nailed on, there are murmurings of doubt emerging that has sterling bulls nervous.

There seems little chance of any good news for the pound coming out of the Brussels summit, although with expectations set so low there is always the scope for the pound to bounce on some vaguely positive headlines.

Equity Focus: IHG

There has been at one very clear economic boost since Brexit – tourism in the UK is booming thanks the weak pound and this has helped hotels. Whilst Merlin Entertainment claims tourist are staying away, hotel owners like IHG and Whitbread are reporting gains amid what is a very resilient hotel market.

Today IHG reported a strong third quarter performance with revenue per available room up by 2.3%, while the growth in rooms overall of 4.1% was the best since 2010 and an acceleration from the 3.7% delivered in H1. CEO Keith Barr says the group is confident it will meet full-year expectations.

UK growth was particularly strong because of the weak pound driving foreign visits. The UK delivered RevPAR growth of 4% - outperformance was most notable outside London at 5%. In the capital growth was 3%.

European markets were even stronger as the tourism sector recovers from terror incidents that kept visitors away. For instance RevPAR growth of 6% was seen in France, while IHG reports double digit growth in Belgium and Turkey – all countries where tourism was heavily dented by terror atrocities.

Growth in its biggest market the US was weaker, however. Unlike Unilever, IHG at least doesn’t blame the weather, saying the hurricanes Irma and Harvey produced a mixed impact. Cancellations hit revenues, but the company seemed to have picked up business as displaced people sought temporary accommodation and relief workers needed places to stay. Even the solar eclipse helped bookings.

US growth at +0.4% was an improvement on the second quarter that saw a decline of -0.4%. YTD growth is +0.6%. Stripping out all of these anomalies, IHG says RevPAR growth was ‘marginally positive’ in the US. Canada (+7%) and Latin America (8%) both grew well despite flat growth in Mexico due to the earthquake in Mexico City.

Middle Eastern RevPar was down 6% due to the timing of Ramadan but elsewhere in AMEA it was +4%.

The Q3 update follows a first half performance that saw RevPAR growth of 2.1% and a 7% increase in underlying operating profit. In Q2 RevPAR was up 1.5%, including the decline of -0.4% in the US, thanks to the timing of Easter. Following the first half update the stock fell about 15% through to mid-September, arguably making it a tad cheap, and so the shares have rallied c10% since.

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