Just four days into the new year, the UK’s blue chip index has already been launched to its highest ever level, notching a couple of closing highs and venturing above 7700 for the very first time in the process. And whilst four days of trading might not provide a complete guide to the year ahead, it can certainly give an idea as to the themes driving the UK 100 higher.

Heading up the UK 100 is its largest stock by weighting, Shell (RDS). The major global Oil producer, refiner and trader, alongside its sector peer BP (BP.), itself the fourth largest UK 100 gainer, have contributed over 17pts of gains for the blue chip index, over a quarter of all constituents’ gains at the time of writing.

Both stocks have moved higher as a result of Crude Oil benchmarks touching their highest level since 2015, themselves driven by growing political turmoil in OPEC member country Iran. As OPEC, along with a range of non-members including Russia, continue to try and solve the global oil glut that has persisted since early 2016 through a series of production cuts, the state of affairs in Iran will be of utmost importance – not just for OPEC’s sake, but for the supply of Oil for companies such as BP and Shell too.

Rounding off the top five UK 100 contributors are base metals Miners BHP Billiton (BLT; 2nd) and Anglo American (AAL; 5th), alongside Pharmaceutical giant GlaxoSmithKline (GSK; 3rd).

The two miners’ positions highlight the favourable conditions in base metals, echoing sentiment in the Oil market. While supply concerns have also helped metals such as Copper and Zinc climb to multi-year highs already this year, they have also been helped by a persistently weak US dollar, carrying over a dismal performance into the end of 2017.

As dollar-denominated commodities, base metals are inversely affected by the strength of the global reserve currency; as the buck goes up, the relative price of metals also increases and sees demand and therefore price per unit fall, while a lagging greenback sees demand increase, driving prices higher.

What could veer the UK Index from its current positive course?

A look at the laggards is telling.

The bottom five companies are comprised of a range of heavyweight defensive companies, together making up over a fifth of the entire index’s weighting.

At the foot of the leaderboard, British American Tobacco (BATS) and Unilever (ULVR) together make up a quarter of the total negative impact on the UK 100 . Along with Diageo (DGE), Reckitt Benckiser (RB.) and HSBC (HSBA), these five companies have a collective 21.5pt drag at the time of writing.

As defensives, these companies have a constant, inelastic demand pattern, meaning any shocks to markets are unlikely to impressively effect share prices. On the flip side, however, they are unlikely to ride the wave of optimism that surrounds a stock market rally.

As a result, they’ve been left at the wayside, although major events this year including Italian elections, US midterm elections and leadership change at the US Federal Reserve could result in more caution entering the marketplace.

With so many macroeconomic themes carrying great importance for these UK 100 heavyweights, it helps when you can break down the bigger picture. But rather than sitting in front of a screen all day, wasting your precious time, why not have someone else digest the news and inform you of major events?

Our research team can do just that, and you too can enjoy access to their publications by signing up to have these delivered directly to your inbox, daily.

Jermaine Bedlow, Trader, 5 January 2018