FTSE 100 Analysis and Talking Points
- FTSE 100 Capped by Key Trendline
- Eyes on UK Data as Markets Repricing BoE Easing
- UK Growth Contracts, However, Focus is on PMI’s
FTSE 100 Looks to UK Data as Markets Repricing BoE Easing
The FTSE 100 has begun the week on the front foot as the index receives a lift from a slightly softer Sterling. Over the past week, OIS markets have shown a sharp repricing of BoE easing risks in the near-term with the implied probability rising from 5% (prior to Carney’s speech) to 50% for a January cut. Consequently, given this notable shift in rhetoric from the Bank of England, UK data has garnered greater attention with the impact on UK assets likely to be more prominent.
Carney: Persistent weakness could require prompt response
Tenreyro: Inclination is toward a cut if downside risks emerge
Vlieghe: Need imminent and significant improvement in UK data to justify waiting a little longer
Saunders (due to speak on Jan 15th) & Haskel dovish dissenters
Source: Refinitiv
UK Growth Contracts, However, Focus is on PMI’s
This morning, UK GDP showed a surprise contraction in the monthly release of -0.3%. However, while this slightly raised BoE easing bets, keep in mind that this data was prior to the UK General Election and thus likely to have been distorted by the heightened political uncertainty.
As such, the key focus for UK assets will be on the UK PMI’s, which will take into account the initial impact of the UK election results. With this in mind, we see a January rate cut as somewhat premature, particularly given that the UK will experience a fiscal impulse from the new government from March. Alongside this, as external risks (trade wars and cliff-edge Brexit uncertainty) fades in the near-term, it may be prudent for the BoE to stick to a wait and see stance.
FTSE 100 Capped by Key Trendline
On the topside, key resistance is situated at 7660, which marks the trendline from the record high. As UK data is released this week, a continuation of the soft data could see trendline resistance tested, however, a firm break above would also need UK PMI’s to remain soft, which in turn puts 7730 into focus. Therefore, given that we expect a bounce back in the UK PMI’s trendline resistance may curb further upside. On the downside, support resides at 7500, although a closing break below could open up a move towards 7440.
FTSE 100 Price Chart: Daily Time Frame (Nov 18 – Jan 20)
--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
