FTSE 100: BoE Tomorrow; Buy the Rumor, Sell the News
- FTSE 100 held support, moved to 10-month highs
- FTSE looks to have priced in a BoE rate cut/stimulus
- ‘Buy the rumor, sell the news’ a likely scenario
On Friday, we took a look at the FTSE 100 and expressed our bullish short-term bias given it broke above major resistance and was successfully holding the 6400s – old resistance became new support. The consolidation/pullback period ultimately led to a new high and the best levels in 10 months.
The Bank of England will release its decision on monetary policy tomorrow at 11:00 GMT time, which is likely to spark sizable volatility.
The catalyst for the FTSE to accelerate through resistance on June 30 was the BoE’s Carney hinting towards a summer stimulus package. The FTSE 100, which consists largely of international companies and benefit from a weaker pound, appeared to have been front-running Carney’s speech by retracing all the losses as a result of the ‘Brexit’ outcome. The domestically focused mid-cap FTSE 250 index has also seen good buying of late, but still remains much weaker than its internationally focused counterpart due to its higher exposure to the British economy.
Now that the FTSE 100 is roughly 17% higher than where it was at the lows on June 24, it is reasonable to conclude the market has priced in actions to be taken by the BoE. Market expectations are for a 25 bps cut in the benchmark rate to 0.25%. With that in mind, our interest lies in how the market responds. A ‘buy the rumor, sell the news’ scenario has become increasingly likely with the rally becoming extended into tomorrow's decision.
The market may not fall out of bed, but a decline back towards the 6400s seems reasonable to expect in the short-run. Should we see another shot higher in response to the the BoE, resistance comes in at the August peak of 6767 and then the July 2016 high at 6813. In any event, weakness immediately or shortly thereafter tomorrow’s announcement is a reasonable expectation.
FTSE (UK100) Daily
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.
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