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FTSE Update: Inflation Relief Boosts Homebuilders as Traders Revise BoE Bets

FTSE Update: Inflation Relief Boosts Homebuilders as Traders Revise BoE Bets

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FTSE News and Analysis

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Homebuilders respond to better-than-expected UK inflation data

Yesterday’s encouraging move lower in core inflation ushered in a welcomed sigh of relief for UK citizens after battling to get wider price pressures under control. The core CPI print of 6.9% compared to the expected 7.1% figure represents a small victory in the grander scheme of things but does reveal that inflation is headed in the right direction.

Homebuilders were one of the major beneficiaries of the softer inflation print with Persimmon and Barrett Development experiencing a notable recovery in their respective share prices. Potential homebuyers have had to think twice before committing to a long-term financing after witnessing mortgage rates above 6%. The lift in the mood unsurprisingly sees the real estate sector outperform its peers with the rest of corporate UK, apart from the materials sector, seeing modest gains.

FTSE Sector Performance (July 17-20)

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Source: Refinitiv data, prepared by Richard Snow

FTSE Recovery Overcomes Two Major Hurdles in Quick Succession

Yesterday, the FTSE rose around 1.8% to close above not only the long-term trendline resistance but also above the 200 day simple moving average. The 200 SMA is largely regarded as an indicator of the long-term trend – which bodes well for FTSE bulls now that prices have continued the bullish momentum.

Immediate resistance comes in at 7640, a level being tested at the time of writing, followed by the 7710 level which supported prices in January and May of this year.

FTSE 100 Daily Chart

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Source: TradingView, prepared by Richard Snow

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Markets Reverse Rate Hike Bets

After the Bank of England’s surprise 50 basis point hike in June, markets had been largely pricing in the likelihood of another 50 bps hike, particularly after June’s average earnings rose 7.3% year-on-year. Since yesterday’s core CPI print, the picture has essentially reversed and now the market anticipates a smaller 25-bps hike in August with a probability of around 70%. Previously, optimistic rate hike odds had supported the pound sterling, which weighed on the index. With rate hike odds and the pound falling, FTSE receives a welcomed tailwind.

Bank of England (BoE) Market-Implied Rate Hike Odds

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Source: TradingView, prepared by Richard Snow

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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