UK’s FTSE 100 Recovers Losses After BoE Predicted Rate Increase; Earnings Weigh Down Market Sentiment.
Introduction
In the face of disappointing earnings and ex-dividend trading, the UK’s FTSE 100 managed to recover some of its losses on Thursday. The market sentiment was lifted by rate-sensitive stocks following the Bank of England’s predicted increase in borrowing costs by 25 basis points.
BoE Raises Interest Rates
The Bank of England (BoE) decided to raise its benchmark interest rate by 0.25%, reaching a 15-year high of 5.25%. The move didn’t come as a surprise as it was widely anticipated by the market. However, the BoE also issued a fresh warning that borrowing costs would likely remain high for some time. This cautious stance was taken amid ongoing uncertainty in the global economic landscape.
Analyst’s Perspective
According to Samuel Zieff, head of FX strategy at J.P. Morgan Private Bank, the BoE’s decision to opt for a 25-bps hike suggests a central bank that wants to halt further increases. Zieff believes that while the BoE might still raise rates a few more times, the final rate would likely settle around 5.75%. However, the uncertainty of this landing point remains a challenge.
Market Reaction
In response to the rate hike decision, the British pound continued to decline and was last down 0.3% against other major currencies. The currency market reflects investors’ concerns about the potential impact of higher borrowing costs on the British economy and businesses.
FTSE 100 Technical Analysis
Daily Chart
The FTSE 100 is currently trading within a downward channel, signaling a bearish trend. Additionally, the index is trading below all Simple Moving Averages (SMA), further confirming the current bearish sentiment. However, the Relative Strength Index (RSI) suggests a potential bullishness in the market, while the Stochastic indicator indicates a downward trend.
Support and Resistance Levels
Immediate resistance for the FTSE 100 is identified at 7537.0, and its immediate support level lies at 7451.2. These levels play a significant role in determining the index’s short-term direction.
How to Trade FTSE 100 in the Current Week
The recent price action for the FTSE 100 indicates a reversal from a support zone, with the index now moving upward after a period of decline. However, caution is warranted as the price is currently trading at a support zone and has turned down once more after breaking the day’s low. If this zone fails to hold, there is a possibility of further downside in the market.
Trade Suggestion
For traders looking to capitalize on the current market conditions, an entry point at 7413.6 is suggested. The target for this trade stands at 7310.7, with a stop loss set at 7495.9 to manage risk effectively.
Conclusion
The UK’s FTSE 100 managed to recover some losses despite disappointing earnings, thanks to the support from rate-sensitive stocks following the Bank of England’s predicted interest rate hike. However, uncertainties remain as market participants assess the potential implications of higher borrowing costs on the economy. Traders should exercise caution and consider technical indicators before making informed trading decisions in the current market environment.
FAQ
Q1: What led to the FTSE 100’s recovery after disappointing earnings?
A1: The FTSE 100 recovered some of its losses due to the rise in rate-sensitive stocks following the Bank of England’s predicted increase in borrowing costs.
Q2: What was the Bank of England’s interest rate hike percentage?
A2: The Bank of England raised its benchmark interest rate by 0.25%, reaching a 15-year high of 5.25%.
Q3: What is the analyst’s view on the BoE’s rate hike decision?
A3: According to Samuel Zieff of J.P. Morgan Private Bank, the BoE’s decision indicates a central bank that aims to halt further rate increases. However, the final rate’s uncertainty poses a challenge.
Q4: How did the British pound react to the rate hike decision?
A4: The British pound continued to decline and was last down 0.3% against other major currencies.