Where we are: The FTSE 100 is currently trading at 22583, down 183 points or -0.81% on the day. The index has been trending lower since the European open, trading within a range of 22499-22766. This sell-off extends the losses from yesterday, marking a fifth consecutive day of declines, and puts the index at a two-week low. We’re currently underperforming our continental peers, with the DAX only down -0.37% and the CAC 40 down -0.11%.
What’s driving it: The primary driver is a broad repricing of rate-cut expectations, fuelled by sticky inflation and hawkish comments from central bank officials globally. The rise in US 2Y yields, up 4bp to 3.83% as of yesterday’s close, is weighing on risk sentiment. The strengthening dollar, with the DXY at 98.36, is adding further pressure. Weakness in pharma stocks and major banks ahead of earnings season is also contributing to the negative sentiment. Finally, Mondi’s profit warning due to higher costs related to Middle East conflict has also added to the downside pressures on UK equities.
- US 2Y yield broke above 3.85% intraday before retracing, signaling persistent inflation concerns.
- DXY rallied from 98.32 to 98.75 before paring gains, demonstrating risk-off flows.
- UK Retail Sales beat expectations in March, but the positive data point has been overshadowed by broader macro concerns.
NY session focus: The focus for the New York session will be on how US equities react to the repricing of rate-cut expectations. Watch the 4.30% level on the US 10Y yield; a break above could accelerate the Footsie’s decline. Key level to watch on the downside for the FTSE 100 is the 22500 level; breach of this level will trigger a further sell-off. The trade that’s working is shorting the FTSE 100 on rallies. The trade at risk is dip-buying financials ahead of earnings, given broader macro headwinds. The pain trade here is a sudden dovish pivot by the Fed which triggers a risk-on rally and sterling strength.