Where we are: The FTSE 100 currently trades around 8,370, down roughly 0.5% on the session. The index saw a modest bounce in the prior two sessions but failed to hold gains, trading in a relatively tight 50-point range overnight. This level is significantly below the recent highs and suggests continued selling pressure below the psychological 8,400 level.
What’s driving it: Renewed inflation concerns are weighing on the Footsie. The March CPI print of 3.3% year-on-year, a 0.3% increase from the previous month, and the corresponding CPIH figure of 3.4% are raising questions about the Bank of England’s ability to control inflation, despite the drop in the unemployment rate to 4.9%. This has created a risk-off sentiment, compounded by political uncertainty surrounding a potential leadership challenge.
- UK CPI YoY increased to 3.3% in March, exceeding expectations and fueling inflation fears.
- The UK Unemployment Rate decreased to 4.9% in January, but the inflation data overshadows this positive economic signal.
- Mining and banking sectors are leading the decline, suggesting a broad-based sell-off driven by macroeconomic concerns.
NY session focus: With no major UK data releases scheduled before the New York close, focus will likely be on the performance of US equities and movement in US Treasury yields, which are already showing a slight dip with the 2Y at 3.98%. Keep an eye on the 10-year Gilt yield relative to US Treasuries for directional cues. A break below 8,350 could open the door to further downside. The pain trade would be a surprise hawkish pivot from the Bank of England in response to persistent inflationary pressures, triggering a sharp rally in Sterling and a squeeze in UK equities.