Where we are: The FTSE 100 currently trades around 10,260, slightly below yesterday’s close, after a volatile session in Europe. The index is bouncing around a 50-point range established overnight, and needs to decisively break either 10,300 or 10,200 to signal the next leg. Prior NY close was around 10,300, so we’re underperforming modestly.
What’s driving it: UK CPI data released this morning has fueled a dovish repricing of BOE expectations, sending gilt yields lower. Headline CPI came in at 2.8%, significantly below the 3.0% forecast. The downside surprise in inflation is weighing on the Footsie, particularly as markets now anticipate fewer rate hikes this year. Rising US real yields, driven by a small pop in 10Y yields, are also a mild headwind.
- UK CPI undershot expectations by 0.2%, triggering a dovish BOE repricing.
- Markets now price in fewer than two BOE rate hikes by December.
- FTSE underperforming European peers, suggesting domestic factors are at play rather than a broad risk-off move.
NY session focus: Focus will be on the Monetary Policy Report Hearings at 14:15 London, where further clues about the BOE’s outlook will be sought. Key level to watch is 10,200, a break of which could trigger further downside. A sustained move above 10,300 would negate the negative bias. The trade that’s working is short gilts; the trade that’s at risk is long financials if the BOE leans further dovish. The pain trade is a hawkish surprise from the MPC hearings after the weak inflation print.