Where we are: The FTSE 100 is currently trading at 23507, up 176 points or 0.76% on the day, and testing the upper end of its intraday range of 23321 to 23544. The index is outperforming its European peers this morning, a notable change of pace. This morning’s rally sees it pushing against recent resistance around 23550.
What’s driving it: The primary driver is this morning’s significantly cooler-than-expected UK CPI print, with headline CPI dropping to 2.8% YoY. This has eased concerns about persistent inflation and bolstered hopes for earlier Bank of England rate cuts. Lower yields, with the UK 2Y down 3bp to 4.255% and the 10Y down 4bp to 4.827%, are providing a tailwind for risk assets. While global sentiment is cautious given overnight weakness in Asia and a mixed picture in Europe, the domestic narrative is clearly taking precedence this morning.
- UK CPI YoY dropped -0.50% to 2.8%, significantly below the previous reading of 3.3%.
- The UK 10Y Gilt yield is down 4bp to 4.827%, reflecting reduced inflationary pressures.
- The FTSE 100’s relative outperformance versus the DAX, which is slightly negative, suggests a UK-specific boost.
NY session focus: Focus now shifts to the US session, which is expected to open cautiously given overnight losses in Asia. Watch for follow-through in US yields, as continued declines could fuel further upside for the FTSE 100. Key levels to watch are the intraday high of 23544, and then 23600. The trade that’s working is long FTSE 100, short DAX. The risk is a sharp reversal in gilt yields should US data surprise on the upside later this week. A hawkish surprise from any Fed speakers could also present a headwind. The pain trade is FTSE underperformance as energy stocks rebound with crude oil prices.