Where we are: The FTSE 100 is currently trading at 23254, down 139 points or 0.59% on the day. The index is trading near the lower end of its intraday range of 23193-23393, showing some weakness. This decline follows an eight-session winning streak, and it’s underperforming its European peers as well as US futures which are trading in the red but to a lesser extent. A break below 23200 could open the door for a test of the lower end of the range.
What’s driving it: UK inflation data released last month showed a significant drop in CPI, but the unemployment rate ticked up slightly. While the easing inflation boosted gilt yields, softening them slightly, the unemployment data creates a less clear outlook and keeps the BOE in a holding pattern. This lack of clear direction is weighing on the FTSE, particularly as other global markets remain volatile. The 2s10s curve remains positive at +58bp, signalling markets may not be pricing in rate cuts as aggressively.
- UK CPI YoY fell -0.50% to 2.8%, a substantial drop, but likely still above the BoE’s comfort level.
- UK Unemployment ticked up +0.10% to 5%, a possible indicator of a slowing economy that the BoE will be tracking closely.
- The FTSE is underperforming European peers despite a weaker DXY, suggesting domestic headwinds are at play more than USD strength.
NY session focus: All eyes will be on the US data prints that are due at 08:30 ET. Given the current risk-off tone, a strong number would likely lead to further selling pressure on the FTSE as US yields climb and the DXY finds its footing. Key levels to watch are 23193 to the downside and 23300 for any short covering rallies. The trade that’s working is shorting miners and utilities, following the weakness seen in the EU session. The trade that’s at risk is chasing the dip in energy names, as crude prices remain elevated. The pain trade here would be a sudden risk-on move driven by dovish Fed commentary, squeezing shorts and pushing the FTSE back above 23400.