Where we are: The FTSE 100 is currently trading at 23469, up 142 points or 0.61% on the day, trading in a range of 23327 to 23552. This puts it well above yesterday’s New York close, driven by a continued bid tone in early European trading. The index is testing the upper end of its recent range, with resistance around 23550.
What’s driving it: UK yields are drifting lower, with the 2-year down 3bp at 4.219% and the 10-year down 2bp at 4.803%. This is providing a tailwind for equities. The recent drop in CPI, with the headline figure falling to 2.8%, is giving the market confidence that the Bank of England may be closer to easing. Later today, all eyes will be on the comments from BOE Governor Bailey at 09:20 London time, where any hints of dovishness could further fuel the rally. While the DXY is slightly firmer at 99.01, the primary driver here remains domestic.
- UK CPI printed well below prior levels, indicating easing inflationary pressure.
- The UK 2s10s curve remains steep at +58bp, reflecting market expectations for future rate cuts.
- M&A speculation is swirling around several FTSE 100 constituents, adding to the positive sentiment.
NY session focus: The US session will likely focus on how the FTSE reacts to the US data stream next week, but today will likely be a continuation of the current trend. Watch for any signs of profit-taking as the index approaches the 23600 level. Key levels to watch are 23350 as initial support and 23550 as resistance. The trade is long UK equities against a backdrop of falling yields and dovish BoE expectations. The risk is a hawkish surprise from Governor Bailey, which would likely trigger a sharp pullback. The pain trade is a breakout above 23600, forcing shorts to cover and exacerbating the rally.