Where we are: The FTSE 100 is currently trading at 22973, up 140 points or 0.61% on the day, probing the highs of its intraday range (22834-22998). This rally extends the gains seen during the Asian session and builds on a relatively muted close yesterday in New York, suggesting dip buyers stepped in. The index appears to be targeting the 23,000 level, a key psychological barrier.
What’s driving it: The FTSE 100 is being propelled by a confluence of factors, but primarily by a dovish reassessment of the BoE’s rate path following yesterday’s softer-than-expected UK CPI figures. Despite headline CPI rising to 3.3%, the unchanged core CPI at 3.2% signals easing underlying inflationary pressures. A subsequent drop in gilt yields – the 2Y down 4bp to 4.320% and the 10Y down 3bp to 4.887% – further supports this narrative. This positive domestic backdrop is amplified by a broader risk-on sentiment filtering through from Asia, reflected in a weaker DXY and lower US yields.
- UK Unemployment falling 0.3% to 4.9% in January suggests wage pressures may be starting to ease, further supporting the rate cut narrative.
- The Nikkei’s impressive 4.30% surge overnight to 62834 is providing a tailwind to risk assets globally.
- The FTSE’s relative strength is notable, outperforming the DAX and CAC 40 in European cash trading, suggesting idiosyncratic factors at play. BT revival news may add some positive sentiment.
NY session focus: The US session will likely be dominated by positioning ahead of tomorrow’s key Nonfarm Payrolls data at 08:30 ET. Watch how the FTSE reacts to US equities opening – further strength in S&P 500 futures could push the Footsie through 23,000, while any retracement could see a retest of 22,800. The 2s10s spread is at +57bp which signals some optimism. The trade that’s working is long UK equities against short European equities. The trade at risk is long energy (given recent oil price volatility). The pain trade is a hawkish repricing of the BoE, sending gilt yields sharply higher and weighing on the FTSE.