Where we are: The FTSE 100 is trading around 10,430, down roughly 35 points from Friday’s close. Overnight range has been relatively contained, oscillating between 10,420 and 10,470. Friday’s close marked the highest level since April 22nd, but momentum appears to be fading this morning.
What’s driving it: UK inflation data, released last week, continues to weigh on sentiment. While the FTSE enjoyed a strong week overall, driven partly by easing rate hike expectations from the Bank of England, the weaker-than-expected CPI print (2.8% YoY) combined with a tick up in the unemployment rate to 5% is giving investors pause. The rise in US real yields, currently at 2.18%, further contributes to the headwind by drawing capital away from risk assets like the FTSE. Despite stabilisation in global markets, investors are cautious about the likelihood of a US-Iran agreement and its potential impact on oil prices.
- UK CPI at 2.8% YoY in April, down from 3.3% prior, suggesting easing inflationary pressures.
- US 10Y Real Yields climbed to 2.18%, increasing the appeal of US assets.
- The 2s10s spread has compressed to 0.43%, signalling further risk-off sentiment.
NY session focus: With no major UK data releases scheduled today, the FTSE will likely be driven by external factors. Watch for US Durable Goods Orders at 08:30 ET. Key levels to watch on the downside are 10,400, followed by 10,350. A break below 10,350 could trigger a deeper correction. The trade that’s working is shorting FTSE rallies into resistance. The trade at risk is holding onto long positions initiated earlier in the month. The pain trade for the FTSE would be a surprise hawkish turn from the Bank of England or a sharp spike in oil prices despite global growth concerns.