Where we are: The FTSE 100 is currently trading at 23358, up 110 points or +0.47% on the day. The index has traded in a range of 23248-23494 thus far. This level is modestly higher than yesterday’s close, driven by continued strength from miners. Resistance is seen at the intraday high of 23494.
What’s driving it: UK CPI data released last month showed a significant drop in inflation, with headline CPI falling to 2.8%. This, alongside a slight rise in unemployment to 5%, is easing pressure on the Bank of England to maintain its hawkish stance. UK 10-year Gilts have edged down 5bp to 4.830%, while the 2-year yield remains unchanged at 4.274%, steepening the 2s10s curve to +56bp. The weakening in Gilts is not weighing on the FTSE, with commodity strength providing a buffer, although Gov Bailey’s speech at 15:00 London could trigger a reaction.
- The 0.5% drop in UK CPI YoY in April, along with a 0.7% drop in Core CPI YoY, signals easing inflationary pressures and potentially reduces the urgency for further rate hikes.
- The rise in UK unemployment to 5% suggests a softening labor market, further supporting a more dovish outlook.
- Despite the positive move in FTSE, British American Tobacco is down over 3%, diverging from the broader index and indicating sector-specific weakness.
NY session focus: Traders should watch for further developments regarding BoE Governor Bailey’s speech at 15:00 London, as his remarks could significantly impact both Sterling and the FTSE 100. Key levels to watch are resistance at 23494 and support around 23248. S&P 500 futures trading slightly lower (-0.14%) pre-NY open suggest a mildly risk-off tone which could limit further upside for the FTSE. The trade working is still riding the commodity strength, but is vulnerable to a hawkish Bailey surprise. The pain trade is a sharp dovish repricing in the UK curve combined with a weaker pound which pressures domestically focussed names.