FTSE 100 Analysis | Signals | Forecast | Prediction | FTSE 100 Outlook | Trading help
The FTSE 100 closed slightly higher yesterday, supported by a slump in sterling after the Bank of England warned the UK economy was at risk of a recession. The index rose 0.1pc to 7,503. After hours, with the US is freefall we tested the 7470 support level which held.
The BoE sent a stark warning that Britain risked the double-whammy of a recession and inflation above 10pc as it raised interest rates to their highest since 2009, hiking by quarter of a percentage point to 1pc.
The pound suffered its steepest fall since the onset of the Covid crisis on Thursday as traders panicked after the Bank of England warned over a recession.
Sterling fell as much as 2.2pc against the dollar to a near-two year low of $1.23 as analysts warned that a “toxic mix” of high inflation and stalling growth threatens to push the currency even lower.
The pound dropped 1.6pc against the euro to hit a 2022 low of €1.17.
It marked the biggest losses for sterling since Covid first sent shockwaves through currency markets. The pound is down 9pc against the dollar this year.
The Bank of England’s rate-setters rattled investors with a grim set of economic forecasts and a more cautious tone on interest rates. Threadneedle Street expects the energy price surge to push inflation to a four-decade high this year and predicted a plunge in GDP.
In addition, sterling was knocked by Governor Andrew Bailey’s efforts to dampen market expectations for an aggressive surge in interest rates to stamp out inflation. Higher rates typically boost the currency because it means that sterling assets generate a better return.
Stocks slid with bonds Friday and the dollar rose as inflation, rising borrowing costs and China’s Covid lockdowns depressed sentiment.
An Asia-Pacific share index shed about 1.5%, sapped by the technology sector amid drops in Hong Kong and China and mixed performance in Japan. Regional losses were smaller than Thursday’s slide of more than 3.5% in the S&P 500 index and 5% in the Nasdaq 100 gauge. U.S. and European futures dipped.
Shock Selloff
One day after celebrating the Federal Reserve’s decision not to make any jumbo-sized moves, U.S. traders woke up on Thursday deciding that the central bank will struggle to fight high inflation after all. In a sharp u-turn investors dumped stocks, bonds and cryptocurrencies. It was only the fourth day in 20 years in which stocks and bonds each posted 2%-plus declines, going by major ETFs that track them.
FTSE 100 live outlook prediction analysis for 6th May 2022
It’s NFP Friday today so we may well see a bit more chop, especially around 13:30 as the news gets released. The forecast is for 391k, versus 431k previously, with a slight drop in the unemployment rate to 3.5% from 3.6% previously.
The bulls have defended the daily support level at 7470 so far, and this is the line in the sand for the moment. A break below this will likely see a drop down to the next key level at 7435, with the round number of 7400 below this.
As you would expect the various 2h charts have gone bearish, so the bulls will be desperate to try and break above the resistance levels on that time frame – 7553 FTSE100, 4198 S&P500, 14075 Dax40.
The initial resistance on the FTSE100 though is at 7520 where we have the daily pivot and the red 30m coral, along with the 30m 200ema. As such we could see an early rise falter here, for another dip down to the 7470. The bears will be keen to hold onto their momentum though I am expecting a bit of a fight back from the bulls – the powers that be won’t want another day of capitulation today as it generates such negative headlines and spooks the man on the street, and so soon after rate rises! Its all about the optics! Local election results will be coming through today as well in the UK. Lots of Lib Dem protests votes?
Above 7520 then we have the 7553 as mentioned, and above that 7572 is the next level of note. The bulls might not manage to push this high today, though if we get a late surge in the US for the usual Friday evening pump then it may well stay above 7500.
So, bears are still in the game and will be shorting the rallies for today, with all eyes on the NFP data. The bulls are on the back foot, but will be looking to defend the key areas at 7470 and 7435. Sell in May and go away kicking in a bit keenly this time!
Stay cautious today, and have a great weekend!
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