FTSE 100 Outlook and Analysis for 14th October 2019
Traders sent the pound surging on its best 48 hours for more than a decade as hopes of a Brexit breakthrough sparked bets the UK economy will roar back into life. Sterling jumped to a three-and-a-half month high against the US dollar on Friday evening, climbing 2.51pc to above $1.27 late on Friday. It has now rallied more than 4pc since Thursday morning, notching up the biggest increase since 2009.
Against the euro, the currency surged 1.86pc to nearly €1.146 on Friday – its biggest one-day rise since July 2016.
It came on a day of frantic market activity, with investors piling back into stocks which have been unloved since the Brexit vote three years ago. Some of Britain’s biggest banks and builders notched up double-digit percentage gains amid a buying frenzy because they are expected to benefit if the economy picks up following a Brexit deal.
The optimism was driven by a successful meeting between Prime Minister Boris Johnson and Irish Taoiseach Leo Varadkar which suggested an agreement is finally in sight.
London’s benchmark FTSE 100 was slightly weighed down by the pound’s strength because it contains so many foreign firms that have to transfer profits earned abroad back into sterling. The FTSE 100 climbed less than other markets but still closed 0.84pc ahead to 7,247.08. UK-focused companies saw huge gains in Friday’s session, with banks and housebuilders at the top of the FTSE leaders.
Meanwhile, across the pond, Wall Street stocks joined the rally amid rising optimism of a US-China trade truce after months of tit-for-tat tariffs between the world’s largest two economies. US President Donald Trump also struck a positive tone, tweeting “good things are happening” in his trade talk meeting with Chinese negotiators.
Cool Reception
The official Chinese response to “phase one” of a trade accord with the U.S. was wary but welcoming, underlining the reality that Beijing has few options but to play along with President Donald Trump if it wants to relieve some of the pressure on its slowing economy. In fact, the official Chinese statement and the main state media didn’t refer to the outcome of the meetings as a “deal” at all. The nation received scant relief from U.S. tariff pressure, other than the waiving of a small increase in duties that had been scheduled for this week. In return though, China hasn’t had to give much away other than vague commitments on its currency and intellectual property-practices, plus the purchase of agricultural commodities that it needs anyway. “The mini deal is about the best that could have been expected,” according to Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors. But it hasn’t done much to lift the heavy cloud of economic gloom.
Advance to Markets
Asian equity markets began the week on the front-foot as the region reacted to last week’s announcement of a US-China Phase 1 deal. Signs of progress in U.S. China trade negotiations lifted American equities Friday and sent Treasury yields higher, though sentiment may be capped as investors voiced skepticism on the accord. Equity futures pointed higher across Asia, but Japan will be shut for a holiday. The yuan edged down after Friday’s advance. The pound retreated as European Union negotiators put another dent in Brexit optimism. Focus now turns to earnings season that begins with big U.S. banks including JPMorgan, Goldman Sachs and Morgan Stanley. Elsewhere, West Texas Intermediate crude gained 2.2% to $54.70 a barrel, and gold decreased 0.3% to $1,489.01 an ounce.
Not Good Enough
U.K. Prime Minister Boris Johnson told his Cabinet on Sunday that a Brexit deal can be achieved, but EU negotiators didn’t seem to agree: They rather bluntly warned that his plans are not yet good enough to be the basis for an agreement. That warning seemed to echo the mood in Brussels. Chief EU Brexit negotiator Michel Barnier briefed the bloc’s government envoys that talks had not made enough progress, according to two officials familiar with the matter. The British premier conceded that a significant amount of work is still required — but underscored that the U.K. must be prepared to leave the bloc at the end of the month. Still, even if he is able to come to agreement with his European counterparts, Johnson needs to ensure he has enough support to push it through the U.K. Parliament — support which he isn’t currently getting from the opposition Labour Party, the Liberal Democrats, Democratic Unionist Party or the Scottish National Party. Negotiations are due to continue into Monday.
FTSE 100 Outlook | Trading Signals | Forecast | Prediction | Analysis
It’s all eyes on Brexit still as the countdown to the 31st continues. Friday saw cable rise strongly, accelerating further away from the 12200 support level as hopes of leaving with a deal took centre stage. That also helped the FTSE 100 rise towards the 7300 level again, but stalling at 7250. For today we have initial resistance first thing from the fib level and R1 and 7271 and are also just testing the 25ema on the daily chart here at 7241. Bears are a bit cautious though which is why we haven’t seen such a strong reaction of this level so far. Above the R1 level then the 7310 to 7325 area looks strong resistance as we have the top of the 10 day Raff channel here and also R2, so I am thinking that should we see a rise today towards this area then the bears are likely to be more willing at this level. A lot of the movement over the next few weeks will also be largely driven by the news flow. That said we are near the top of the Raff channels across the board on FTSE, Dax and S&P so don’t fall in love with the upside too much!
After Friday’s rise the 2 hour chart has gone bullish and is showing decent support at the 7200 area. We also have the daily pivot at 7206. With the cam break out for today at 7189 then I am thinking that should we dip down towards this 7190-7200 area then a long here is worth a go. The bulls will certainly be keen to build on the recent rises, but we are getting near resistance levels on the daily. Above the 7324 10 day channel then the top of the 20 day is in play with resistance at the 7365 level.
Top of the 10 day Raff on Dax is at 12565, and the S&P has 3001. 20 day channel top on the S&P is at 2994 and the Dax at 12540 for today.
After cable’s rocket launch on Friday it stalled at the 12700 level and has already dropped back to 12600. If that drops back further retracing at least 50% of the rise then it should, in theory, help the FTSE 100 bulls to push towards the 7320 level. I would expect cable to retrace 50% or so, which would take it down to 12450 area.
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