Technical analysis for FTSE 100 for 4th July 2024
British stocks closed higher on Wednesday, boosted by metal miners ahead of the UK parliamentary election on Thursday that the Labour Party looks poised to win. However, the full reaction to the election's outcome will likely be seen only on Friday
The blue-chip FTSE 100 gained 0.6% and saw the best day in nearly two weeks after closing at a more than two-month low in the previous session. The mid-cap FTSE 250 jumped 1.7% in its best day this year, snapping a three-session losing streak.
The market's attention is riveted on the UK vote, where opinion polls indicate it's almost a sure bet the Labour party will seize power, ending 14 years of Conservative government.
Uncertainty over the UK vote has been among the reasons the FTSE 100 has eased about 3.5% from its record high in May.
Also on the radar, is non-farm payrolls data in the U.S. due on Friday, which will provide more clues on the Fed's monetary policy path. Employment data on Wednesday raised hopes for a September start to U.S. monetary policy easing.
The main event in Europe will be the UK election, where the only real unknown is how super Labour's majority will be. The bookies are odds on for Labour and even Tory ministers have conceded they are heading for a record thumping.
It is possible that tactical voting could relegate the Conservatives to third place, which would make the centrist Liberal Democrats the main opposition and change the traditional balance of power in Parliament. It's the opposition that gets to ask questions in Parliament and a centrist agenda would likely be vastly different to the typical right-wing one.
Markets seem unfazed by the likely change of power with FTSE futures steady and sterling near a three-week high on the dollar. The Tories' reputation for economic management was so badly tarnished by the bond market rout that followed Liz Truss's madcap budget, that Labour no longer seem fiscally scary. Indeed, Starmer has gone out of his way to appear boringly sober on spending and taxes precisely not to spook the horses, and it's hard to find a left-leaning policy in the Labour manifesto.
On the prospect of a September rate cut by the Fed, futures now put the chance at 74%, from 65% before the softer data, helping pull 10-year yields down 8 basis points. The Treasury cash market is closed for the July 4 holidays, but futures imply the 10-year yield is holding at 4.35%.
Though it is worth noting the surprising weakness seen in the ISM survey was a complete contradiction of the strength seen in the PMI measure of the same service sector. The ISM used to have a better correlation to the economy but that has broken down somewhat since the pandemic and this report may overstate the slowdown.
Asia & Overnight
Asia stocks hit 27-month highs on Thursday as softer U.S. data narrowed the odds on a September rate cut there, boosting bonds and commodities while dragging on the dollar.
A holiday in the United States made for thin trading, as investors waited to see just how large a majority the Labour Party might get in the UK election.
FTSE futures nudged up 0.1%, while sterling held at $1.2740 . EUROSTOXX 50 futures were little changed. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9% to reach its highest since April 2022.
Japan's Nikkei climbed 0.9% to within spitting distance of its March peak, while the broader Topix clinched all-time highs.
Taiwan's main index also struck a record led by the tech sector and Taiwan Semiconductor Manufacturing Co (TSMC) which cleared T$1,000 for the first time.
S&P 500 futures and Nasdaq futures were steady after reaching another record overnight in the wake of soft economic data.
The U.S. ISM measure of services activity surprised by sliding to its lowest since mid-2020, with employment notably weak ahead of the June payrolls report due on Friday.
Analysts cautioned the series was contradicted by strength in the PMI survey of services, but did note that price measures in both surveys pointed to easing inflation.
Oil prices eased a touch, having gained overnight when a surprisingly large decline in U.S. crude stocks pointed to firmer demand as the U.S. driving season gets underway. Brent dipped 47 cents to $86.87 a barrel, while U.S. crude fell 53 cents to $83.35 per barrel.
FTSE 100 technical analysis for today, 4th July 2024
Voting day and still looking like a Labour shoe in, and it's going to be interesting to see how the market reacts, mainly tomorrow as the results come through.
As such we may well see us stay in the range 8150 to 8220 today, with an initial drop down to the support level at S1 8153. That also ties in with he Hull MA on the 2h chart, which has gone bullish after yesterdays climb.
That said, the 10d Raff channel is heading down still and the top of that channel aligns with R1 at 8215. As we have dropped off this area repeatedly in the past few sessions that is the key level that the bulls will want to break. 8213 is also he 25ema on the daily chart.
Above 8220 then 8235 R2 is close, along with 8240 as daily resistance, but more significantly is 8275 R3. That is just shy of the 8300 round number and should see a reaction - there may not be massive buying pressure today though as the exit polls data come out.
We also have NFP news tomorrow in the US and more rumours of an imminent rate cut there too. That is helping to underpin the strength in the US markets at the moment. NFP is forecasted at 190k.
If the bears were to break below the 8150 level then the 8110 recent low area is the next support, and ties in with 8098 daily support.
I expect today to be a day when lots keep their powder dry so a bit of a drifting day on the FTSE100.
Good luck.
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