FTSE 100 forecast: UK stocks down but trend remains strong

The FTSE 100 fell relatively sharply today, down nearly 1%, after climbing to repeated all-time highs. Today however the index fell back as investors digest a number of earnings results. But the downside could prove to be short-lived.  Supported by a weaker pound and expectations that the Bank of England will cut rates in March, and potentially again in June, investors have been piling into UK stocks lately. That trend is likely to stay for a while yet. Today, rising oil prices amid Middle East tensions are helping to cushion the falls, with energy names like BP providing support. For now, the FTSE 100 forecast remains bullish despite today’s drop.

 

Why is the FTSE down today?

 

In the UK, the pressure is coming from a fairly broad sell-off across miners, energy names and the banks, which is weighing on the FTSE 100.  Some weaker earnings have hit sentiment, while disappointing earnings from Airbus haven’t helped the tone for European markets either. But it’s worth keeping things in perspective. Both the FTSE 100 and a number of European indices have been hitting fresh record highs lately. Against that backdrop, today’s move looks more like a modest pullback than the start of anything more ominous — a pause, perhaps, in the absence of any fresh catalyst to push equities meaningfully higher.

 

The earnings rolling in from the mining heavyweights offer a timely reminder that, even with metal prices enjoying a blistering run, it’s not all plain sailing.  For a start, expectations are lofty with shares in Glencore, Rio Tinto, Antofagasta and Anglo American have enjoyed double digit gains over the past year or so. In other words, market has already priced in a strong story, so it would take something exceptional to move the dial further. That’s why Antofagasta’s update failed to move its shares higher, even though the copper producer beat revenue forecasts. Same story with Rio Tinto, with the stock falling despite solid numbers.

 

Away from the miners, information and software names are helping cushion the FTSE 100’s broader weakness. After a spell of nerves around potential AI disruption, sentiment towards the sector has improved in the last couple of days.  RELX, among only a few tech names in the FTSE, is among the top performers today, with Sage Group also providing support.

 

Macro trend: Bullish amid BoE rate cut bets

 

Sterling slipped further today, extending its losses after CPI was in line but labour market data came in weaker earlier this week, reflecting growing expectations that interest rate cuts are becoming more likely.

 

As a reminder, the three-month annual rate of average earnings slowed to 4.2% in December, down from 4.6% in November and well below the 5.9% seen a year earlier. That should help bring inflation lower, strengthening the case for further easing from the BoE with the UK central bank likely to move in March now instead of waiting until April. We could see the second cut as early as June. As such, this should keep the FTSE 100 forecast positive.

 

FTSE 100 forecast: retail sales and PMIs to come

 

Looking ahead, we’ll see a batch of global PMI figures on Friday, along with UK retail sales. Retail sales are seen rising 0.2% month-on-month, compared to 0.4% reported the month before. Manufacturing PMI is expected to print 51.5, similar to the previous month, while services PMIS is expected to ease a little to 53.5 from 54.0. Actually, Friday is also heavy on US data with GDP and core PCE inflation – the Fed’s preferred inflation gauge – both on the calendar. In short, rate expectations are unlikely to drift too far from centre stage, keeping the FTSE 100 forecast bullish.

 

FTSE 100 technical analysis and key levels

 

 

Aggressive dip-buying is what has been evident in the FTSE 100 over the past few weeks. This is something I am expecting to remain the case going forward, keeping the bullish trend intact. Key short-term support to watch is at 10,600, which was being tested at the time of writing. Below that 10,586 is the high from Tuesday. Slightly longer-term levels to watch include the 10,400 – 10,500 area. Below that, 10,250 comes into focus. On the upside, resistance remains fairly thin. The first and only real hurdle sits around the all-time high at 10,716 hit yesterday. As long as broader sentiment remains stable, the path of least resistance still appears to be higher.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R