FTSE rises to a 3-week high. Where next?
The FTSE has risen for the past 5 days despite the Russian war and rising inflation. Here we look at why the index is outperforming its European peers and where is could go from here.
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FTSE rises for a fifth straight day
The FTSE is climbing for a fifth straight session and trades at a 3-week high despite ongoing geopolitical risks and concerns over surging inflation.
Given the current environment the FTSE is standing out amongst its European peers for all the right reasons, and this comes down to the composition of the index, which is heavily weighted in commodity stocks and banks.
Oil majorsAmid the fallout from the Russian war oil and gas prices are surging. Whilst higher energy prices are a headwind for almost every sector, it is a bonus for energy stocks and oil majors. Oil is trading around $110 per barrel meaning oil majors on the FTSE are well supported.
Miners
Heavyweight miners are also in demand. Firstly, commodity prices are rising across the board owing to the Russian war and supply fears. Secondly, Beijing’s pledge of more support to the Chinese economy, the largest consumer of metals in the world, is another plus for UK-listed miners.
Banks
Inflation in the UK was elevated at 5.5% in January and given the ongoing rise in commodity prices is expected to keep rising. The BoE has already hiked interest rates three times since December and is expected to continue raising interest rates in order to tame inflation, which is set to rise to 8% in April. UK heavyweight banks benefit from higher interest rate environments and could rise further if the BoE continues its hiking cycle.
Where next for the FTSE?
The FTSE has extended its recovery from the 6760 low reached on March 7, retaking the 50 & 100 sma on the daily chart and breaking above support at 7400.
The RSI is supportive of further upside whilst it remains out of over-bought territory, and buyers will be looking to test resistance at 7500 round number and 7560 the late February high. A break above here would bring the post-pandemic high of 7690 into play.
It would take a move below 7200 for sellers to gain momentum.
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