Upside Breakout Dependent on BoE & Earnings


FTSE 100 Analysis and News

  • UK Earnings from Large Banks and Energy Names in Focus
  • Key risk event come in the form of the BoE report

Low Volatility Keeps FTSE 100 Elevated

As we enter the Summer period, volatility continues to drift lower as represent by the FTSE 100 volatility index (VFTSE) which is at the lowest level in over a month. Consequently, as volatility drops off, the FTSE 100 could see an extended move higher, indicated by the rising correlation between the two.

FTSE 100 vs. FTSE 100 Volatility Index

FTSE 100 Weekly Look Ahead: Upside Breakout Dependent on BoE & Earnings

UK Earnings in Focus

Over the course of next week, eyes will be on the large banking names in the UK with Standard Chartered (Tue), Barclays (Thu) and RBS (Fri) providing an update on their latest financial results. Questions will be asked as to whether corporate profits continue to take a hit in the low interest rate environment. In terms of share price performance, major banks have underperformed the broader by around 5-10%. However, the outlook may be somewhat lifted provided the BoE raise rates on Thursday and signal a continue tightening of monetary policy. Elsewhere, index heavyweight BP will announce their earnings on Tuesday, which has outperformed the FTSE 100 by some 8%, following the surge in oil prices to 4yr highs on the back of geopolitical tensions.

FTSE 100 Influence

Company

Sector

Index Weighting

BP

Oil and Gas

5.1%

Standard Chartered

Financials

1.1%

Barclays

Financials

1.9%

RBS

Financials

0.5%

Bank of England QIR Expected to Lead to Volatile GBP Reaction

The Bank of England are expected to raise rates next week to 0.75% from 0.50% with OIS markets pricing in an 80% probability. However, the focus will be on whether the BoE will signal another hike in the near-term. Given the recent soft data points, the Bank of England are likely to remain data dependent and reiterate that tightening monetary policy will be gradual and limited. As such, a cautious stance by the Bank of England may be enough to lead to a sell-off in the Pound, consequently prompting a bid in the FTSE 100.

See our Q3 forecasts to learn what will drive FX the through the quarter.

FTSE 100 PRICE CHART: Daily Time Frame (March-July 2018)

FTSE 100 Weekly Look Ahead: Upside Breakout Dependent on BoE & Earnings

Chart by IG

FTSE 100 remains supported above 7700, while the initial target for bulls is the weekly high at 7741 before a potential retest of the June highs at 7796. RSI indicators also suggesting bias is to the upside.

IG Client Sentiment Points to Bullish Momentum

The latest IG client positioning data shows 41.7% of traders are net-long with the ratio of traders short to long at 1.4 to 1. In fact, traders have remained net-short since Jul 16 when FTSE 100 traded near 7610.2; price has moved 0.8% higher since then. The number of traders’ net-long is 10.4% lower than yesterday and 31.9% higher from last week, while the number of traders net-short is 4.1% lower than yesterday and 23.4% lower from last week.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests FTSE 100 prices may continue to rise.

KEY TRADING RESOURCES:

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX





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