FTSE 100 Retreat Ahead of BOE Decision Rolls Royce Down 2%
FTSE 100 opened in negative territory ahead of the Bank of England monetary policy decision. In the Brexit front, the UK PM Boris Johnson said that EU is abusive to Great Britain, risking four decades of friendship between the two sides. The banking sector is under heavy selling pressure, as Lloyds is 2.01% lower at 26.05, Barclays is 3.19% lower at 99.64, and HSBC is 2.993% lower at 307.70.
Bank of England Preview
Analysts expect that the BOE Monetary Policy Committee will keep the interest rate unchanged at 0.10%. The expectations are also that the BOE will keep intact the QE at 745 billion, while some analysts are looking for a 100 billion increase in bond purchases in the fourth quarter. The central bank after the recent economic data might warn that the risks are tilted to the downside.
Fed Disappointed Investors
The Fed yesterday added nothing new to what we already knew and what the markets expected. Fed kept the interest rates at historically low levels while the new inflation target above the 2% mark, point to low-interest rates until 2023. Fed will keep the current pace of bond buying at $120 billion per month. Fed revised its projections for the economy upward. The central bank now estimates that the U.S. economy will shrink by 3.7% in 2020 below the previous forecast of a contraction of 6.5%. The unemployment is expected at 7.6% now the previous forecast was at 7.6%.
In corporate news, Next is 0.94% higher at 6,225 after the company increased the guidance for yearly profits up to 300 million from 195, despite the earnings in the first half fell to 9 million from 320 million the same period in the previous year.
Rolls-Royce Under Pressure
Rolls-Royce is 1.82% lower at 188.90 after the company announced that it is reviewing all funding options to strengthen its balance sheet, including debt and equity. The company has already announced the reorganization of several sectors and proceeded with a 2 billion loan for the second half.
FTSE 100 Analysis
FTSE 100 started the session with losses that exceeded one percent but as of writing the index pared some of loses and is now 0.66% lower at 6,038. The pullback is not a surprise as the index failed the previous two sessions to break above the 100-day moving average. Bears are in control, and further correction can’t be ruled out unless the index breaks above the 100-day moving average.
Support for the FTSE 100 index stands at 5,998-6,000 area. If the index breaks lower, then the next support would be met at 5,923 the low from September 9. More bids might emerge at 5,779 the low from September 4.
Looking to higher levels, resistance stands at 6,078 the daily highs. The critical resistance point is at 6,094 the 100-day moving average. A break above 6,094 would open the way for 6,177 the top from August 25.