FTSE 100 Retreats Ahead of BAT, Aviva, Legal & General Earnings
The FTSE 100 is down by 0.50% in the futures market as traders react to the new lockdowns in England. It is also falling because of the risks associated with the American election and the upcoming important earnings from British American Tobacco (BAT), Legal & General, and Aviva. It is trading at £5,546, which is slightly higher than last week’s low of £5,488.
The biggest driver for the FTSE 100 and other UK stocks today is news that England will go into a month’s long lockdown as the number of Covid-19 cases get out of hand. Yesterday, the country confirmed more than 23,500 new cases, pushing the total number of infections to more than 1 million. And worse, government’s health experts believe that the number of cases will continue rising.
The impacts of the current lockdown will be dire for the economy and FTSE 100 constituents. For example, oil and gas companies like Royal Dutch Shell and BP could suffer as the overall price of crude oil falls. Similarly, banks like Barclays and Lloyds could suffer as more people struggles to pay their debt.
The lockdown could also strain the UK economy, which was recently downgraded by Moody’s. The latest numbers showed that the public debt climbed by more than £35 billion in September. That pushed the public debt to more than £2 trillion. The debt has jumped by more than £246 billion in the first six months of the year. As such, the situation will worsen as the government extends its support programs.
The FTSE 100 is also falling as traders price-in the upcoming US election. The biggest challenge is that the country could have a contested election mostly because of the surge in mail voting. The uncertainty could affect UK stocks because of the strong relationship between the two countries.
UK stocks decline has been partially cushioned by the relatively weaker sterling. The GBPUSD price has fallen by 0.30% because of risk aversion. This is usually a good thing for the FTSE 100 and FTSE 250 because most of their firms sell to overseas buyers.
The companies to watch in the FTSE 100 will be BAT, Aviva, and Legal & General that will release their quarterly earnings today. Still, the biggest losers will be companies in the travel and leisure industries like Rolls Royce, British Airways owner, IAG, Whitbread, and Intercontinental Hotels.
FTSE 100 technical outlook
On the hourly chart below, we see that the FTSE 100 reached a low of £5,490. After the sharp decline last week, the index is also forming a bearish flag pattern as bears ponder about the next moves. It remains below the 25-day and 15-day exponential moving averages.
Therefore, I suspect that the index will continue moving in a bearish trend as bears aim for the next support at £5,400. To do this, they will need to move below last week’s low of £5,487. However, a move above the resistance at £5,635 will invalidate this trend.