The FTSE 100 and FTSE 250 are set for another ‘boring’ day with no major economic data and earnings expected from the UK. Futures tied to the index are trading at £6,354, which is where they ended the day yesterday. Other global indices like the DAX, Nikkei 225, and Hang Seng are also little changed.
No lead from the US
The main reason why the FTSE 100 index has been wavering since yesterday is that America’s institutional investors have been away from the market because of the Thanksgiving holiday. The US equity market was closed yesterday. It will reopen today for half a day but we expect many investors to be away, at least through Monday.
In most days, the FTSE 250 and 100 usually move in reaction to what happens in the United States. Similarly, many American investors are usually large players in London and tend to influence stocks.
The index is also struggling because there will be no major economic data and earnings release from the UK. In the past two weeks, the earning season has fizzled. This week, the only major companies that released their earnings were United Utilities and Severn Trent were the only major companies to release their results.
Still, if the FTSE 100 index can hold gains today and on Monday, it will be the fourth straight weeks of gains. This will be the first time the index has achieved that since April 2018.
UK stocks rise as sterling soars
Notably, UK stocks have risen at a time when the British pound has continued to soar. Like I wrote earlier today, the GBPUSD price is also in its fourth straight weeks of gains. This price action is because of the recent optimism surrounding Brexit, the relatively weaker US dollar, and the recent optimism of a Covid vaccine.
In most cases, a strong sterling is usually negative for UK stocks in the FTSE. That’s because these stocks are usually priced in the currency, thus creating an inverse relationship. At the same time, most companies in the index have significant businesses abroad. As such, a stronger sterling tends to affect their returns when they return their funds to the UK.
Therefore, the likely reasons why the FTSE 100 and FTSE 250 have rallied is because the positives outweigh the negatives.
For example, a Covid vaccine will lead to less shutdowns in the UK and more productive workers. It will boost travelling, which is a good thing for companies like Rolls-Royce, IAG, Meggitt, and InterContinental Hotels.
Will banks weakness continue?
A common theme in the past two days has been the overall weakness of UK banks. For example, Lloyds shares have dropped by more than 8% in the past two days. Similarly, other banks like NatWest, Barclays, and Standard Chartered have been lagging as well.
Lloyds has underperformed mostly because of its close relationship to the UK, where it generates most of its money. In a speech on Wednesday, Rishi Sunak predicted that the country will have at least three more years of sluggish growth. He expects the rate of unemployment to soar and the economy to spend a few more years before going back to normal. That speech affected Lloyds, which generates most of its income from the country.
AstraZeneca will be another FTSE 100 constituent to watch today. The company is expected to redo its vaccine trial as experts found errors in its first study.
Other companies to watch will be retailers like Tesco, Sainsbury, and Ocado that will be carrying out a Black Friday sale.
FTSE 100 technical outlook
On the four-hour chart, we see that the FTSE 100 index has remained at the same range in the past few days. This week, it reached a high of £6,484 and then fell back to £6,327. The price has also formed a three-peak pattern and moved below the 25-day exponential moving average.
Therefore, for today, don’t expect much to happen on the pair. Instead, the focus will now shift to the coming month, where the price will likely break out lower and test the support at £6,295.
FTSE index technical chart