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FTSE 100 Slides as Imperial Brands, Rolls Royce, Lloyds Share Prices Drag

The FTSE 100 index is little changed today as traders reflect on the dire warning about the US economy by Rishi Sunak yesterday. The index is trading at £6,380, which is about 1.60% lower than this week’s high of £6,485. Other European indices like the CAC 40, DAX Index, and Stoxx 50 are also wavering today.

Rishi Sunak warning

In a highly-anticipated spending review speech yesterday, Rishi Sunak said that the coronavirus pandemic will cost the UK about three years of growth.

He also warned that the unemployment rate will likely continue rising from the current 4% to 7% in the third quarter of 2021. If the estimates are true, that will be the highest rate in years. The rate will then return back to the current levels possibly in 2025 or 2026.

He said this on the same day that IBM, the giant computing company, said that it would lay-off more than 10,000 people mostly in the UK and Germany.

In the statement, Sunak added that the UK economy will accelerate its borrowing. The government, which has already increased its deficit by more than £200 billion this year, is set to continue borrowing to fund its ambitious plans. Some of these plans are more payments to the NHS, military, and the education sector.

Imperial Brands lead losses

The worst-performing stock in the FTSE 100 is Imperial Brands Group, the giant cigarette manufacturer. The company’s shares are down by more than 4.45% today. The decline comes just a week after the company released strong annual results. In a statement, the firm said that its total pre-tax profit rose by 28% to £2.17 billion as its revenue rose to £7.99 billion.

The company’s management predicted that 2021 will be better. This is because it expects the recovery in global travel will boost its premium brands. However, the biggest challenge for the company is the new alternative tobacco brands, which are expected to become popular in the next few years.

Imperial Brands share price is trading at 1,422p.

Imperial Brands share price chart

Lloyds share price challenges remain

In a report yesterday, I said that Lloyds share price was among the worst-performers in the FTSE 100. Today, unfortunately, the weakness is going on. The shares are down by more than 1.55%, making it the worst-performing banking stock in the UK.

Internally, there is no apparent reason why Lloyds shares have dropped sharply this week. However, the reason could be the speech by Rishi Sunak yesterday. See, unlike other banks like Barclays and HSBC, Lloyds does not have a major presence abroad. It also does not have a trading business, which is good in offsetting credit losses.

Therefore, Lloyds is highly intertwined with the UK economy. When it struggles, the bank tends to struggle as well.

Lloyds share price is also struggling because of the possibility that the housing market start to slow as layoffs increase.

LLOY share price is at 37p.

Lloyds share price chart

Shell, IAG, and BT Group also lag

Other top laggards in the FTSE 100 are IAG, the owner of British Airways, BT Group, Rolls Royce, and National Grid. IAG is falling because of new questions about the effectiveness of the new vaccine by AstraZeneca. Experts have questions regarding how a small dosage will be effective. This matters since the vaccine is set to benefit many poorer countries where IAG does business.

Rolls Royce share price is off by more than 1.5% mostly because of profit-taking. It is trading at 109p, which is still more than 200% higher than its yearly lows.

Rolls Royce share price chart

On the other hand, the best-performing FTSE 100 companies are DCC, Flutter Entertainment, Polymetal, Reckitt Benckiser, Unilever, and Fresnillo.

FTSE 100 technical outlook

On the daily chart, we see that the FTSE 100 index has been wavering in the past few days. It is slightly above the 50% Fibonacci retracement and has also exited the first descending channel. After a strong rally, the index seems to be forming a bullish flag pattern that is shown in green.

Therefore, although I expect the index will remain at the current range today, in the near term, I suspect that it will have a major bullish breakout, potentially to £6,800, which is about 6.50% higher than the current level.

FTSE 100 technical chart

FTSE 100