While US index futures extended their advance after a massive rally on Thursday on the back of a cooler-than-expected US inflation report, the British FTSE is not showing the same optimism. This is despite positive news from China, which loosened some of its covid restrictions.
The news will divert the trader from his plan of action, and it is better never to listen to the forecasts. When choosing a company for trading, try to avoid information from the outside. For instance, if the news constantly makes predictions that a certain stock of Forex pair will rise, over time, it is possible to start believing it. As real-world statistics show: more than half of the predictions don’t come true.
Concerns over economic growth are holding back UK stocks
The struggling FTSE shows that British investors are more worried about the deteriorating situation in the economy of the country, the eurozone and the world than they are hoping for rate easing by central banks in the U.S. and other countries.
The weakening U.S. consumer price index data certainly indicates that the Fed will ease up, but inflation needs to fall even further before they start discussing stopping rate hikes. It is important not to pin all of your hopes on just one inflation report. There are many other risks that could undermine the rally.
In the UK, quarterly GDP fell 0.2% less than forecast, while construction and industrial production beat expectations, albeit barely rising. Monthly GDP, on the other hand, disappointed with a larger monthly drop of 0.6%.
Eurozone heading into recession: EC
In the eurozone, the consumer price index (CPI) hit a new record high of 10.7% in October, higher than double-digit inflation in the UK. Rising prices are strangling the U.K. and Eurozone economies. The European Commission expects Eurozone inflation to average 8.5% this year and 6.1% in 2023, well above forecasts made in July.
In Britain, weak GDP data and soaring inflation mean the Bank of England will continue to raise interest rates, adding pressure on consumers. The lack of growth in the Eurozone and elsewhere is also not good news for U.K. multinationals. With the dollar falling, the GBP/USD exchange rate has recovered further, which will hurt foreign earnings when converted back into British pounds.
FTSE should fall below 200 MA
With all that said, the FTSE is holding up very well given all the macro risks mentioned. It needs to get back below the broken 200MA and the support around 7310-7320 before it starts looking bearish again. A move below Thursday’s low, at 7248, is the line in the sand. If we break that level, things will look bearish again and the technical outlook will be in line with the gloomy economic outlook.
