FTSE Analysis, S&P 500
Recommended by Richard Snow
Find out what our analysts at Equites expect in Q2
The UK’s inflation rate remains the highest in Western Europe
Earlier this morning, the Office for National Statistics (ONS) released inflation data for March which indicated more concern despite lower data than February. For in-depth coverage of the report, please refer to the GBP Market Alert. Core CPI fell to 10.1% from 10.4% and therefore remains in double digits, prompting markets to price in almost the entirety of a 25bp rise from the BoE early next month. Moreover, the markets are now expecting the Bank of England to raise the interest rate to 5% before the end of the year as they desperately need to bring inflation down towards the 2% target.
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Expectations of higher rates and a stronger pound weighs on the FTSE
The FTSE continues its outstanding performance and has fully recovered from the significant declines seen in the banking turmoil that unfolded in March. However, after another stubborn CPI reading, with Core CPI remaining at 6.2% and a recovery in the Sterling, the FTSE appears to be showing signs of a bullish pause.
The chart below reveals a resistance level around the previous all-time high of 7912 where price action stalled for the past two days and appears on track for a third after inflation data sent the FTSE lower.
While the current pause is consolidating around 7912 for now, a continuation of the upside would naturally highlight a new all-time high of 8044. Swing Low 7850.
FTSE 100 daily chart
Source: TradingView, prepared by Richard Snow
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The S&P 500 indicates a lower open ahead of Tesla earnings
With core inflation picking up in the US despite the impressive decline in the headline CPI, markets are reviewing the possibility of a “higher for longer” scenario from the Federal Reserve that appears to have capped a move higher in the S&P 500.
The upper wicks extending over the past few trading sessions above the resistance area suggest that the bulls may be running out of momentum at these higher levels. The January/February swing high found resistance at the same area of resistance before dropping, adding credibility to the area.
Look for any forward guidance from Tesla on the state of the global economy or insights on global demand as the electric car maker reports its earnings for the first three months of the fiscal year.
On the downside, a move towards 4110 could lead to a pullback and of course the key level of 4000 will pop up as support if the corporate earnings disappoint.
Daily chart of the S&P 500 E-Mini Futures
Source: TradingView, prepared by Richard Snow
upcoming risk events
This week sees the end of earnings for major US banks along with the start of the huge technology stock releases for the first quarter. With the vast majority of the index’s performance reliant on heavyweights, look for Tesla’s earnings after the market closes this evening.
Later today Fed Governors Christopher Waller and Michael Bowman (Hawks) are scheduled to speak at approximately 17:00 and 20:00 respectively as the countdown to the media blackout period starting on Saturday begins.
Recent comments by a non-voting Fed member and hawk, James Bullard, were ineffective in driving the dollar higher but what weighed on the greenback was, surprisingly, the Empire State Index in New York. Higher expectations for the US dollar and interest rates tend to influence the index.
Manufacturing has lagged behind the larger and more important services sector, and a return to expansionary territory for the index added to a “higher for longer” scenario for the fed funds rate.
– Posted by Richard Snow for DailyFX.com
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