Brexit Troubles

London Wrap – FTSE breaks 7300

Posted Tuesday, March 19, 2019 by
Neil Wilson • 2 min read

The FTSE 100 continues to rally, pushing out above the 7300 level for the first time since October amid a broad risk rally as markets look ahead to this week’s Federal Reserve meeting. The upwards channel remains very much in force with trend resistance of the channel rising since December not seen until 7400, suggesting further upside from here for bulls. The bottom of the channel is around 7150, where we could see any near term pullbacks find support.

US stocks were higher across the board on Monday, closing at 4-month highs. Having beaten this level on Friday, SPX cemented its position above the previous high of 2817 to close at 2,832.94. Having cleared this level the next target for bulls rests on the 2,874 region, the top of the Oct 10th candle.

Brexit showdown 

Sterling recovered its poise to trade above $1.3260, having earlier spiked lower after Commons Speaker John Bercow poured cold water on the government’s plans to hold further meaningful votes on Theresa May’s Brexit deal.  As detailed last night, this marks a significant blow for the government, effectively closing off another vote this week unless May can pull off a miracle. The Speaker will only allow a third vote if the proposition changes significantly – which seems rather unlikely ahead of the European Council meeting this week.

Although there was a sharp move lower initially, cable quickly pared those losses and you must say the sanguine reaction in currency markets reflects the fact that no one really knows where this leaves the Brexit story. This remains too tough to call either way.

OPEC cancels April meeting

Oil prices are on the front foot again, offering further support to FTSE heavyweights Shell and BP, amid clear signals that OPEC members are prepared to extend production cuts for longer. The cancellation of the April meeting means these curbs will be in place at least until the next scheduled OPEC meeting in June, and likely far beyond that.

Compliance, which was at c90% in February, is also very high and shows the commitment of members to the curbs. No doubt that despite some concerns, the OPEC+ group’s efforts to control supply is working, albeit there are worries going forward about both the demand side amid a global economic slowdown and rising US output.

Brent continues to move clear from the inverse head and shoulders formation and we could yet see more upside to come if the $68 handle is breached. However, we are seeing some divergence on the stochastics versus the price action that may temper the bull case.

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