FTSE Falls Despite Positive Inflation Data

Inflation data released today showed that price increases reached the BoE target rate for the first time in 3 years.

The much-awaited inflation data printed as expected at 2.0% YoY, down from last month’s number of 2.3%. While Core Inflation remained higher at 3.5% but lower than last month’s reading at 3.9%.

The data didn’t offer any surprises and confirmation of a positive event such as today’s data would usually have sparked some upside volatility. However, the current UK stock market has other concerns.

Th UK is facing a general election on July 4, and most forecasts place the Labour party well ahead of the more market friendly Tory party. Ideological sentiment aside, the Labour party will increase government spending and increase taxation.

In general, the market does not welcome either of these policies. We can expect some extra volatility running up to the election and during the days after the result. More government spending would give way to higher inflation and more debt.

An increase in inflation would most likely halt the BoE’s plans to ease monetary policy. Higher debt levels would lead to higher Gilt yields to finance the expanding debt. Both aspects would weigh heavily on the FTSE and its chances of posting positive returns for 2024 and 2025.

Technical View

The day chart below for the FTSE shows a market that has been in a sideways trend over the past 4 sessions. With the high of the range topped by the Tenkan Sen (blue line) of the Ichimoku system.

The market has also been trading inside the Ichimoku cloud over the past 4 sessions, an area known as no-man’s land. This area acts as support when the market retraces from a high, however, it’s also an area of uncertainty when the market trades within it rather than travelling through it.

The closest support is at 8,111 a level touch various times since May 1, but the bounces from those levels have been decreasing in size on each occasion. This may be a symptom of a bullish market that is running out of steam.

ABOUT THE AUTHOR See More

Gino Bruno D'Alessio

Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.

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