The FTSE 100 Index remained under pressure this week, continuing a downtrend that started late last week when it jumped to a record high of £9,935. It has dropped in the four consecutive days and is now at the lowest level since October 23. It remains about 26% above its lowest level in April.
FTSE 100 Index falls as UK Gilt yields jump
One potential catalyst for the ongoing FTSE 100 Index plunge is that UK gilt yields are rising ahead of the upcoming Rachel Reeves budget statement.
The ten-year bond yields rose to 4.60%, up from this month’s low of 4.370%. Similarly, the 30-year yield rose to 5.40% from last week’s low of 5.150%.
UK bond yield have rebounded even as a Reuters poll found that the Bank of England (BoE) will cut interest rates despite the rising inflation rate. The poll ound that the bank will cut rates in December and earlier next year.
Analysts expect the bank to cut rates by 0.25% to 3.75% in December and 3.50% in January. One analyst noted that:
“We see a December rate cut as the default action, absent any wildly hawkish surprises in the next two inflation prints. The October and November inflation prints, alongside signs of a softening jobs market, will be the final green light to a cut.”
UK stocks plunge mirrored the performance of other global indices
The FTSE 100 Index also retreated as part of the ongoing global stock market plunge. Data shows that the Dow Jones and Nasdaq 100 indices dropped by over 1% on Tueday, while the S&P 500 fell by 0.82%.
The Nasdaq 100 Index has plunged by over 6% from the year-to-date high. Also, the S&P 500 has moved downwards by over 4% from the highest level in October.
The DAX Index has slumped to 23,180 euros, down by 6.40% from the year-to-date high. Other European indices like the CAC 40, Euro Stoxx, AEX, IBEX 35, and FTSE MIB declined by over 1.5% on Tuesday. It is common for global stocks to retreat in sync.
One reason for the sell-off is that investors are bracing for the upcoming Nvidia earnings. These will be closely-watched results because the company is one of the most important ones during the ongoing AI cycle.
Strong financial results will likely lead to more gains in the stock market because they will point to AI momentum. On the other hand, weak results or guidance will be bearish for American and European equities.
The FTSE 100 Index is also pulling back as investors book profits. Indeed, some of the top laggards this week, like HSBC, Barclays, 3i, and Ashtead, were some of the top gainers.
FTSE 100 Index technical analysis
The daily timeframe chart shows that the Footsie Index has jumped in the past few months, moving from a low of £7,545 in April to £9,935. It has pulled back to the current £9,550.
The index has remained above the 50-day and 100-day Exponential Moving Averages (EMA). It also retreated below the top of trading range of the Murrey Math Lines tool.
Therefore, the most likely scenario is where it drops to the Major S/R pivot point at £9,375. It will then rebound, and possibly retest the year-to-date high of £9,935.
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