The United Kingdom has been at the forefront of financial news lately. Political instability created wild fluctuations in the currency and bond markets, making it difficult for investors to foresee the path forward for the country and the currency.
The uncertainty culminated with the Prime Minister’s resignation. After only 44 days in charge, Liz Truss announced her resignation in the shortest term ever for a Prime Minister.
As such, the race for a new Prime Minister has started, with Rishi Sunak being the favorite to win. But no matter who will be the next Prime Minister, one thing is sure – the UK economy is in bad shape, and things are not going to improve anytime sooner.
UK October Flash Manufacturing PMI misses expectations
Today’s Manufacturing PMI data for October showed that the sector contracted more than the market expected. The PMI came out at 45.8 on 48 expected, where 50 is the line in the sand marking expansion or contraction.
It is, perhaps, not such a big surprise. After all, the UK and continental Europe are facing a tough time given high inflation, the war in Ukraine, and rising interest rates.
But some details of today’s report are worth mentioning as they paint a grim picture of the UK economy. One is the new orders data, falling to 38.6 from 44.8 in September, the fifth consecutive month of contraction.
Another is business confidence, which literally collapsed to a level rarely seen in 25 years of survey history. So how deep will the upcoming UK recession and how will the FTSE 100 react?
FTSE 100 sits on support
The last couple of years brought nothing but a tight range for the UK stock market investors. After bouncing from below 5,000 during the COVID-19 pandemic, the FTSE 100 index found strong resistance at the 7,500 area and strong support at 6,750.
As such, unless we see a clear break of the horizontal support area, the chances are that the FTSE 100 index will bounce from here and try again to break the resistance area, especially if the US equities will rally in the last two months of the trading year.
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