UK’s FTSE 100 Maintains Its Ground Despite Economic Uncertainties 

The FTSE 100, the UK’s benchmark stock market index, has maintained its gains amid mixed sector performances and ongoing economic uncertainties. The index has been affected by mixed investor sentiment with strength in the banking, aerospace, and defense sectors, and weakness from UK businesses that are more reliant on economic conditions. 

Corporate Developments 

The banking sector played a pivotal role in the recent uplift, with shares in HSBC and Barclays advancing significantly. HSBC reached its highest level since 2008, supported by solid financial performance and favorable global market conditions. Aerospace and defense stocks gained momentum, spurred by increased NATO defense spending and geopolitical developments. 

The energy sector posed challenges for the index. Shell’s shares declined after the company cut its LNG production forecast and projected weaker trading results in oil and gas. This reflects broader concerns about volatility in energy markets, regulatory pressures, and the transition to renewable energy. Such developments have tempered investor sentiment and weighed on the FTSE 100. 

Tesco stock fell over 3% despite the UK retailer posting strong results over the festive period, as UK sales growth accelerated to 4.1% in the six weeks. However, the grocer maintained its operating profit guidance for the 2024/25 year, disappointing investors who had hoped for a further boost after the upgraded guidance at half-year results. 

Marks & Spencer declined 7% after the UK retailer commented on economic headwinds, despite reporting strong Christmas sales which rose 6.4%. 

Economic Conditions 

The FTSE 100 faces notable challenges. Global economic uncertainties, including slowing growth in major markets like China and the Eurozone, pose risks to export-heavy companies.  

Domestically, the UK’s cost-of-living crisis has dampened consumer spending and confidence, affecting retail and other consumer-focused sectors. Additionally, currency fluctuations could reduce the competitiveness of UK exports in international markets.  

The UK has experienced high interest rates to counter inflation which came down to 2.6%, nearing the Bank of England’s target. High interest rates have been pressuring stocks and the economy with the BoE monitoring economic data to determine its next rate cut. 

The British Pound has declined on concerns that the selloff in UK government bonds could add pressure to the government’s finances. A softer pound is supportive of FTSE 100 companies that make most of their revenues outside the UK. However, smaller UK businesses are more vulnerable to political uncertainty and rapidly rising yields. 

Technical Analysis 

Source: TradingView 

The FTSE 100 index reversed its trend to the upside after breaking out from 8,200 with all 3 EMAs positioned below the price, supporting the bullish momentum. 

The RSI (14-day) formed a bearish divergence also formed that may cause the price to pull back 

If bullish momentum continues, price could look to form new highs above 8,300 as traders monitor the 8,375 level as a new potential resistance. If bulls fail to push the price higher, bears may look to take control with potential support forming around 8,120. 

Source: Reuters, Market Screener 

The information provided is not intended to serve as investment advice or a sufficient basis for making investment decisions. It is meant solely for informational purposes.

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