FTSE Falls Down

Another week comes to a close and in London the end of the summer has been marked punctually by pouring rain. However, action in markets this week has been far from soggy and with the headline data event of the week, the US NFP, still to come, there is perhaps more volatility to come. Chatting with traders ahead of that event, however, it seems that the main market move capturing attention is the more than 5% drop we’ve seen in the FTSE this week. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.

What Caused the Move?

Risk Aversion

The FTSE has been hit by two key factors this week, the first of which is the rise in global bond yields which is weighing on stocks and driving risk sentiment lower. With traders focused firmly on central bank tightening expectations, risk aversion was seen sweeping across markets this week. In the UK, record inflation in July is keeping the pressure on the BOE with traders now looking for a further rate hike at the upcoming BOE meeting this month. Following the bank’s .5% hike in August, traders are now looking for at least the same again, with some forecasting a larger .75% hike, keeping equities prices anchored lower near-term.

UK Political Uncertainty

The FTSE has also come under pressure this week from the growing political uncertainty ahead of next week’s leadership change in the Conservative Party. The results of the leadership contest are scheduled to be declared on September 5th, appointing a new UK PM following the departure of former, disgraced PM Boris Johnson. Current polling data suggests Liz Truss will take the victory in which case, markets are fearful of the impact of her proposed policy changes. Truss has pledged increased spending and broad tax-cuts in a bid to help support the economy. However, critics warn that her plans risk driving inflation higher, thus prompting the BOE to tighten more aggressively, which paints very clear risks for the FTSE in the coming months.

Technical Views

FTSE

The FTSE continues to correct lower within the broad, bear channel which has framed price action over the year so far. Price is currently testing below the 7213.9 level and, while below here, the focus is on a deeper push towards the 6994.2 level next, in line with bearish MACD and RSI readings.