FTSE Gets Some Reprieve Thanks to Lower Inflation – Bond Yields Soften

UK stocks recover from a 3-day decline thanks to lower-than-expected inflation. Gilt yields open lower on the day as bets on BoE cuts increase.

• Inflation YoY rises by 2.5
• 10-year gilt yields decline to 4.819%
• Bets increase on BoE action

The FTSE rallied 0.52% this morning thanks to lower-than-expected inflation as the hopes for a possible rate cut.

UK Inflation Softens

Analysts had expected UK Inflation to be a touch higher than last month, the surprise was just what the FTSE needed to gain some momentum.

Forecasts were for a MoM rise in inflation of 0.4%, while the number released showed 0.3%. YoY inflation was forecast at 2.6% and came in at 2.5%.

Attention now turns to US inflation data later on this afternoon. The forecast is for YoY inflation to rise slightly to 2.9% from 2.7% last month.

While estimates for CPI expect a slight increase from 315.49 to 315.62. The market will be looking for signs of a slowdown in inflation, since recent remarks from Fed officials point to a slower pace of rate cuts.

FTSE Live Chart

FTSE

Hurdles for the BoE

The BoE is facing various hurdles as it attempts to bring down interest rates to help a struggling economy. The pound is getting hammered and that could create imported price pressures given the UK’s large trade deficit.

At the same time the new budget is forecast to create larger borrowing needs and spark a rise in inflation.

The situation with possible Trump tariffs looming on the horizon only complicate matter further.

FTSE Technical View

The day chart above for the FTSE shows a market in a wide sideways trend, with no clear direction. Technically, you might consider the trend bullish, since the market is above the Ichimoku cloud.

However, the lack of direction is evident from the absence of a series of new highs or lows. Within the sideway range, I see initial support and resistance (blue lines) at 8,118 and 8,278 respectively.

Below and above those levels I see further support and resistance levels (red lines) at 7,994 and 8,419 respectively.

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.