FTSE 100 struggles as soaring oil prices spark fears of stagflation, key support at play
FTSE 100 OUTLOOK:
- FTSE100 struggles Start of the week amid deteriorating investor sentiment
- The Ukrainian war dominates market psychology and limits the appetite for risky assets
- Rising commodity prices, particularly oil, are expected to exacerbate inflationary pressures and weakening economic activity in Europe, casting a shadow over the regional stock market
Most read: DAX 40 in a bear market, FTSE 100 cut back to key support
The FTSE100 fell in early trading on Mondayto fall on 3% to his worst point, before recovering more losses to finish the day 0.4% lower near the Level 7000, in a session marked by explosive volatility in the middle rising geopolitical tensions in Eastern Europe. With the last turns and twists, the index sits 9% below its February high, but has so far managed to stay out of correction territory defined by a pullback of 10% or more from a recent high.
Russia’s invasion of Ukraine late last month shook financial markets to its core, sending commodity prices skyrocketing and triggering a sharp selloff in global stocks. President Putin’s military attack prompted the United States and its allies to impose heavy economic sanctions on Moscowincluding the expulsion of certain financial institutions from the SWIFT system and the freezing of the central bank’s huge foreign exchange reserves.
So far the West has not targeted Russia’s energy sector, but the White House appears to be pushing for a ban on crude oil and related products from this countryaccording to US Secretary of State Antony Blinken. For this reason, Brent built on last week’s rally in the Asian session and to skyrocketmore than 15%, briefly in the lead 135 dollars a barrel, the highest level since July 2008, before retrace some gains to trade around the $125 handle.
Higher commodity costs will strengthen inflationary forces and weaken the economic recovery in Europe (stagflation?)casting a shadow over regional scholarship. Although the outlook for the UK may be slightly better than that of the EU, due to more limited trade exposure to Russia, the FTSE 100 is not immune to problems and should struggle. short term.
It is true that the Bank of England may become less hawkish in light of growing geopolitical headwinds, but with the topic perspectives extraordinary uncertainty and rising volatility across all assetsa less aggressive monetary policy may not be enough to extinguish sales pressure and calm the nerves.
Another reason the FTSE 100 may struggle is its cyclical tilt, with financials, materials, industrials, and consumer discretionary making up over 50% of the index. That said, it is important to note that economically sensitive sectors tend to perform poorly when GDP begins to slow, as lower expansion undermines corporate profits. The UK economy continues to grow at a healthy pace this year, but forecasts are quickly being reduced. For example, the The British Chamber of Commerce has lowered its projection for 2022 Annual GDP at 3.6% of 4.2% a few months ago.
TECHNICAL ANALYSIS FSTE 100
Earlier on Monday, the FTSE 100 briefly fell to confluence support near the 6,800 area, but was quickly pushed back of these levels as some buyers resurfaced at the auction price slightly higher. If the stock index builds on the recovery, the first resistance to consider appears at the psychological level of 7,000 and then at 7,136, the 38.2% Fibonacci retracement of the 2022 decline. On the other hand, if the bears regain decisive control of the market and succeed in driving With the FTSE 100 below the 6,800 floor, selling activity may intensify, paving the way for a move towards 6,625.
FTSE 100 TECHNICAL CHART
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—Written by Diego Colman, Contributor