Key Talking Points:
- Improving economic data is seeing bond yields rise and putting pressure on equities
- The FTSE 100 is stuck below key resistance as buyers struggle to keep the positive momentum going
Continued strong economic data and outlook in the US are pushing European equities higher despite the imminent threat of a third wave of Covid-19 cases in Europe. A strong rise in consumer confidence released yesterday was the latest of a host of strong data being released in the US, which is, in turn, raising inflation expectations and bond yields.
The latest ADP employment reading will be released this afternoon and expectations are for a rise in employment in the month of March, which could then see the US 10 year bond yield push above 1.8% for the first time since February 2020. If so, equity markets may come under pressure in the US, most likely spilling over into European stocks, so expect a slightly weaker finish to this shortened week.
FTSE 100 Levels
The FTSE 100 has struggled to keep up with the positive momentum seen in Europe this week as the index continues to trade below the 6,800 resistance line. It has been unable to absorb the bullish spill-over from the US but is quickly becoming sensitive to the correction in equity markets since last night, so downside risks are more prominent at present.
The final reading for Q4 GDP was released this morning and it may have saved the FTSE 100 from further losses as the data showed that the UK economy grew 1.3% in the last 3 months of 2020, coming in better than the 1% expected and avoiding a double-dip recession.
Despite the risks of a third wave of Covid-19 in Europe and a sharp rise in bond yields, European equities remain skewed to the upside, and the FTSE 100 is following suit despite lacking a strong bullish drive. The ascending trendline from the January 2021 lows is keeping buyers supported in the meantime, with short-term resistance found at 6,656, where the 200-day SMA converges. More immediate support can be found at this week’s swing low (6,730).
To the topside, the 6,800 resistance continues to offer strong selling pressure so there it is likely that the index will need dip buyers to appear within a greater retracement to get above this area. A fall towards 6,600 – or even the 61.8% Fibonacci retracement at 6,489 – would be a good opportunity for new buyers to bring the index higher, although a break above 6,810 is needed to consolidate further bullish momentum. Any further than that and the 76.4% Fibonacci at 6,894 is likely to be the next hurdle for buyers.
FTSE 100 Daily Chart
of clients are net long. of clients are net short.
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin