. FTSE 100 Surges as Banks Shine: US CPI Impact - 12 July 2023

FTSE 100 Surges as Banks Shine: US CPI Impact

12 Jul 2023

FTSE 100 Stocks Advance Ahead of US CPI, and Banks Follow Suit

Introduction

In the world of finance, the FTSE 100 is currently showing positive momentum, with a notable increase of 78 points, bringing it up to 7,361. The recent surge is attributed to various factors, including the upcoming US CPI data release and the significant advancements made by banks following the Bank of England’s stress test results. This article will delve into the details and shed light on the market movements.

Banks Surge as Bank of England Stress Test Passes

British Airways’ Owner (LON: ICAG), IAG, Experiences a Decline

Deutsche’s downgrade of IAG, the owner of British Airways, has led to a decline in its stock. However, this dip did not affect the overall positive sentiment of the FTSE 100. Other banks, on the other hand, saw significant advancements after successfully passing the Bank of England’s stress test.

Virgin Money UK PLC (LON: VMUK) Sets Positive Intentions

Virgin Money UK PLC, which demonstrated its resilience in the Bank of England’s stress test, reiterated its commitment to enhancing shareholder value. The company announced its plans for a buyback program during the 2023 fiscal year and declared a target dividend pay-out level of 30% for the full year. These positive intentions have propelled the stock, resulting in a 6.6% increase.

Macroeconomic Uncertainty and Winkworth’s Warning

Macroeconomic Uncertainty Looms

Despite the encouraging market performance, macroeconomic uncertainty still prevails. While Virgin Money UK PLC remains optimistic about maintaining a CET1 ratio above 14% for the 2023 fiscal year, projections indicate a potential decrease to 13–13.5% in 2024. This uncertainty is a factor that investors and market participants should carefully consider.

Winkworth Predicts Damage to Profits

Winkworth, a prominent estate agent, has expressed concerns over the health of the housing sector. Rising interest rates, reduced mortgage approval rates, and a weakening housing market are among the key factors contributing to the anticipated damage to profits in the current year. Winkworth predicts that pre-tax profits for the first half of 2023 will fall below last year’s level, reinforcing the notion of a slowdown in the housing market.

FTSE 100 Technical Analysis

Daily Chart Overview

Taking a closer look at the FTSE 100’s technical analysis, it is evident that the index is currently trading within a downward channel. Furthermore, it is positioned below the 20 and 50-day Simple Moving Averages (SMA), indicating a bearish trend. However, the Relative Strength Index (RSI) suggests a potential bullishness, while the Stochastic oscillator points toward an upward trend.

Key Levels and Resistance

The immediate resistance level for the FTSE 100 is at 7,355.3, while the immediate support level stands at 7,299.8. These levels serve as crucial indicators for traders and investors, providing insights into potential price movements.

How to Trade FTSE 100 This Week

Market Outlook and Trading Strategy

After experiencing a brief period of price growth, the FTSE 100 encountered a significant decline. Presently, the index has found stability near the support level and exhibits signs of a potential upward movement. Traders should closely monitor the market as the FTSE 100 approaches a critical resistance level, as a breakthrough could result in further gains.

Trade Suggestion

Based on the current market conditions, a potential trade suggestion is to consider buying at 7,361.7, setting a target at 7,446.8, and implementing a stop-loss order at 7,288.5. This trade strategy aims to take advantage of a potential upward move in the FTSE 100.

Conclusion

The FTSE 100 has displayed a positive trajectory, with banks advancing following the Bank of England’s stress test. While concerns over macroeconomic uncertainty persist, companies like Virgin Money UK PLC have set positive intentions, fostering investor confidence. However, caution is advised as estate agent Winkworth warns about potential damage to profits in the housing market. Traders should carefully analyze the technical indicators and consider suitable trading strategies as the FTSE 100 navigates crucial support and resistance levels.

Frequently Asked Questions (FAQs)

  1. Question: What factors contributed to the surge in FTSE 100 stocks?
    • Answer: The surge in FTSE 100 stocks can be attributed to the upcoming US CPI data release and the positive performance of banks following the Bank of England’s stress test.
  2. Question: Why did Deutsche’s downgrade impact IAG’s stock?
    • Answer: Deutsche’s downgrade of IAG, the owner of British Airways, led to a decline in its stock as it affected market sentiment and investor confidence.
  3. Question: What are the positive intentions of Virgin Money UK PLC?
    • Answer: Virgin Money UK PLC plans to initiate a buyback program during the 2023 fiscal year and aims for a target dividend pay-out level of 30% for the full year, indicating its commitment to enhancing shareholder value.
  4. Question: How did Winkworth warn about the housing market?
    • Answer: Winkworth expressed concerns about the housing market due to rising interest rates, reduced mortgage approval rates, and a weakening housing market, predicting that pre-tax profits for the first half of 2023 will be below last year’s level.
  5. Question: What are the key technical indicators for the FTSE 100?
    • Answer: The key technical indicators for the FTSE 100 include the downward channel in its daily chart, trading below the 20 and 50-day SMA, an oversold RSI suggesting bullishness, and the Stochastic oscillator indicating an upward trend.
  6. Question: How can traders approach trading the FTSE 100 this week?
    • Answer: Traders should closely monitor the FTSE 100 as it nears a crucial resistance level. If this level is overcome, it could lead to further gains. Implementing a buy trade at 7,361.7, with a target at 7,446.8 and stop-loss at 7,288.5, is a potential trading strategy to consider.