FTSE100 to Set a New Record – Buying Looks Attractive As Pound Continues To Weaken

U.K stocks swing between gains and losses on Tuesday morning as multinationals continued to benefit from a continuing slide in the pound, but energy companies were weighed down by lower oil prices.

The British Pound extended its slide versus the U.S dollar for the fourth consecutive trading day amidst concerns over the potentially tough negotiation between the U.K and the European Union regarding the UK’s exit from the single market. According to Treasury documents, which were leaked to The Times, Britain will lose up to £66 billion a year if it goes for a hard Brexit.

The cost of leaving the single market and the EU customs union, and to switch to World Trade Organization (WTO) rules will be between £38bn and £66bn per year after 15 years, the documents said. The country’s GDP is also forecast to fall by as much as 9.5% compared to the GDP numbers the UK economy would register, were it to remain in the EU. This projection is based on the scenario where Britain leaves the EU without a successor arrangement.

GBPUSD broke through the $1.23000 threshold today and has played a critical role in cheering most of the FTSE 100’s constituents as these companies generate the bulk of their revenues overseas.

Among top movers, fashion brand Burberry Group PLC added 2.10%, reveling in the positive sentiment towards European luxury brands, after French luxury giant LVMH reported that its nine-month revenue rose by 4% compared with the same period last year.

Other retailers including Travis Perkins PLC and Next PLC also witnessed a rise. Shares of Travis Perkins PLC – the builders’ merchant and home improvement company – gained 2.24% after its “outperform” rating was maintained by Credit Suisse Group AG and JPMorgan Chase & Co. Meanwhile, Leicester-based apparel and accessories seller Next PLC topped the market – jumping 3.64%.

Hospitality and hotel group Whitbread PLC added to the upside, rising 2.73%.

On the downside, Informa PLC led the list of worst performers. Shares of the publishing and events company dropped around 8% due to the dilution effect of the admission of nil-paid rights on the stock. The rights were tendered due to the acquisition of U.S based Penton Information Services.

With a decrease of 3.34%, insurance, and banking group Old Mutual Wealth became the runner-up on the list of losers. Old Mutual Wealth reported net client cash flows fall in the third quarter by 0.9 billion pounds ($1.12 billion). Cash flow fell from 2.3 billion pounds a year earlier, due to pension reforms that prompted clients to withdraw cash.

Energy stocks drifted lower as oil ticked down after the International Energy Agency, in its monthly report, said that OPEC’s total crude production rose by 160,000 barrels per day (bpd) to a record 33.64 million bpd in September. This implies that OPEC needs to slash its current output by between 640,000 and 1.14 m bpd, to reach the ceiling range agreed by the cartel in Algiers which is from 32.5 million to 33 million bpd.

Oil major BP PLC inched 0.18% lower while Royal Dutch Shell pared earlier gains as oil prices headed lower.

FTSE 100 Technical Analysis

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Fig: FTSE 100 D1 Technical Chart

FTSE 100 retested the record high logged last week at 7126.95. The steady rally, which has continued since June 27th, has pushed the market into the overbought zone, as indicated by the RSI chart. The bullish momentum seems to be maintaining its strength with a large divergence between +DI and –DI line created in the ADX indicator window. The Index is expected to attempt creation of new all-time highs.

Trade suggestion

Buy Stop at 7130.00, Take profit at 7150.00, Stop loss at 7110.00

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