The British FTSE 100 index, also known as the Footsie, failed to jump above its 50-day moving average, confirming a neutral short-term outlook as sentiment worsened again on Friday.
UK retail sales disappoint
Earlier in the day, the Office for National Statistics released retail sales figures for August, and they came out way below expectations. The yearly change crashed to 0.0% from 2.4% in July (versus 2.7% expected), while the ex-fuel gauge dropped even more to -0.9% from 1.8% previously . Analysts had expected an improvement to 2.5%. Monthly figures improved somewhat but failed to reach estimates and remained in negative territory.
That was the fourth consecutive monthly drop in UK retail sales – their worst stretch since 1996 – leading some economists to question how soon the Bank of England might be ready to raise interest rates in such an environment.
While European markets managed to post modest gains yesterday, it is becoming increasingly apparent that there is little in the way of direction for equity markets at the moment. Investors are increasingly looking for a narrative, whether it be positive or negative, to drive the next move, and are coming up empty-handed,
From the positive side, central banks are still pumping money into the financial markets at a record pace, while COVID infections are starting to decrease globally. But, on the other hand, rising prices, “transitory” inflation becoming permanent, a slowdown in the global economy, and possible tapering could be concerning and potentially bearish for stocks.
Later in the day, investors will pay attention to the US Michigan consumer sentiment index for September, expected to improve slightly to 72.2 from 70.3 in July, possibly causing some market volatility.
Additionally, today marks the expiry of quarterly financial derivatives contracts on US indices and individual stocks, an event known as ‘quadruple witching,’ usually increasing volatility during the US session.
Technical analysis points to further consolidation
The FTSE 100 index has not moved anywhere since April/May as it has been consolidating in the 7,000 GBP area. Until we see a clear break from this consolidation zone, the medium and short-term outlooks remain neutral.
The primary support seems to be in the 6,960 – 7,000 GBP area , and if the price drops below it, the short-term trend might change to bearish, targeting July’s lows at 6,800 GBP. Likewise, should the index drop below 6,800 GBP, the medium-term outlook will likely change to bearish, with the next area of interest for bears at 6,600 GBP.
Alternatively, if bulls regain control of the market, the selling zone is probably at the mentioned 50-day average at 7,090 GBP, with the following critical resistance in the 7,200 GBP. Breaking above it would confirm the medium and long-term uptrend.