The British FTSE equity index dropped another half a percent today, completely erasing this month’s gains and falling to the key support level near 6,800 GBP.
BoE sends mixed signals
Before the emergency bond-purchasing program comes to an end on Friday, the Bank of England (BoE) indicated on Wednesday that it was closely monitoring the liability-driven investment (LDI) funds, according to Reuters. The BoE further reaffirmed that the program of buying gilts is only temporary and that it will be wound down smoothly and efficiently.
Furthermore, as per Reuters, Bank of England Chief Economist Huw Pill stated on Wednesday that a robust monetary policy reaction will be needed in November.
Consumers remain pessimistic
Moreover, in September, British consumer confidence declined due to a sharp deterioration in homeowners’ perceptions regarding their property prices, according to the most recent study by YouGov and consulting firm the Centre for Economics and Business Research.
From 98.8 to 97.7, the total consumer confidence index for the month dropped 1.1 points.
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Homeowners’ perceptions of the worth of their properties decreased for the third consecutive month, and given the rumors of rising interest rates in the near future, we could see this impression decline much more.
“It will be challenging for some households to manage the rising cost of essentials and higher interest rates. If interest rates rise as markets expect, the share of households with high mortgage debt servicing levels to reach pre-financial crisis peak in late 2023,” the Bank of England said.
US PPI inflation above expectations
According to statistics released on Wednesday by the US Bureau of Labor Statistics, the Producer Price Index (PPI) for final demand in the US fell to 8.5% on an annual basis in September from 8.7% in August. However, this reading exceeded the market forecast of 8.4% by a small amount.
In contrast to experts’ expectations of 7.3%, the annual Core PPI decreased slightly from 7.3% to 7.2%. The Core PPI increased by 0.3% monthly, mirroring August’s reading.
Tomorrow’s CPI inflation will be of more importance, likely causing severe market volatility.
If the support zone near 6,800 GBP gets broken to the downside, significant stop losses will likely be hit, possibly dragging the price further down, targeting 6,500 GBP in the medium term.
Alternatively, the index must climb above 7,000 GBP to cancel the immediate selling pressure.