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FTSE shoots higher despite soaring inflation

Equity traders continue to ignore rising prices and an incoming rate hike in Britain, pushing the FTSE index back to its cycle highs.

The British FTSE 100 index – also known as the Footsie – managed to erase most of yesterday’s losses and traded half a percent higher ahead of the US session, last seen climbing above 7,600 GBP.

UK inflation worsens

Earlier in the day, UK inflation hit 30-year highs, rising to 5.4% year-on-year, up from 5.1% previously and above expectations of 5.2% . The core gauge advanced further from 4.0% to 4.2%. In addition, the retail price index – measuring a weighted average of prices of a specified set of goods and services purchased by consumers and being widely considered a key measure of inflation that indicates an accurate reflection of the cost of living – jumped from 7.1% to 7.5% yearly.

Investors now anticipate with more than a 90% chance that the BoE will hike its primary interest rate to 0.5% at its next meeting in February . Last month it became the world’s first major central bank to tighten policy since the start of the COVID-19 pandemic.

The Bank of England was already feeling uncomfortable about its monetary policy stance. Today’s upside surprises to both the headline and core inflation readings will certainly not have helped, said Ambrose Crofton, global market strategist at J.P. Morgan Asset Management.

Later today, BoE Governor Andrew Bailey is due to testify, along with BOE Deputy Governor Jon Cunliffe, on the Bank of England Financial Stability Report before the Treasury Select Committee in London. There could also be questions regarding the soaring inflation and what the BoE plans to avert it.

From other “inflation news,” Goldman Sachs CEO David Solomon complained of “wage inflation everywhere.” Inflation is indeed everywhere.

Charts seem overbought

Technically speaking, the index remains in a steep uptrend, supported by the trendline at around 7,550 GBP. If the price drops below it, the short-term outlook could change to bearish, with significant support at previous highs at 7,400 GBP. However, as long as FTSE trades above 7,400 GBP, the medium-term outlook still appears bullish.

On the upside, the short-term resistance is at this week’s highs near 7,650 GBP, and if broken to the upside, a further rally above 7,700 GBP could occur.

However, it is essential to note that the daily chart (and also smaller time frames) look overbought, possibly leading to some profit-taking and a correction of the actual steep upward move.

ftse daily chart FTSE daily chart, Source: Author´s analysis,

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