UK100 Bounces Off Key Support as the Economy Returns to Growth

UK100 Analysis

After October's contraction, today's data showed that the UK economy returned to growth of 0.3% m/m in November, helped by Black Friday spending. Retail sales for the same month had strengthened 1.3%, which was the biggest increase since the start of 2023. In another set of encouraging data recently, Services PMI rose to 53.4 and the highest since the start of the summer.
Inflation has also decelerated rapidly over recent months, coming in at 3.9% y/y in November and the lowest in more than two years. This progress has created optimism in markets that the central is done hiking after having delivered 515 basis points of tightening and will lower interest rates this year.

UK100 reacted positively to today's GDP release, bouncing off the critical 38.2% Fibonacci of the last leg up. This may give it the opportunity to tackle the December highs (7,795), but we are still cautious around the ascending prospects and 7,993 is distant.

Burberry (BRBY.uk) may dampen sentiment though, as it downgraded its guidance today, sending its stock around 7% lower. The British luxury fashion designer had already issued a warning during November's underwhelming half-year results and today it slashed its full FY2024 adjusted operating profit forecast to £410-460 mi;;ion (from £552-668 million previously). [1]

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Furthermore, improving economic conditions could allow the BoE to maintain a hawkish stance, as despite coming down, inflation remains very high and far from the 2% target. The central bank maintained rates at 5.25% for third straight meeting in December, but has kept more tightening on the table. Governor Bailey had warned that "there is still more to do" to restore price stability. [2]

As such, UK100 remains in precarious position, exposed to the 200Days EMA (around 7,555). Daily closes below it could shift bias to the downside, although steeper decline towards 7.387 would need a strong catalyst. The next leg of the move will determined by next week's wage and inflation data.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 12 Jan 2024 https://www.burberryplc.com/content/dam/burberry/corporate/Investors/Results_Reports/2024/january-trading-update/Burberry Trading Update 12th January 2024.pdf.downloadasset.pdf

2

Retrieved 21 Apr 2024 https://twitter.com/bankofengland/status/1735284837622104213

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