UK100 Cautious as CPI Print Sustains Rate Uncertainty

UK100 Analysis

Today's inflation print did not offer any surprises, as headline CPI stayed at 2% y/y and the lowest in roughly three years. These levels constitute substantial deceleration from the double-digits a little over a year ago and are in line with the central bank's target. Helped by this progress along with weak economy and some easing in wages and labor conditions, the Bank of England has hinted at a less restrictive stance ahead, but there is apprehension around the timing of the first rate cut. Today's data fail to dissolve the uncertainty, as policymakers expect price pressures to pick up again in the second half, while core and services inflation remain elevated.

UK100 is having a blockbuster year, which led to a record peak in May, helped by disinflation and prospects of an easier monetary stance ahead. Adding to the tailwinds, the UK economy exited its brief recession and the IMF yesterday upgraded its forecast, expecting a 0.7% expansion this year ^[1]. Furthermore, the FCA changes around listing rules ^[2] can reinvigorate the IPO market, after the bitter loss of Arm to New York and talks of Chinese retailer Shein listing help sentiment. The recent Labour party victory can also improve investor sentiment, as it could usher in a much needed period of political stability, just as uncertainty rises in France, Germany, USA and elsewhere.

On the other hand, inflation remains elevated and the central bank's murky communication along with inflation persistence keep the guessing game around the timing of a pivot. Moreover, wages are still high by historical standards, while the improving economic condition make a monetary policy shift less urgent.

On the technical front, UK100 has pulled back from it record peak and faces pressure today. This sustains risk of a breach of the pivotal 38.2% Fibonacci of this year's rally, which would expose it to the 200Days EMA (blue line), although such correction looks hard under current conditions. Bulls have managed to defend the 38.2% Fibonacci multiple times and this allows them to push towards 8,369 and keeps the all-time highs in play.