FTSE 100 Forecast as Earnings Season Kicks Off

Summary:
• What is the outlook of the FTSE 100 index as the earnings season starts? We explain whether to buy or sell the index.

The FTSE 100 index retreated slightly on Monday as concerns about the bond market remained. The index fell to a low of £7,600, a few points below last week’s high of £7,676. However, it remains a few points below the highest point this year and 12.60% above the YTD low. Most FTSE index components have been in the red this year.

FTSE 100 declined modestly on Monday after the US published the latest economic data. According to the Office of National Statistics (ONS), the UK economy barely grew in February as the cost of living declined. Furthermore, the numbers revealed that construction, manufacturing, and industrial output declined sharply during the month. This is a sign that the economy is seeing a dramatic slowdown.

The index also declined as investors watched the performance of the bond market. The 10-year UK Gilt rose to 1.85%, which is the highest it has been in years. It tracked the performance of US Treasuries as the 10-year and 30-year government bonds. Perhaps, the FTSE index has been supported by the performance of the British pound, which has fallen to the lowest level since November 2020. A weak sterling is usually a good thing for some FTSE 100 components that do many business abroad.

The next catalyst for the FTSE 100 will be the upcoming American earnings season. After that, investors will focus on UK banks like Lloyds, Barclays, HSBC, and Standard Chartered, as Wall Street banks are expected to publish their results this week. The Footsie will also react to the latest UK inflation and retail sales data.

The top laggards of the FTSE on Monday were Prudential, Experian, Halma, and Hargreaves Lansdown. On the other hand, the best performers were BAE Systems, IAG, Pearson, Sainsbury, and Tesco. 

FTSE 100 forecast

The FTSE 100 index has been in a strong bullish trend in the past few days. It has formed a V-shape recovery and is slowly approaching the key resistance level at £7,692. It has moved above the 25-day and 50-day moving averages, while the Relative Strength Index (RSI) has moved below the overbought level.

Therefore, there is a likelihood that the index will have a pullback and then resume the bullish trend. This breakout will be confirmed if the price moves above the key resistance level at £7,700. Conversely, a drop below £7,400 will invalidate the bullish view.