The FTSE 100 index is down by 0.40% in the futures market, erasing some of the gains made yesterday. Other indices in Asia and the United States have are also wavering, with Dow Jones and DAX index futures falling by more than 0.30%.
The biggest catalyst for the decline of the FTSE 100 is the new lockdowns announced in some US states. In a statement yesterday, Governor Gavin Newsom of California, said that most of the state would move into lockdown in a bid to slow the spread of the virus. He banned any outdoor and indoor activities, including restaurants, gyms, and places of worship as the number of cases continued to rise.
California is not alone. Other states like New York and New Jersey have initiated significant restrictions. For example, in New York, bars and gyms will need to close by 10pm. In New Jersey, the number of people gathering at once will fall from 500 to 150.
Therefore, the lockdowns in the US are important for the FTSE 100 because its constituent companies make most of their money in the UK. For example, the US is an important market for companies like IAG, Meggitt, and Intercontinental Hotels.
The FTSE 100 index is also falling today as traders focus on Brexit. Talks between the UK and the European Union on Brexit will start today in Brussels. While the two sides have maintained hard stance, most analysts and the gambling market expects that they will reach a deal. Indeed, a few weeks ago, Bloomberg reported that the two sides have started drafting an agreement on key issues. That has led the British pound to strengthen substantially against the dollar recently.
Meanwhile, the FTSE index is also reacting to the earnings released yesterday. In a statement, Vodafone said that it expects its EBITDA to come in at between £14.4 billion and £14.6 billion in the 12 months to March next year. It also expects its free cash flow to be about £5 billion, which was higher than what analysts were expecting.
On the daily chart, we see that the FTSE 100 index has been in a strong rally. Just last week, it managed to move above the upper side of the blue descending trendline. It also managed to move above the 50% Fibonacci retracement level. But we also see that the index rally is hitting brakes, as shown in black.
Still, I believe that the index will continue rallying, but bulls will need to move above the 61.8% Fibonacci retracement at £6,555. On the flip side, a move below the 50% retracement level will invalidate this trend.
