The FTSE 100 index rose by almost three percent after the central bank announced plans to directly finance extra government spending. This announcement came a few days after the new Bank of England governor announced that the bank would not print money to fund the government.
He argued that the decision would lead to more inflation, which would be against the bank’s mandate. The statement was criticised by several former Bank of England governors and the editorial page of the Financial Times.
This means that the government will bypass the bond market, where it usually gets its money from. It will instead extend the size of its account with the Bank of England, which has £400 million. In the past financial crisis, the government expanded this amount to more than £20 billion.
The FTSE 100 index rose even as the government suggested that the current lockdown would last for longer than expected. According to The Guardian, Dominic Raab is expected to signal that the lockdown would continue beyond the coming week. Analysts have said that four more weeks would be needed to help deal with the disease.
A continued lockdown will lead to havoc in the corporate sector, where a number of companies have started to move into administration. Debenhams and Cath Kidston were the latest companies to file for administration. This has been made worse by the fact that only 2,500 companies have been granted access to the £40 billion the government availed.
The FTSE 100 is not the only index that has rallied today. In Europe, the DAX index, CAC, and Stoxx 40 rose by more than 2%.
Another reason why the FTSE 100 is rising is that there are hopes that OPEC members will agree to cuts. According to Bloomberg, Russia has already pledged to cut 1.6 million barrels a day.
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The FTSE 100 rose to an intraday high of £5,773, which is a few points below the important resistance level of £5,800. As the index rose, it moved past the important symmetrical triangle pattern that we talked about yesterday. The index has also moved above the Ichimoku cloud.
There are two likely scenarios. First, the index may continue moving higher if it moves above the resistance level of £5,800. If it does this, it will next eye £6,000, which would be the highest level since March 11.
The alternate scenario is where the pair struggles to pass the resistance level of £5,800.