Risks remain to the downside on the FTSE with economic, fiscal and monetary uncertainties
The UK stock market has been under pressure again since mid-September amid accelerating central bank tightening, deteriorating economic outlook and concerns over the bailout package presented by new Prime Minister Liz Truss.
The FTSE 100 fell 7% in two weeks. This is much less than on Wall Street (S&P -11%), but the fall in the pound sterling has partly cushioned the fall in the British stock market. Adjusted for exchange rates, the FTSE is down more than 14% in two weeks.
Monetary tightening and the deterioration of the global economic outlook should continue to put pressure on stock markets in the months to come. Indeed, analysts are lowering their earnings growth forecasts, but still seem to be banking on overly optimistic earnings.
The UK stock market looks even more fragile given the current uncertainty surrounding the UK fiscal/fiscal plan. The government could make further announcements on this, while the Bank of England issued a statement on Monday saying it would await a “full assessment at the next meeting” on November 3.
The BoE could act quickly and strongly to thwart the fall of the pound sterling. Operators should prepare for this by gradually revising their expectations of a rate hike by the Bank of England, which should mechanically put pressure on the British equity market.
FTSE 100 daily price chart – key levels