FTSE Recovers from Last Week’s Lows – Burberry Bid Leads

Media reports Moncler (MONC) considering a takeover of Luxury brand Burberry (BRBY), concerns of government budget still lurk in the background.

Burberry shares jumped 8% today on news that Moncler, an Italian outwear maker, is considering a bid for the British brand. Neither Moncler nor Burberry have confirmed the rumor. BRBY stock is down around 40% on YTD.

The company has a market capitalization of £3 billion as of Friday’s close, has scrapped its dividend and issued a profit warning in July. Luxury brands in general have struggled this year as demand from China for their goods has waned.

The budget took its toll on the market last week as the FTSE dropped 0.84%. Concerns are mounting that the policies will cause inflation to rise. The bond market reacted accordingly, with 10-year gilt prices losing 2.18% last week.

Rising inflation would make the BoE shift from its current loosening policy, and place further cuts on hold. A survey from Citi/YouGov shows that inflation expectations rose to 3.3% in October.

Citi economists believe this data would give the BoE cause for caution and lead to quarterly interest rate cuts at best.

Technical View

The weekly chart above for the FTSE shows a market that is in a wide sideways trend. The blue rectangle shows the area, with all the candle bodies contained between 8,165 and 8,408. The market is above the Ichimoku cloud, which indicates a bullish trend.

However, the rectangular pattern (blue area) is considered a consolidation area. But may lead to a breakout to the downside just as much as the upside. So far today’s candle has managed to stay above the support of the bottom of the rectangle.

The market will find the next major resistance at the top of the rectangle at 8,408. Further resistance will come from the all-time high of 8,481. To the downside, the market will find major support from the Ichimoku cloud.