FTSE: Trump Euphoria Fades as BoE Meeting & Domestic Risks Take Front Seat

US stock indices rallied to new all-time highs on the Republican candidate presidential win. However, UK stocks faded as domestic issues overweighed.

The FTSE gained 1.5% yesterday, at one point, to end the day close to the open price. The market euphoria that took US stocks to new highs gave way to concerns on fiscal and BoE policies.

The BoE MPC meeting is later today, and the market largely expects a rate cut of 0.25%. Concerns are rising, however, as to how the central bank will react to government policies. The national budget, announced yesterday, is expected to create inflationary pressures through higher government spending.

The bond market has already reacted to the announcement of increased spending, which will lead to larger bond issues. 10-year gilt prices are already down 2.9% from last Wednesday, when the chancellor announced the budget.

Analysts expect the government spending to increase inflation, while lower gilt prices will lead to higher yields. Both factors will impede the BoE’s capabilities when it comes to cutting rates. Today’s forecast rate cut may be the last for the next months as the MPC monitors the situation.

Technical View

The day chart above for the FTSE shows a market still bound by a wide range. However, yesterday’s candle was an upside-down hammer patten. This type of pattern is very accurate at the top of a long bullish run in predicting a change in direction.

In this case the bullish leg is made of 3 candles only. However, it also coincided with the resistance of the Ichimoku cloud. We can expect the market to struggle moving passed the cloud.

My reading is that the market will turn south from here, especially if today’s candle closes below the cloud. The RSI is trending south indicating growing bearish momentum. The next support will come at 8,036 area (black line).

To the upside, immediate resistance is found at the bottom side of the cloud, and further up on the top side of the cloud. This level around 8,278 (blue line) also coincides with a previous resistance level in July.