After research revealed that consumer confidence fell in the UK in September, London stocks fell in early Friday trading amid concerns for Chinese developer Evergrande.
With Evergrande not yet having paid its last interest payment, the FTSE 100 lost 0.3% at 8:30 AM BST.
- FTSE100 gains amid improved risk sentiment stemming from Evergrande’s headlines.
- The falling UK consumer confidence and expanding living costs may weigh on the index.
- Some stocks like AstraZeneca and Mitie Group rise, contributing again to the index.
FTSE100 fundamental analysis: index rises despite dismal economic outlook
The fundamental outlook is slightly encouraging despite some risk-off mode. Let’s dive further into the analysis.
Evergrande’s crisis
The Interactive Investor’s Head of Markets Richard Hunter stated that no update on the coupon payment was due yesterday. But expectations grow that a default would limit sales outside of China amid lower ties to the global system.
The UK consumes confidence
According to the latest GfK survey, consumer confidence fell in September due to concerns about rising food and energy prices. From August to September, the GfK consumer confidence index dropped five points.
This popular index’s custom metrics are all declining. For example, a six-point drop in personal financial expectations for the next 12 months has taken place, while macroeconomic expectations for the next 12 months have dropped 10 points to -16. In addition, a three-point decline in the Major Buying Index has been recorded.
The savings index fell by three points to 22.
Rising living costs concern
Prices dropped due to concerns about rising costs of living, according to GfK.
As Joe Staton, Chief Customer Strategy Officer, noted, “With concerns over fuel and food prices, inflation, higher taxes, and the completion of layoffs, consumers are likely to hit the brakes in September.” As a result, even those suffering from severe financial difficulties anticipate a cost-of-living crisis.
If consumers’ trust in the economy declines, they may spend less, negatively affecting the UK’s economy. So in 2022 and beyond, the situation will be very undesirable.
Stocks rising
The FTSE 100 climbed thanks to AstraZeneca’s achievement in a prostate cancer study with its drug Lynparza.
After a strong second quarter, Mitie Group raised its full-year profit forecast, supported by new contracts related to Covid-19.
As a result of a decrease in work related to the pandemic, the company, which provides services from cleaning to security, expects to generate operating income between £145 million and £155 million this year.
FTSE100 technical analysis: key SMAs to the confluence
The FTSE100 4-hour chart remains supported by the 100-period simple moving average, while the upside remains pressured by the 200-period simple moving average.
However, the volume data is not encouraging for the bears. After finding the top at 7134 near the order block zone, the index is correcting lower. Therefore, this can be considered a minor corrective wave instead of a fresh downtrend.
The key SMAs are getting closer, creating a confluence zone. If the zone is broken, the index may rally to test the swing highs at 7134 ahead of Sep 06 highs near 7200.
On the flip side, if the price manages to break the support of 100-period SMA, the price may plunge towards the horizontal level and psychological mark of 7000. If further bearish pressure persists, the index may extend losses towards Sep 21 lows of 6930.