FTSE slips in cautious trade as Iran concerns persist & ahead of PMIs
European markets opened mixed on Tuesday, then turned lower as risk sentiment faltered and oil prices rose back above $100. The mood remains fragile as concerns over the Iran conflict persist.
Equities closed higher on Monday after President Trump postponed strikes on Iran’s energy infrastructure and cited progress in talks with Iran. However, Iran denied that such discussions had taken place. Combined with ongoing overnight tensions, this has raised doubts about any near-term de-escalation.
This uncertainty could limit upside, particularly as Brent has pushed back above $100 a barrel.
Trading remains highly headline-driven. Sector-wise, energy stocks such as BP are moving higher, while housebuilders like Persimmon and Berkeley Group are under pressure, alongside miners.
Alongside geopolitical developments, investors will focus on UK PMI data for a timely insight into the impact of the war and rising energy prices on economic activity at the start of March. Manufacturing activity is expected to ease to 51.1 in March from 51.7, while services are forecast to slow to 53 from 53.9.
Weaker economic activity, combined with rising input costs, could raise concerns about stagflation, complicating the Bank of England's outlook. This could add more pressure to stocks.
FTSE forecast- technical analysis
The FTSE 100 ran into resistance at 10,935, a record high, before rebounding lower, breaking below its multi-month rising trendline and 50 SMA to a low of 9665, just above the 200 SMA. The price recovered to the 9900 resistance level. The long lower wick on yesterday’s candle suggests there was little selling demand at the lower levels.
However, the recovery would need to rise above the 9900 and 10,000 resistance zone, to expose the 50 SMA and rising trendline at 10,375.
Support is seen at 9665 and the 200 SMA at 9620. A break below here could see sellers gain traction towards 9435, the
USD/JPY rises amid risk-off mode and following Japanese inflation data
USD/JPY is rising in choppy trade as risk sentiment takes a turn lower.
US futures are rising and European equities are in the red, signalling falling demand for riskier assets and lifting the dollar against its major peers, recovering from earlier lows. Investors are weighing conflicting signals regarding potential de-escalation in the Middle East.
While President Trump has postponed military strikes on Iran’s energy infrastructure for five days, supporting a risk-on tone, Iran has dismissed reports of direct talks with the US, raising doubts over any meaningful de-escalation.
Investors will continue to monitor headlines for clues on how the conflict may evolve. Oil prices are ticking higher again, with Brent back above $100 a barrel.
On the domestic front, the yen is finding some support from Bank of Japan commentary expressing confidence that inflationary pressures will continue to build.
This comes despite Japan’s national core CPI easing to 1.6% year-on-year, down from 2.0% and below the 1.7% forecast — marking the first time in four years that core inflation has fallen below the 2% target, largely due to fuel subsidies.
However, PMI data showed rising input costs, which, combined with a weaker yen, could point to stronger inflation ahead.
Markets are currently pricing in around a 50% probability of a Bank of Japan rate hike in April.
Looking ahead, US PMI data will be in focus. Investors will be watching for signs of how the Iran conflict is impacting economic activity. Weaker-than-expected data could heighten concerns over a US slowdown and weigh on the dollar.
Bank of Japan meeting minutes are also due later today.
USD/JPY forecast – technical analysis
USD/JPY recovered from 152.25, running into resistance at 159.90. From here, the price fell lower, breaking out of the rising channel and is consolidating between 159.50 and 157.70. The setup favours a breakout trade.
Sellers encouraged by the price slipping below the 50 SMA will look to break out below 157.70 to create a lower low and expose the 200 SMA at 156.60. A break below here could see a deeper selloff towards 152.25.
Buyers would need to rise above 159.90 and 160.00, the psychological line in the sand for intervention, to create a higher high and head towards 162.00, the 2024 high.
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