CPI Holds Steady

The FTSE is seeing strong demand today after the latest UK inflation figures released this morning were cheered by investors. Annualised headline CPI was seen holding steady at 4% last month, a touch softer than the expected 4.1%. Similarly, core inflation was seen holding steady at 5.1%, despite expectations for a lift to 5.2%. While inflation at this level is still clearly above the bank’s 2% target, it seems that on the back of the increase in December, an unchanged reading has been welcomed.

Easing Expectations

We recently heard from the BOE’s chief economist that the BOE might well cut rates this year before CPI is back at target, to reward the economy for getting inflation back down from the record levels seen last year. The reaction in the FTSE today suggests that traders are buying into this view with UK assets rallying as GBP softens. Despite still having some way to go on inflation, comments regarding the potential for an earlier cut look likely to feed into stronger demand for the FTSE moving forward, particularly if CPI can start to move lower again following this unchanged reading.

Bailey Speaking Today

Looking ahead today, traders will be listening to comments from BOE’s Bailey who speaks later today. If Bailey’s comments lean into these expectations of rate cuts this year, we can expect the current rally to continue higher through the end of the week.

Technical Views

FTSE

Following a correction lower from the latest test of the 7724.3 level, the FTSE found strong support into the rising trend line from the October lows and is now moving higher again. With momentum studies turning higher, the focus is now on a fresh test of the 7724.3 level and 7939.2 as a longer run target if bulls can finally break out of the current range. 

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