So finally the FTSE 100 has decided to break out from its sideways trading range after weeks of staying confined within this area. Yesterday morning the market opened higher and the rally that followed drove the index to the top end of its previous range around the 6,250 points and it seemed that we might finally see an exit from this pattern. And indeed this morning the London index opened higher once again and at the time I writing these lines to you I am looking at the FTSE crawling towards the 6,350 points’ level running an impressive 200 points’ advance within a couple of days.
So what’s behind this rally, can we trust it and what’s to come next? Overnight a key release from China reaffirmed that the second largest economy in the world has been gaining momentum as Chinese exports returned to growth and indeed the biggest gainers in the FTSE this morning are commodities-related companies. Investors believe that a positive rate of growth for Chinese companies will increase the demand for these commodities hence the rally in their price that is pushing the world’s major stock indices higher.
However can we trust this rally and what’s coming next? I believe that a major factor in the stock markets’ behaviour over the short-to-medium term will be the release of the US Retail Sales report later today. Analysts expect the report to print in a positive manner sending bullish signs over the domestic economy’s progress. However would that mean that the Fed bulls will also gain support over their rate hiking agenda? Because we know that the prospect of higher interest rates won’t be good for the stock markets.
My advice is to be very careful and not declare this bullish reaction in the FTSE 100 as a done deal, at least not in the short term. If the Retail Sales print in a bullish manner then investors will start wondering whether the Fed will push forward with their hiking intentions and that might take a toll on the FTSE. My view though over the hiking agenda is that we won’t see a lot of hikes this year and definitely not any soon enough so I am conservatively bullish over the stock markets’ outlook.
So what I am saying is that the FTSE might run a correction attempt if any pro-Dollar sentiment picks up pace but on a broader approach I am of the view that the current break will hold. Looking higher I believe that the medium-term targets lie around the 6,450 to 6,480 points’ areas where last year’s highs are found. Be careful over today’s Retail Sales report but in general I think we can expect a positive reaction from the FTSE – barring any surprises from the Brexit referendum of course.
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