UK stocks begin potentially pivotal week slowly

The FTSE 100 has experienced some subdued trade this morning and it could well be a case of more of the same for the afternoon session with the US closed as they observe Presidents’ day. Sterling is also little changed and traders will be looking ahead to a big week ahead of UK data with the latest employment and growth figures set to be announced in the coming days.

Bets on a May hike increase  

A decidedly hawkish BoE rate decision earlier this month has seen the market increase the probability of a further tightening of monetary policy in May. The March meeting is seen as likely being a non-event, largely due to it not including the release of the quarterly inflation report, and whilst Carney and the MPC may use it to telegraph an imminent hike, it is May that traders are focusing on. Last week saw mixed data for the case of further rate hikes with an above forecast inflation print supportive but a disappointing retail sales figure cooling hawkish hopes. This time out, the employment data on Wednesday will likely be the main event with wages in particular in focus. With the average earnings index expected to show another 2.5% gain in annualised terms anything above this could lead to further calls for additional tightening as inflation threatens to remain well above target. Looking at current levels of pricing there is around a 75% probability assigned to an increase in May and should we get more supportive data this week then this could well rise to be seen as a near certainty before the week is out.   

Pound and risk sentiment to drive UK blue-chips      

There are two dual forces that stock traders in London will be keeping an eye on this week with any large moves in the Pound and any significant deterioration in global risk appetite keenly on the radar in what could be a pivotal week for equities. Friday’s close marked the biggest weekly gain for US stocks in five years but the frenzied selling seen earlier this month remains fresh in the memory and the recovery seen since remains fragile. The technical outlook for the FTSE appears weak with several indicators flashing negative signals and a perfect storm of a rapid appreciation in the currency on increasing rate hike expectations and another drop in global markets could lead to another large flush lower.