FTSE dips ahead of UK inflation report & central bank meetings: what to watch

After soaring to a ten-month peak last week, the FTSE has since moderated, moving cautiously in anticipation of a crucial UK inflation report due Wednesday, followed by the Bank of England (BoE) and Federal Reserve policy meetings on Thursday.

At its February meeting, the BoE maintained interest rates at 5.25% and abandoned its tightening stance. However, several hawkish aspects were noticeable. Two policymakers advocated for an additional 25 basis points increase, while the BoE emphasised that monetary policy must remain stringent enough to guide inflation back to the 2% target, cooling expectations for imminent rate cuts.

This puts the focus squarely on Wednesday night's inflation report for February. Headline inflation is expected to fall to 3.5% YoY from 4% prior. Core CPI is encouragingly expected to fall to 4.6% YoY from 5.1% prior. However, a decline in in services inflation to 6.1% from 6.5% will not be enough to convince the BoE that inflation is on a sustainable path towards its 2% target.

What is expected from the BoE (Thursday, 21 March at 11pm)

Barring a dovish surprise from Wednesday night's inflation report, the BoE is expected to keep rates on hold this week at 5.25%, and signal that further evidence is required before they start easing.

The rates market is currently pricing in a first BoE rate cut in August this year, with a total of 66 basis points of cuts priced for 2024.

UK official bank rate chart

FTSE technical analysis

After its increase to a ten-month high last week, the FTSE starts the new week below horizontal resistance at 7750/65ish, but above the multi-month downtrend resistance from the February 2023, 8047 high.

While the FTSE remains above the broken downtrend resistance currently at 7690, we hold a positive bias, looking for a test of the April 7936 high, with a scope to the 8047 high.

However, if the FTSE were to lose support at 7690/80 on a sustained basis, we would move back to a neutral bias, given the high likelihood of further sideways price action and the risk of a retest of the 200-day moving average at 7550.

FTSE daily chart

DAX technical analysis

The DAX again reached fresh record highs last week, although it was notable that the highs were made on selling, as the DAX cash posted lower closes in four of the five sessions last week.

To indicate that last week's marginal loss of momentum might be the start of a deeper pullback, we would need to see a break of horizontal support at 17,600 coming from last recent lows and then a sustained break below the uptrend support at 17,500 from the October 14,630 low.

Until that occurs, minor dips will likely be well-supported by those looking to position for the uptrend to resume and a test of 18,500.

DAX daily chart

• ^{Source: TradingView. The figures stated are as of 19 March 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}