FTSE 100 PRICE, NEWS AND ANALYSIS:

• The FTSE 100 index of leading London-listed stocks is in a good position to climb further, helped by Wall Street strength, risk-on sentiment in the markets, earnings optimism and news of an unexpected drop in UK inflation.
• Those factors should outweigh continuing market expectations of an imminent tightening of UK monetary policy and bad Covid-19 data.

LONDON STOCKS UPSIDE BECKONS

London’s FTSE 100 index is modestly lower in early European trading Wednesday but it’s becoming increasingly clear that its trend higher remains in place, partly due to the strength of Wall Street stocks. The S&P 500 index closed in New York up 0.7% Tuesday, only just below its record high.

In addition, “risk on” sentiment continues to benefit assets like stocks and the latest UK inflation data were positive, showing unexpected declines in September. Earnings optimism could be a factor too.

UK INFLATION DATA

Source: DailyFX calendar

On the downside, the Bank of England is still expected to be one of the first major central banks to tighten monetary policy, with market pricing showing just a 7.8% chance that UK Bank Rate will still be at 0.25% by September next year. Moreover, the latest UK Covid-19 data show the figures are worsening.

Still, as the chart below shows, the FTSE continues to trend higher and remains within shouting distance of its highest level since February 2020, reached at the start of this week.

FTSE 100 PRICE CHART, DAILY TIMEFRAME (FEBRUARY 23 - OCTOBER 20, 2021)

Source: IG (You can click on it for a larger image)

BULLISH SENTIMENT DATA

As for sentiment, IG client positioning data are sending a bullish signal. IG’s retail trader data show 34.81% of traders are net-long, with the ratio of traders short to long at 1.87 to 1. The number of traders net-long is 6.39% lower than yesterday and 22.16% lower than last week, while the number of traders net-short is 1.92% higher than yesterday and 25.95% higher than last week.

Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests FTSE 100 prices may continue to rise. Moreover, traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger FTSE 100-bullish contrarian trading bias.

Written by Martin Essex, Analyst, 20th October 2021. DailyFX