Energy Prices Stoke Concerns

UK shares have come under heavy selling pressure again today with the FTSE falling around more than 1% over early European trading on Thursday. The index is now down almost 3% from the September highs and looks vulnerable to further losses through the end of the week. The driver behind the move lower in UK asset prices here is the fresh uptick we’re seeing in energy prices. Surging oil prices are creating fresh inflation concerns over the end of the year. With the cold weather period ahead in the UK set to see an uptick in demand, higher prices might easily derail the recent drop lower we’ve seen in UK inflation.

BOE Uncertainty

The BOE opted to keep rates on hold this month and, while it warned that further tightening might still be needed, most saw this as the end of the current tightening cycle. However, with energy prices now moving firmly higher, traders are wary that inflation might well start to move higher simultaneously, forcing the BOE back into fresh rate increases.  If this narrative starts to gain traction, we can expect the FTSE to continue lower near-term. As such, monitoring energy prices, as well as UK econ data, will be key in coming weeks.

Technical Views

FTSE

The latest test of the bear channel highs has seen the index turning lower again, now back beneath the 7678.8 level. With momentum studies weakening, price looks vulnerable to a further push lower with 7337.6 the next big level to watch should we make It through the interim support around the 7550-mark.