The FTSE 100 experienced another volatile session on Thursday as the Uk government faced growing pressure to provide fiscal forecasts and U-turn on a number of measures unveiled in their mini-budget.
The FTSE 100 hits lows of 6,842, before bouncing back to trade at 6,933 at the time of writing.
Technical analysts will be conscious the index has now put in a short term double bottom in the 6,836-6,842 region which will form a level of technical support. A break of this level could open up the way to 6,800 and then a key Fibonacci retracement level at 6,685.
Bond purchases by the Bank of England have appear to built a floor in markets for now, but in such a highly fluid situation further volatility can’t be ruled out.
“After a highly volatile week, the febrile mood in the markets has been pacified a little by the Bank of England’s intervention to buy large chunks of UK government debt but signs are that investors have taken on a wait and see strategy,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
Government pressure
The UK government’s actions are almost entirely responsible for volatility in markets and the pressure continued on Thursday. Investors had been hoping for a direct response from the government to improve sentiment. Instead Liz Truss choose to appear on local radio stations instead of making direct statements.
The move by the PM further unnerved markets and sterling fell against the dollar while UK-facing FTSE 100 stocks plunged.
The UK housebuilders were heavily hit as more mortgage provider withdrew products from the markets. Barrett Developments crashed 12% to 324p, the lowest level since 2013.
Profit warnings
Next was also heavily hit after the retailer was the latest consumer facing company to warn on profits.
“If Next is struggling, you can be sure the retail sector is in a real fix. Among the most consistent of retailers, the company has an excellent track record and is a highly transparent communicator with the market,” said Russ Mould, investment director at AJ Bell.
“The message it has to deliver is a worrying one. True, Next does have a habit of managing expectations downward, to give it a lower bar to clear.”
“First-half results were strong and while the start to the current financial year was weak in August there was a notable pick-up in September. But there’s no disguising that behind the cuts to guidance lies deep uncertainty about the consumer backdrop.”
Mould went on to highlight next week’s earning and the threat of further profit warnings from companies exposed to the UK economy.
“Profit warnings are becoming a regular occurrence and there are several big names today telling investors to expect lower earnings than previously anticipated, including retailer Next. This raises the prospect of other consumer-facing companies disappointing the market and next week we have three big names reporting: Tesco, Greggs and Wetherspoons,” Mould said.