The FTSE 100 was set to finish the week on the back foot after Uk retail sales disappointed markets and hit consumer facing stocks. The prospect of next week’s Tory leadership contest also subdued the bulls on Friday.

JD Sport and Frasers Group sank while the housebuilders looked to retest their recent lows. UK retail sales fell 1.4% in September suggesting the UK economy was facing ever greater pressures from the cost of living crisis.

The charts of housebuilder share prices in particular do not make for pleasant reading. Persimmon is down 57% year to date, Barratt Developments off 53% and Taylor Wimpey 50%.

Autotrader was the FTSE 100’s biggest casualty, down 6% to 487p after analysts at Credit Suisse cut their price target to 418p, rating them underweight.

Although there were losses on Friday, the selling was seemingly contained with the FTSE 100 finding support around 6,900.

Given the week we’ve had in UK politics, the FTSE 100 has been remarkably range bound, rarely deviating from a 100 point range between 6,900-7,000.

This is largely down to weakness in the pound that again fell against the dollar on Friday after government borrowing figures rose and investors fretted about next week’s leadership contest.

“Given the unprecedented events involving British politics in recent weeks, investors are hoping for less volatility and more stability in both the government and on the markets,” said Russ Mould, investment director at AJ Bell.

However, Mould warned we were not yet out of the woods and Truss’s departure could prove to simply be another twist the never ending saga in Westminster.

“Even though there is some sense of peace in the markets now, this could all change next week when we have a clearer idea of who is in the running for Number 10 and how each candidate might reshape the country’s policies to avoid economic shocks,” said Mould

GBP/USD was trading down 0.9% at 1.1137 after hitting lows of 1.1060 earlier in the session.

BP shares could be considered by investors seeking stability in times of volatility. The higher price of oil due to the conflict in Ukraine has provided support for the BP share price so far in 2022 and their 3.8% yield is attractive.

In a week Jeremy Hunt’s effort to steady the UK political ship was quickly scuttled by the departure of Liz Truss, investors may be seeking strong dividend payers such as BP to see them through any economic downturn.

However, those eyeing BP should take note of recent price action and why it may be beneficial to hold off buying BP in the very short-term.

Reason for caution comes from BP share price’s ascending triangle technical formation that is yet to confirm a breakout.

An ascending triangle formation is typically a bullish technical formation, however, this is only when the price breaks out and trades above levels of resistance.

BP shares currently have a strong level of resistance at 470p at which it has failed a number of times in the last time.

This would suggests in the short term – failing any new fundamental developments – the share price is likely to drift back down to the trend line commenced in November.

This would suggest the 430p-420p level will be retested before long. A bounce from these levels may provide a buying opportunity.

An alternative scenario would be a break above 470p. Should shares break through resistance at this level is would open the door to 500p. However, a move above 470p wouldn’t automatically confirm a bullish break out. BP shares would have to retest prior resistance at 470p and confirm this as a new support.

BP Fundamentals

Oil prices have driven BP shares since Russia’s invasion of Ukraine and gyrations in global energy markets will continue to impact BP. Oil prices have retreated markedly from highs above $100 which will be reflected in BP third quarter results due to be released 1st November.

Shell have recently said they were experiencing declining refining margins due to lower oil price. Expect BP to also see lower margins as a result of falling oil prices.

However, OPEC are determined to maintain a higher oil prices and the ongoing battle between OPEC+ and President Biden will likely provide support for oil prices, and therefore BP shares.

Brokers are reasonably positive on the BP share price with Bank of America increasing their price target to 550p and Citigroup 440p from 400p. Both have a neutral rating on BP shares.

Lloyds shares have suffered tremendously from the political debacle that’s gripped Westminster during Liz Truss’s tenure.
UK banks including Lloyds have been exposed to soaring mortgage rates and the threat of a slowing economy hurting their customer’s finances.

In September, Lloyds share price had been approaching the 50p level for the first time since April as investors positioned for higher interests and the benefits to banking Net Interest Margins.

However, the steady rally in Lloyds shares faced a rude awakening 23rd September when Kwasi Kwarteng dropped the mini-budget bomb shell on the UK economy.

UK Gilt yields soared, the pound crashed and the Lloyds share price sank to 40p. 

Market turmoil and political chaos ensued, culminating in the resignation of Liz Truss yesterday. The market staged a minor relief rally shortly after the PM’s resignation with UK bank shares jumping.

Lloyds shares outlook 

Investors may do well to proceed with caution over the coming days and weeks. 

The problems caused by Liz Truss’s chaotic leadership will not disappear nearly as quickly as Truss did from her resignation speech.

Long term damage has been done to the UK’s reputation and markets have built a risk premium into UK assets that will take time to diminish.

We are yet to see the real impact of higher mortgage rates and there are big concerns around the health of the UK economy.
Lloyds will see the benefit of higher rates, but are also likely to set aside provisions for bad debts in their next update.

This will hurt Lloyds profits. The perception of how hard Lloyds profit may be hit will dictate trade in the short term. Today’s retail sales reading suggests Lloyds consumers are feeling the pinch.

The medium term outlook for Lloyds share price going into 2023 is largely dependant on the immediate actions of the next prime minister.

Support for consumers with energy bills could reduce Lloyds’ provisions for bad debts. However, interest rates are set to rise and we’ll unlikely see any let up mortgage rates before we see deterioration in the housing market.

This will be a double edged sword for UK banks – they will earn more from their mortgage book but defaults will rise.

The uncertainty around Lloyds share price has been reflected by Barclay’s analysts downgrading Lloyds price target to 50p from 55p with an equalweight rating. JP Morgan has 56p target and overweight rating.

With the Lloyds share price at 41p, there is attractive potential upside to these price targets, and much of the negativity discussed above will have largely been priced in.

The FTSE 100 again found support in oil majors on Thursday amid absolute chaos in Westminster that threatens further political uncertainty in the UK.

BP and Shell gained 1.7% and 2.3% respectively at the time of wiring and helped to offset losses in miners, pharmaceuticals and housebuilders.

Dechra Pharmaceuticals was the top faller on Thursday shedding some 3.2% after the veterinary pharmaceuticals said they were set to meet full year market expectations but faced challenging comparisons against last year’s strong performance due to COVID-19.

After a strong run from lows around 90p, IAG saw a bout of profit taking on Thursday and slipped 3% to 114p.

UK banks remained firmly range bound with Lloyds, Natwest and Barclays all finding strength after yesterday’s weakness. Lloyds was trading at 41.7p, up 2.7% at the time of writing.

The FTSE 100 was 10 points higher at 6,934 shortly after midday on Thursday.

UK political uncertainty

The FTSE 100 carved out small gains with backdrop of political uncertainty following unprecedented scenes at Westminster last night. MPs were reportedly manhandled into the voting lobby amid a chaotic vote on fracking.

After a frantic night of confusion over whether the vote was classed as a confidence vote, Truss faced a growing number of her MPs calling on her to quit.

Sky News had began tracking the number of MPs publicly saying she should resign – the number stood at 14 at the time of writing.

It’s happened.

Sky News has launched a ticker of MPs calling for Liz Truss to go. pic.twitter.com/ZA8XYDm6Vg

— Scott Bryan (@scottygb) October 20, 2022

Should Truss quit, the UK will be thrown back into the uncertainty of a leadership contest and lack of leadership in the interim.

The pound had traded negatively earlier in the session but clawed back losses against the dollar to trade in positive territory.