The FTSE 100 Index is doing well this year, despite the UK economy facing stagflation, high interest rates, and a risky doom loop. It has jumped by over 20% from the lowest level this year as investors wait for the upcoming BoE interest rates decision.
FTSE 100 Index thrives despite the UK doom loop
The blue-chip FTSE 100 Index, which tracks the biggest British companies, has jumped by double-digits from its lowest level in April this year.
This performance coincided with the recent surge in other global indices like the Nasdaq 100, S&P 500, Nikkei 225, and the German DAX.
Most notably, it has jumped despite the UK economy facing what is commonly known as the doom loop.
The UK doom loop is described as the period of high interest rates, debt, slow economic growth, and policy constraints.
Data shows that the UK has a debt-to-GDP ratio of about 100%, and the government is struggling to fund its budget, with consistent 5.1% budget deficits.
Meanwhile, UK borrowing rates have surged, with the long-term bond yields rising to the highest level since the 1980s. This means that the UK government is now spending about £111 billion in annual interest payments.
At the same time, the country’s economic growth has stagnated, while inflation has remained at an elevated level this year.
Data released on Wednesday showed the headline Consumer Price Index (CPI) jumped to 3.8% in August. This means that the UK has now moved into a stagflation period, while taxes remains higher than in other countries
Bank of England interest rate decision ahead
It is against this backdrop that the Bank of England meets today. Economists polled by Reuters expect that the bank will unanimously vote to leave interest rates unchanged because of the ongoing inflation.
Consumer inflation remained much higher than in other countries. For example, in the United States, the headline Consumer Price Index rose to 2.9% in August, while the core CPI remained at 3.1%.
A report released on Tuesday showed that the headline CPI rose to 3.8% in August, while the core CPI softened to 3.6. In Europe, the CPI has moved to 2%, a notable level which is at the European Central Bank’s target.
Therefore, the FTSE 100 Index has risen despite the challenges because the stock market has been one of the best places for people to invest their money.
Also, the UK was one of the first countries to reach a trade deal with the United States. The deal lowered US tariffs to 10%, lower than other countries.
Rolls-Royce share price leads
Most FTSE 100 Index companies have done well ahead of the BoE interest rates decision. Rolls-Royce share price rose by over 1.36% to £1,132, making it one of the best-performing companies.
Rolls-Royce has done well because of the ongoing demand for air travel and planes. It has also thrived amid the rising demand for military equipment and power products.
Scottish Mortgage stock price rose by 1.2%, continuing its recovery that has been boosted by the Federal Reserve cuts. Other top gainers in the FTSE 100 Index ahead of the interest rate decision were 3i Group, Airtel Africa, and ICG.
FTSE 100 Index analysis
The daily timeframe chart shows that the FTSE 100 Index has formed the highly bearish double-top chart pattern at £9,335 and a neckline at £9,102. This pattern normally leads to more downside.
Also, the Relative Strength Index and the MACD indicators have formed a bearish divergence pattern as they have continued falling in the past few weeks.
Therefore, there is a risk that it will crash after the BoE interest rates decision, with the next key target being at £9,100. A move above the double-top point at £9,336 will invalidate the bullish outlook.
The post FTSE 100 Index: Set to crash after BoE despite Rolls-Royce share price gains appeared first on Invezz