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FTSE 100 futures: Will easing inflation fears help the index rally?

The FTSE 100 index closed 1.20% higher on Friday as the Federal Reserve calmed fears about rising US inflation. Concerns over interest rates and a slowing of quantitative easing had curbed the FTSE 100 earlier this week.

  • FTSE 100 up from 6963.33 to 7,047.01
  • Missed US retail sales have little impact on London stocks
  • Federal Reserve not yet prepared to increase US interest rates
  • Ready to trade the FTSE 100 index? Open an account today

Following a tumultuous week, the FTSE 100 index closed the week 83.68 points up on Thursday's numbers, buoyed primarily by news across the Atlantic. A bruising week for traders saw London stocks close Friday’s trading session in the black, having seen the price of the FTSE 100 plummet by 293 points in the first four days of trading.

FTSE 100: Why are investors buying the index’s recent dip this week?

It’s been a rather bearish week for most major indices, due largely to escalating fears that inflation could rise uncontrollably in the US. The FTSE 100 and many other major European and Asian indices tumbled in the early stages of the week, with investors fearing that central banks could panic and start to lift interest rates or decelerate quantitative easing plans.

US inflation has indeed risen from 2.6% in March to 4.2% in April. Rising interest rates would not be in the best interests of FTSE 100 firms, given that the cost of issuing finance would rise. With many FTSE 100 companies already having debts to service, this would place undue strain on firms still battling to come out the other side of the Covid-19 pandemic.

US retail sales data and interest rates remain flat

Governor of the US Federal Reserve, Christopher Waller, moved to confirm that despite the short-term rise in inflation, interest rates would not increase until policymakers see inflation remaining above target for a considerable period. Waller intimated that the Federal Reserve will bide their time over the next few months to wait and see whether it is only a temporary ‘mismatch’.

The FTSE 100 did not appear unduly concerned by today’s US retail sales data, which missed forecasts and remained flat month-on-month. The consensus expected at least a 1% month-on-month rise, following a 9.7% rise in March following much-needed government stimulus.

Some of the FTSE 100’s mid-morning gains were also driven by news of Amazon's move to create 10,000 new jobs in the UK, investing £10m over the next three years to train thousands of new employees in a vote of confidence for Britain’s retail and ecommerce sectors.

However, the FTSE 100 futures market could also price in any uncertainty surrounding the emergence of the Indian Covid-19 variant, which appears to have been rapidly transmitted in the northwest of England during the last fortnight. Any weekend reports of delays to the 21 June lockdown easing or localised Covid-19 restrictions could see the FTSE 100 start next week on the wrong foot, with a move back below 7000 by no means impossible.

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