FTSE 100 futures set to be plagued by political fears this weekend

The FTSE 100 closed 166 points down for the week at the end of Friday’s trading. What political tensions are forcing the index down despite positive PMI retail data?

The FTSE 100 index slid 86 points during Friday’s trading session alone as investors begin to mull over the increasingly likely prospect of the UK trading on WTO terms with the European Union’s member states, as well as Britain’s increasingly fragile relationship with China.

This negativity continues to cast a sizeable shadow over the UK’s leading corporations. Even today’s latest retail sales figures, which revealed a surge in business activity in July to fuel hopes that the UK economy will return to growth in Q3 2020, could not alter the index’s bearish trend.

Technical analysis: FTSE 100 inches towards key support level

The biggest issue for the index at present is its inability to break beyond the 6324 resistance level. According to Joshua Mahony, senior market analyst at IG, this has ‘brought about another period of weakness’.

Mahony alludes to the mid-July sell-off which forced the FTSE 100 below 6026 and warns we ‘could see a similar thing here with a break back below the 5995 level established on 10 July’.

‘As such, further downside looks likely, yet the reaction to 6072 and 5995 support levels will be key’, added Mahony.

Encouraging PMI retail figures not enough to supercharge FTSE 100

Activity in Britain’s services and manufacturing sectors returned to strong growth last month. The latest retail sales index brought the index back up to pre-lockdown levels just two months after record falls in April and only a minor recovery in May.

It’s also worth noting that services and manufacturing sectors outperformed the Eurozone in July, but economists’ caution on the wider economic recovery for the UK is what has thwarted any positive momentum returning to the FTSE 100.

Growing tensions in future Brexit trade deal agreement

Recent ‘intensified’ talks between the UK government and the European Union (EU) regarding a post-Brexit trade agreement concluded with no further progress. The EU’s chief negotiator, Michel Barnier, has warned that an agreement before the end of the UK’s transition period now appears ‘unlikely’.

The UK’s chief negotiator, David Frost, also commented on ‘considerable gaps’ between the two sides following the latest round of discussions in London. The amplified threat of a no-deal Brexit will place further strain on the pound and investors may increasingly steer clear of the FTSE 100 in favour of ‘safe haven’ assets like gold and silver.

Worsening relations with China also wreaking havoc

The so-called ‘Golden Era’ of relations between the UK and the People’s Republic has regressed badly in recent weeks, as the UK seemingly attempts to align its trade policy with the US post-Brexit.

The UK government’s recent decision to remove Huawei technology from its 5G network by 2027 on security grounds appears to have angered Beijing. Investors are increasingly bemused by the UK’s negativity towards China, given that it operates around a £30 billion annual trade deficit with the Chinese. Any decline in Chinese exports to the UK will hit Britain hard.

How to trade the FTSE 100 this weekend

With the deadlock in the Brexit trade talks between the UK and EU seemingly a long way from being broken, it’s little surprise that the nation’s biggest companies are beginning to get twitchy. With so much uncertainty lingering, the FTSE 100 index looks set to trade down this weekend.

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