FTSE 100 futures set to slide as strong pound weighs on UK exporters
The blue-chip index extended losses on Tuesday, as a stronger pound weighs on UK exporters, with Rolls-Royce dragging the FTSE 100 lower after JP Morgan offered a grim outlook for the engine maker.
- The FTSE 100 extends losses as pound rallies against weakening US dollar
- Rolls-Royce falls 12% as JP Morgan downgrades outlook amid mounting concerns
- The British blue-chip index firmly on the back foot as recovery stalls
The FTSE 100 closed 1.7% lower on Tuesday, extending losses from last week, with its corresponding futures market down 2% suggesting the index will lose further ground on Wednesday.
The blue-chip index is already under pressure due to fears of a second wave of infections coming in the winter months, with the UK government’s coronavirus plans leaked in a recent Sage report.
The Sage report gave a grim outlook, with the UK government predicting to see 85,000 deaths in the winter months from Covid-19, with the NHS likely to struggle to cope with the surge in coronavirus cases while it simultaneously tries to cope with the annual flu season.
The FTSE 100 closed at 5862 points, with the index falling below the psychological 6000 point benchmark last week.
Rolls-Royce down 12% as JP Morgan offers grim outlook
The engine maker was the biggest loser on the FTSE 100 on Tuesday, with the stock falling 12% amid a dismal outlook, with the company looking to raise £2 billion via disposals after recoding a major half-year loss in August.
Rolls-Royce reported pre-tax loss of £5.3billion in the six months to June 30, including £1.1 billion in write-offs and impairments, a £2.6 billion loss on foreign exchange hedging contracts, along with restructuring costs of £366 million.
‘The Covid-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world,’ Rolls-Royce CEO Warren East said in a statement.
To make matters worse, analysts at JP Morgan downgraded their price target for the stock from 90p to 80p per share, implying a potential downside of -62%.
The US-based investment bank blamed the price target cut on the engine maker’s cash flow coming under renewed pressure, prompting the company to downgrade their 2021 free cash flow guidance by €300 million to €1 billion.
Analysts at JP Morgan also expressed concerns about Rolls-Royce ability to continue operating due to the severely challenging market conditions and that sentiment seems to be shared by some of Rolls-Royce’s key shareholders, with activist investor ValueAct disposing of its shares.
Rolls-Royce closed at 210p per share on Tuesday.
GBP/USD trending higher as we hit multi-month highs
GBP/USD has similarly been on the rise, with the price trading at eight-month highs. Crucially, we are approaching the critical $1.3515 resistance level, where a break above that point would bring about a two-year high, according to Josh Mahony, senior market analyst at IG.
‘With the price back at trendline resistance, we could see some weakness come into play over the short term,’ he said.
‘However, whether we see a short-term pullback or not, a bullish outlook is in play unless the price breaks below the $1.3356 swing low.’
FTSE 100: technical analysis
After declining throughout last week, the FTSE 100 finds itself back at the 5950 area that marked support at the end of July, according to Chris Beauchamp, chief market analyst at IG.
‘This rather critical area has seen buyers step up in the past, but a close below 5900 would likely open the way to more downside, with 5727 and 5497 as first-line targets,’ he said.
‘The past five sessions have seen a series of higher lows on the intraday chart, and until that changes, perhaps with a move above 5980 then the overall bearish impression remains in place.’
FTSE 100: After-hours trading with IG
IG offers extended hours trading options for the FTSE 100 index and other major indices. Buy long or sell short on the FTSE 100 via CFDs and other instruments provided by IG's market-leading trading solution. Start by opening a live or demo account with IG today.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Take a position on indices
Deal on the world’s major stock indices today.
- Trade the lowest Wall Street spreads on the market
- 1-point spread on the FTSE 100 and Germany 40
- The only provider to offer 24-hour pricing
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.