FTSE 100 Price Outlook: Global Stock Market Rally May be Short-Lived

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FTSE 100 price, news and analysis

  • Several factors are lifting stock markets near term, including hopes that an agreement on the US debt ceiling is close, Putin’s offer to stabilize the world energy markets and a potential meeting of Xi and Biden.
  • However, worries about China persist, and this rally may just reflect some short-covering and dip-buying before stock markets head lower again.

FTSE 100 rally may not last long

World stock markets, including London’s, are benefiting from a more helpful news flow. First up, US Democrats have signaled that they will take up Senate Republican leader Mitch McConnell’s offer to raise the US debt ceiling, reducing the admittedly highly unlikely risk of a US default on its debts.

Second, Russian President Vladimir Putin has offered to stabilize global energy markets, hinting that the State-backed Gazprom could increase supplies to help Europe. Third, US President Joe Biden and Chinese President Xi Jinping have reportedly agreed to hold a virtual summit that could reduce the tensions between the two countries. And fourth, the European Central Bank is reported to be considering a new bond-buying program to stabilize markets after its pandemic emergency purchase program (PEPP) ends in March.

That has all combined to weaken the oil and natural gas markets but strengthened global stock market indexes, including London’s FTSE 100.

FTSE 100 Price Chart, One-Hour Timeframe (September 30 – October 7, 2021)

Latest FTSE 100 price chart.

Source: IG (You can click on it for a larger image)

Market worries persist

Note, though, that the small advance that began mid-Wednesday could easily reverse. China’s troubled power and property sectors remain a background concern, and the latest rally may just represent some dip-buying and short-covering that will soon be over.

Friday’s US labor-market report is another potential hurdle. Economists polled by the news agencies expect non-farm payrolls to have risen by a hefty 500,000 in September, up from 235,000, and a good figure could prompt the Federal Reserve to taper monetary stimulus as early as next month… a move that would likely damage market confidence.

Bearish FTSE signal from sentiment data

As for retail trader positioning, IG client sentiment data show 69.10% of traders are net-long the FTSE 100, with the ratio of traders long to short at 2.24 to 1. The number of traders net-long is 12.58% higher than yesterday and 13.64% higher than last week, while the number of traders net-short is 14.30% lower than yesterday and 27.11% lower than last week.

Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests FTSE 100 prices may weaken. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger FTSE 100-bearish contrarian trading bias.

— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

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