FTSE To 7075 On Rising Geopolitical Risks?
Fiona Cincotta | Aug 13, 2019 07:02AM ET
The FTSE, along with its global peers, is moving lower in early trade as concerns over the protests in Hong Kong fuel risk-off sentiment.
Hong Kong is proving to be a headache for China. What started out as a protest against a bill that would have permitted extradition to China, is morphing into a democracy movement. The overriding fear for the markets is how China will respond. Not only is Hong Kong very visible to Europe, but it is also a key financial hub in Asia. It wouldn’t be surprising if China sends in the People’s Liberation Army to quash the uprising, but this could have global implications. Whilst the airport has re-opened, anti-government protestors have returned there today.
Developments in the financial hub of Hong Kong are adding to an already tense geopolitical picture amid ongoing US – Sino trade tensions. Investors are once again pulling out of riskier assets such as equities whilst flows into safer havens are on the rise. Furthermore, blue-chip stocks with dealings in Hong Kong, such as HSBC and Standard Chartered (LON:STAN) remain under pressure as protests move into the 10th week.
The pound and its impact on the FTSE was in focus following mixed UK labour data. Unemployment unexpectedly rose to 3.9% whilst wage growth jumped to an 11 year high of 3.9%. Under normal circumstances, this level of wage growth would send the pound soaring, given that it creates inflationary pressures. However, higher unemployment has hit a nerve given that the UK economy contracted in Q2 and is staring down the barrel at a no-deal Brexit. Wage growth data is proving to be too much of a lagging indicator for pound traders to take to much notice of. As the pound picked up from session lows, the stronger currency dragged the FTSE lower. That said, the pound remains in negative territory.UK inflation data tomorrow is expected to show a decline to 1.9% YoY. A weak reading could pull the pound lower which could offer some support to the FTSE. However, should the geopolitical picture deteriorate further, the FTSE could take a step lower.
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The FTSE continues to consolidate following the steep sell-off at the beginning of the month. The FTSE trades below its 50, 100 and 200 SMA on the 4-hour chart, indicating a strong bearish trend is still intact. Breakthrough support at 7250 could open the doors to a deeper decline to 7075. On the upside, a breakout above 7255 could see the FTSE attack resistance at 7305 before targeting 7400.
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