UK Markets Struggle as Tech Selloff Deepens, Investors Eye Fed and ECB Policy Clues:

Image Source : Krish Capital Pty Ltd

Index Update: The FTSE 100 index, a key benchmark index for the London stock exchange, went down around 0.30% on 27 January 2025. HealthCare, Utilities & Real Estate sector has witnessed a substantial growth. Moreover, Basic Materials, Industrials & Financials sector has faced a major decline. 

Macro Update:  HSBC has announced plans to wind down its M&A and equity capital markets operations in Europe, the UK, and the Americas, as part of a significant restructuring of its investment banking division. The bank aims to transition to a more competitive, scalable, financing-led model, according to a memo from CEO Michael Roberts. Concurrently, British Prime Minister Keir Starmer and finance minister Rachel Reeves are engaging with prominent business leaders, including Lloyds Banking Group's Charlie Nunn and Tesco's Ken Murphy, to unveil pension sector reforms. These reforms are intended to stimulate economic growth and foster greater investment. On the equities front, British markets had a tepid start to the week. The FTSE 100 remained flat after hitting a record high on Friday, while the midcap FTSE 250 declined by 0.7%, weighed down by technology stocks, with Polar Capital Technology Trust and Allianz's technology investment trust dropping 6.8% and 5.2%, respectively. 

Top Market Movers: Among top gainers on FTSE 100 index, British American Tobacco PLC (LSE: BATS) witnessed a rise of 4.26% followed by Airtel Africa PLC (LSE: AAF) which gained around 2.62%. 

Commodity Update: The dollar strengthened on Monday as traders assessed the potential impact of U.S. President Donald Trump's tariff plans, with the Federal Reserve expected to keep interest rates steady this week. Last week, the dollar saw its weakest performance since November 2023, as concerns about tariffs eased, but those fears resurfaced after Trump announced plans to impose tariffs on Colombia. In commodities, gold fell 0.48% to $2,793.40, silver dropped 1.33% to $30.76, and copper declined 0.35% to $9,249.00. Meanwhile, Brent crude dropped 1.11% to $77.63 a barrel after Trump urged OPEC to cut prices amid measures to boost U.S. oil production. 

Our Stance: Global markets are experiencing heightened volatility, driven by turbulence in the tech sector and growing concerns over its reliance on a few dominant companies for sustained growth. Nvidia's shares plunged 17%, erasing $593 billion in market capitalization—marking the largest single-day loss in history—while the Philadelphia Semiconductor Index fell 9.2%, its sharpest decline since March 2020. This selloff was triggered by the emergence of a low-cost Chinese AI model developed by startup DeepSeek, which has already surpassed ChatGPT in downloads on Apple’s app store, raising questions about the dominance of U.S. AI giants. Exchange-traded funds heavily exposed to Nvidia also saw significant losses, highlighting market jitters. Meanwhile, Eurozone government bond yields edged higher on Tuesday after a safe-haven rally on Monday, as investors await guidance from upcoming European Central Bank and U.S. Federal Reserve policy meetings. The developments underscore the fragility of markets, with the AI race and tech valuations taking center stage. 

FTSE 100 

The FTSE 100 closed at 8,502.35 on Friday, down 0.73%, forming a bearish candlestick pattern. Despite the slight dip, the overall bullish trend remains intact as the index stays above its 21-period Simple Moving Average (SMA), signalling potential short-term gains. The 50-period SMA provides additional support, enhancing the likelihood of continued upward movement. The Relative Strength Index (RSI) stands at 64.35, indicating sustained bullish momentum. With these technical indicators, the FTSE 100 is poised to maintain its upward trajectory if key support levels hold, suggesting a positive near-term outlook. On the weekly chart, the FTSE 100 remained steady, closing down 0.03% at 8,502.35, comfortably above the 50-period SMA at 8,167.15. Key support is at 7,932, with resistance at 8,400. A break above 8,400 could signal stronger bullish momentum, potentially targeting the next resistance level at 8,700. Conversely, a drop below 8,020 could signal further downside risk. Monitoring these levels will be essential for predicting future price movements. 

Data Source - Refinitiv