Weak Retail Sales and Car Manufacturing Decline Impact FTSE 100:

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Index Update: The FTSE 100 index, a key benchmark index for the London stock exchange, went down around 0.92% on 20 December 2024. Sectors such as Industrials, Financials & Basic Materials witnessed a substantial decline.

Macro Update:  British retail sales rose by a subdued 0.2% in November, falling short of economists' expectations of a 0.5% increase following a 0.7% decline in October. The data suggests limited economic momentum despite consumers showing some resilience in the face of the new government’s budget. Finance Minister Rachel Reeves is set to visit China in January to restart high-level economic and financial talks, known as the Economic and Financial Dialogue (EFD), which have been on hold since 2019. Meanwhile, UK car manufacturing recorded its weakest November since 1980, with output plummeting by 30.1% year-on-year to 64,216 units. The decline reflects challenges in transitioning to zero-emission vehicles and rising production costs, highlighting structural pressures in the automotive sector. Additionally, the Bank of England maintained interest rates at 4.75% in a 6-3 vote, with three members, including Deputy Governor Dave Ramsden, unexpectedly supporting a quarter-point rate cut. The decision underscores the policymakers' divided response to balancing a slowing economy and persistent inflationary pressures.

Top Market Movers: Among top gainers on FTSE 100 index, Londonmetric Property PLC (LSE: SVT) witnessed a rise of 1.48% followed by Rentokil Inititial PLC (LSE: RTO) which gained around 1.25%.

Commodity Update: On Friday, the U.S. dollar is set to close the week near a two-year high, driven by a hawkish outlook on U.S. interest rates. The Japanese yen, however, struggled, falling to a new low after the Bank of Japan kept rates steady and provided little clarity on future hikes. This followed the U.S. Federal Reserve’s indication of fewer rate cuts in 2025. In commodities, gold rose to $2,612.30, silver dropped 0.37% to $29.30, and copper gained 0.34% to $8,918. Oil prices remained stable, with Brent crude down 0.43% to $72.57, amid concerns over demand growth, particularly in China.

Our Stance: The failure of a Trump-backed spending bill in the U.S. House reveals divisions within the Republican Party, raising concerns about governance as they prepare to control Congress and the presidency. This deadlock risks a government shutdown during the holiday season. Globally, central banks like Brazil and Indonesia defended their currencies after the Federal Reserve signaled limited rate cuts for next year. The Fed’s acknowledgment of inflation risks tied to Trump’s trade and immigration policies unsettled markets, affecting emerging economies. Meanwhile, Fed Chair Jerome Powell reaffirmed the central bank’s neutral stance on bitcoin, leaving regulatory changes to Congress. Political gridlock in the U.S. and global market uncertainties from Fed policies highlight economic vulnerability, particularly for emerging markets. The Fed’s cautious approach to bitcoin underscores its focus on core monetary stability amid evolving regulatory debates.

FTSE 100

The FTSE 100 closed at 8,105.32, down 1.14%, following a bearish candlestick pattern, reflecting cautious investor sentiment after the Federal Reserve and Bank of England's recent rate decisions. The index remains below its 50-period Simple Moving Average (SMA), suggesting continued downward pressure. The Relative Strength Index (RSI) stands at 35.82, indicating bearish momentum with a slight bearish bias. On the weekly chart, the FTSE 100 saw a modest decline of 0.10%, ending at 8,300.33. The index remains above the 50-period SMA at 8,093.17, with support at 7,932. Immediate resistance is at 8,400, and a breakout above could signal a shift toward a bullish trend. A drop below 8,020, however, could indicate further downside risks. Investors should watch these key levels closely, as the BoE’s decisions could influence the market direction in the near term.