US Economic Recovery Optimism Spilling Into European Equities

Key Talking Points:

• Equities push higher despite third-wave concerns
• FTSE 100 sticks to its range but drifts higher

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The FTSE 100 looks set to finish the week higher as positive flows spillover from the US after better than expected economic data cements its improving economic outlook. The blockage of the Suez canal is likely to cause oil prices to jump higher throughout today’s session which will also underpin the performance of European equities.

Overall sentiment appears to be holding pretty well despite renewed fears about a third-wave of Covid-19, which now seems imminent in Europe. The delay of the vaccination program in the EU is taking its toll on Germany and France, which have seen a significant increase in new cases over the last 48 hours. Local governments are considering stricter social distancing measures but it is expected that lockdowns will continue after Easter given the increased risk of spread during the weekend. This in turn threatens the summer holiday program which is a great risk to European economies.

Meanwhile, the UK has gotten ahead of most of its peers with regards to its vaccination program, so we may see Boris Johnson stick to his unwinding of social distancing measures in the coming months if the vaccination rate keeps up, enjoying a return to normalization like we’ve seen in Israel, where the spread of the virus has seen a sharp drop after almost all of its citizens have been vaccinated.

FTSE 100 Levels

The FTSE 100 is still confined to a tight range with a tendency to revert to its mean within its Bollinger Bands. The index seems well supported in the short-term by the ascending trendline from the end of January, halting selling pressure in yesterday’s session at 6,600, in confluence with the 50- and 100-day SMAs. Momentum indicators are showing that further bullish pressure can arise before the index is overbought, but the FTSE 100 seems to have run into increased resistance at 6,735, so we’ll need to see a break above this level to consider further upside.

Sideways consolidation seems likely to continue into next week as the 6,800 level seems to be a tough resistance to crack ever since the FTSE 100 fell below it back in mid-January. It is likely that we’ll need a catalyst to attract enough buying interest to break higher, but if so, expect the 76.4% Fibonacci at 6,894 to offer significant resistance.

FTSE 100 Daily Chart

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin