The FTSE 100 Index has retreated sharply in the past few weeks and underperformed its global peers like the S&P 500, Nasdaq 100, and Kospi. It ended last week at 10,195, down from the year-to-date high of 10,931. This article looks at the key catalysts that will drive the Footsie this week.
FTSE 100 Index to react to UK political issues
One reason why the FTSE 100 Index has pulled back is the ongoing UK political crisis, which started after the recent local elections. The ruling Labour Party lost badly as Nigel Farage’s Reform Party surged.
Since then, most analysts have predicted that Keir Starmer’s job was at risk, with West Manchester City’s Andy Burnham seen as the next Prime Minister. Polymarket odds of Burnham as the next PM have jumped to 54% in the past few days. The other potential candidates are Angela Rayner and Wes Streeting.
Therefore, UK stocks are underperforming the market because of the ongoing political uncertainty. A key concern is that the UK has become ungovernable as it has had 6 prime ministers in the last decade. In contrast, China’s Xi Jinping became president in 2013, while Putin has led Russia for decades.
UK jobs and inflation report
The other main catalysts for the FTSE 100 Index will come from the Office of National Statistics (ONS), which will release some important macro numbers this week. It will first release the jobs report on Tuesday, with economists predicting that the unemployment rate remained at 4.9%.
The most important report will come out on Wednesday when the ONS publishes the latest consumer inflation report. Economists expect the data to show that the headline inflation softened from 3.3% in March to 3.0% in April.
Core inflation, which excludes the volatile food and energy prices, is expected to come in at 2.6% from the previous 3.1%. If these estimates are accurate, it means that the UK inflation situation is improving. In contrast, the US inflation soared from 3.3% in March to 3.8% in April, while the PPI jumped to a multi-year high of 6.0%.
The Bank of England has maintained steady interest rates in the past few meetings. It has recently hinted that it may be forced to hike rates in June to curb the elevated inflation.
This partly explains why UK bond yields have jumped, with the ten-year hitting 5.178%, its highest point since 2007. Similarly, the five-year yield rose to 4.70%, its highest level since October 2023. In some instances, investors rotate from the stock market to take advantage of the rising bond yields.
Top corporate earnings
The next important catalyst for the FTSE 100 Index will be the upcoming corporate earnings by some of the biggest companies in the UK. BT Group, the top telecom company in the country, will publish on May 21. Its earnings are expected to show a modest revenue decline as its business services segment continued its slowdown.
Sage Group, a company that makes accounting software, will also release its numbers on Thursday. Its results will be key as its stock has plunged in the past few months because of the rising fears that it will be disrupted by AI tools.
Intermediate Capital Group’s results will provide more color on the state of the private equity and private credit markets. EasyJet, a top budget airline’s results will show the impact of the rising jet fuel prices on the business.
The other top FTSE 100 Index companies releasing their earnings are Marks & Spencer, British Land, and Diploma.
At the same time, the index will also react to any new updates on the US-Iran war. In a statement last week, President Donald Trump noted that the ceasefire was on life support, raising the probability of resumption of fighting.
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