UK PMI for construction came in at 47.2, below expectations of 48.0 but better than previous month’s 46.8 reading. This disappointment follows yesterday’s Manufacturing PMI which has also missed the mark slightly. Interestingly both PMIs failed to rattle the market, with FTSE 100 prices still heading higher when the news have been announced. It is not as though the PMI data are unimportant – Q4 GDP has already shrunk by 0.3%. Markit Group, which compiled the data, believes that a technical recession would be inevitable for UK if service sector PMI shows similar shrinkage. With a threat triple dip recession, it is certainly strange to see UK stock prices seemingly unaffected, but instead trade higher.
Perhaps market is placing attention on Bank of England decision tomorrow. According to latest meeting minutes, MPC votes for increasing stimulus stands at 6-3 in favor of holding stimulus. Even though the vote ratio remains the same as Feb, the last time a 6-3 split happened back in June 2012, a majority was formed the following meeting in favor of increased stimulus in July. Certainly this is no confirmation that BOE will announce more stimulus tomorrow, but we cannot blame market for being hopeful that a stimulus package will be announced, especially with all the disappointing numbers coming up. This optimism resulted in traders actually turning bullish when bad news are announced as the likelihood of MPC in favor of more stimulus increases, very similar to reaction of bad NFP data before QE3 has been announced circa May/June 2012.
From a technical point of view, the decline from 2nd Apr high is still underway. Stochastic readings are pointing lower, while price has broken the 6,470 interim support. Current rally has failed to push prices back above the level and that will weigh heavily in bears favor, opening up 6,450 support.
Daily Chart is bullish though, with Stochastic reading heading higher and price bouncing from the ascending trendline. However, pace of bullish momentum is slower looking at the distance between price and Kumo. In light of this, price will potentially need to clear March highs before bullish momentum can return. With BOE event risk coming, a favorable result can easily send FTSE 100 clearing Mar highs, but similarly, a disappointing outcome can break the rising trendline. A break below 28th Mar low will open up 6,235 – bottom of consolidation range in Feb. A move like this will also push price below the rising Kumo, and likely to form a bearish Kumo twist which will aid in bearish momentum. Ultimately, a push break below 6,235 may negate current uptrend and potentially set a bearish tone moving ahead.