UK100 index teases record high

April 2, 2024

UK100 index broke above 8k mark today
This stock index came to within 150 pips of its all-time high
Falling UK house prices fostered bets for UK interest rate cuts
“Dovish” Bank of England weakened GBP, cheered UK stocks
Could this be the 12th FXTM stock index to reach record high this year?

The UK100 index came to less than 0.2% away from its record high!

This stock index broke above the psychological 8,000 level, before easing back lower at the time of writing.

What is a stock index?

Imagine a stock index being a basket of many different stocks.

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The index measures the overall performance of all those stocks inside that “basket”.

So, rising stock prices inside that “basket” tends to push the index’s prices higher, and vice versa.

What does the UK100 stock index track?

FXTMs UK100 stock index tracks the performance of the benchmark FTSE 100 index.

The FTSE 100 is a blue-chip index, measuring the performance of the 100 biggest companies listed on the London Stock Exchange.

This includes well-known companies such as Shell, AstraZeneca, HSBC, Unilever, and BP, among others.

How far away is the UK100 from its current record high?

The current ATH (all-time high) for this stock index, using intraday prices, stands at 8051.4 posted on 16th February 2023.

Note that this UK100 index tends to move by an average of 0.9% on any given trading day over the past two years.

In other words, this UK100 stock index remains well within reach of its current record high.

If the UK100 stock index can set a new record high soon, that would raise the tally to …

12 of the 18 different stock indices offered across FXTM’s platforms that have posted their respective record highs so far in 2024!

UK100 playing catch up with global peers

Note that the UK100 stock index is up “just” about 3% so far in 2024.

That pales in contrast to the year-to-date gains shown in these stock indexes:

JAP225: +19%
NETH25: +13%
EU50: +12.7%
TWN: +11.7%
US500: +9.9%

Why is the UK100 stock index rising today (Tuesday, April 2nd)?

Today (April 2nd, 2024), it was revealed that UK house prices in March 2024 fell 0.2% compared to February 2024.

This was the first month-on-month decline for UK house prices since December 2023.

While falling UK house prices may ease inflationary pressures, it could also mean stagnating economic growth.

Either way, the data points to a greater likelihood that the Bank of England may cut its Bank Rate sooner rather than later.

How does the BOE’s rate outlook impact the FTSE 100 stock index?

The prospects of UK interest rates moving lower tends to weaken the British Pound, which in turn lifts up the FTSE 100.

At the time of writing, markets are pricing in a 72% chance that the Bank of England will lower its benchmark rate at its June 2024 policy meeting.

Those 72% odds are significantly higher compared to the 42% chance accorded just a month ago (early March 2024) for the same event (BOE rate cut in June).

As a general rule, markets tend to weaken the currency belonging to the central bank that’s about to lower its interest rates.

Also note that the FTSE 100 index and Sterling tend to go in opposite directions (inverse relationship).

In fact, using Bloomberg data, over any given 5-day rolling period over the past 30 years …

the FTSE 100 has moved in the opposite direction as the British Pound, 95% of the time!

Hence, the thought of lower BOE rates = weaker Pound = higher UK100 stock index.

How high could the UK100 stock index go?

Wall Street analysts predict that this UK100 stock index could flirt with the 9,000 mark, 12 months from now.

That suggests potential gains of over 12% over the next 12 months!

If investors can become even more optimistic about the UK and global economic outlook, supported by lower interest rates in the UK, that should help this UK100 stock index realise its upside potential.

Beware of technical pullback

However, on the daily timeframe, note that the UK100’s 14-day relative strength index (RSI) has broken the 70 line and into “overbought” territory.

History suggests that such a technical event may lead to a price pullback in the near future.

Still, once the froth has been cleared from this technical pullback, the UK100 stock index may resume its uptrend that began in late-October 2023, provided the fundamental reasonings remain sound.