FTSE's Record Rally Will Be Tested By Econ Data & Banks

FTSE 100 hovers near a new record during a busy week looming with UK economic data and bank earnings.

Probing New Heights

The UK's premier stock index reached three consecutive record highs last week before taking a breather due to tariff concerns. The move higher was mainly driven by a weaker pound and better-than-expected earnings.

The housing sector has now become a boost for the index, as markets anticipate that a cooling British economy will prompt the BOE to ease rates more quickly this year, a thesis that will likely be tested by the upcoming economic data releases.

Upcoming Data to Shed Light

On Tuesday, UK jobs are expected to show stability with an unemployment rate of 4.4%. However, the focus will be on the average earnings, which is forecast to rise at a faster rate of 5.9% from 5.6% prior, potentially signalling wage pressure on inflation – an obstacle for BOE easing.

Wednesday brings a trove of data, with the main focus likely on inflation figures. Headline January UK CPI is expected to accelerate to 2.7% from 2.5% previously, while the core rate is projected to rise to 3.5% from 3.2%. However, this is partly due to base effects, with the monthly core rate expected to turn notably deflationary to -0.7% from 0.3%.

Traders will be keen to see signs of easing inflationary pressure in the near term, which could be expected to lower interest rates and help banks secure more loan customers.

Bank Earnings in Focus

The two major UK banks, Barclays and NatWest, beat expectations. However, their share prices suffered from profit-taking after the results, which could be repeated with Lloyds when it reports earnings on Thursday.

According to a consensus of analysts compiled by the bank, Lloyds's net profits for last year are expected to contract to £4.08 billion. This is because its net interest margin of £12.8 billion is not expected to beat last year's £13.8 billion. Analysts blame lower interest rates, and unlike other major banks, Lloyds is thought to be putting aside more provisions related to the FCA's investigation into its car financing arm.

HSBC, reporting on Friday, is expected to see relatively flat profits at $24.8 billion compared to $24.6 billion a year ago, according to the consensus it compiled. However, it is also expected to show the impact of lower interest rates as its net interest margin is projected to fall to 1.52% from 1.66% in 2023.

Investors will likely focus on details about the restructuring the bank announced back in October 2024 and its financial implications, such as potential cost savings. Additionally, given the bank's exposure to China, loan defaults will likely be under scrutiny.

UK100 Wedge Hints at Pullback

The UK100 index has formed a bearish wedge pattern, which could signal a potential pullback if the 8650 support and 8585 resistance levels are breached, exposing 8430. Conversely, if the 8840 level gives way to bulls, the index could accelerate towards the next round level at 8900, then even 9000.

Source: SpreadEx / UK100

Key Takeaways

A deluge of economic data this week might test Footsie's record run, with a particular focus on inflation figures and their implications for interest rates. The performance of major UK banks Lloyds and HSBC will also be closely watched as they go through the challenges of lower interest rates and restructuring efforts. This week’s events will likely play a role in determining the next move for the FTSE after its recent record-breaking rally.