Coronavirus QE: FTSE 100, FTSE MIB Relief Rally to be Faded

Coronavirus QE: FTSE 100, FTSE MIB Relief Rally to be Faded

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FTSE 100, FTSE MIB Price Analysis & News

  • ECB Announces Large Stimulus Package
  • FTSE 100 | Risks Point to Lower Levels
  • FTSE MIB | Relief Rally to Be Faded

An unusual period of calm thus far in equity markets with European equities trading with modest gains after the ECB launched a EUR 750bln pandemic QE program. Keep in mind, that this is on top of the EUR 120bln envelope announced last week and the EUR 20bln monthly purchases already taking place, making a total of EUR 1.06tln of asset purchases by the end of the year. However, while ECB’s Lagarde may have delivered her “whatever it takes” moment, equity markets will remain volatile as investors continue to navigate their way through the concerns over the spread of the coronavirus. At the same time, liquidity conditions have also exacerbated much of the downside across various assets with the exception of the US Dollar and thus the continued scramble for dollars may see the latest respite as a brief pause of the bearish sentiment. Bias remains tilted to the downside.

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FTSE 100 | Risks Point to Lower Levels

In the UK, London looks set to be the next major city to go into lockdown over the weekend. For the FTSE 100 risks continue to point to lower levels with test of the 5000-level expected. With little in the way of notable support, eyes are for extension to the 2011 low situated at 4720.

SENTIMENT

FTSE 100 Price Chart: Weekly Time Frame

Coronavirus QE: FTSE 100, FTSE MIB Relief Rally to be Faded

Source: IG Charts

FTSE MIB | Relief Rally to Be Faded

Among the key beneficiaries of the ECB’s QE announcement had been Italian assets with the FTSE MIB outperforming, while Italian BTPs had surged as much as 8%. However, while this has provided an initial relief rally, we still see downside risks and thus expect Italian assets to fade its early morning gains, particularly with Italy looking to extend its lockdown. As such, the prolonging economic inactivity will likely deepen the recession in Italy. Notable support situated at 15,000, although a break leaves the index vulnerable to a move towards the Eurozone debt crisis lows.

FTSE MIB Price Chart: Weekly Time Frame

Coronavirus QE: FTSE 100, FTSE MIB Relief Rally to be Faded

Source: IG Charts

— Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

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