FTSE 100 Index Pared BOE Gains As UK'S Central Bank Hints Rates Near Peak

• The UK 100 Index futures witnessed some selling on Friday and extended overnight rebound from the vicinity of the 7844.61 level to drop towards the early 7800.00 mark
• Bank of England raises rates by 50bps and signals end to hikes
• JD Sports Fashion (London: JD) leads the list of top gainers as the retailer outlines its strategic focus for the next five years

The UK 100 Index Futures on Friday extended the overnight rebound from the vicinity of the 7844.61 level in the aftermath of the latest interest rate announcement by the Bank of England on Thursday.

As per press time, the UK's main index was down 0.23% for the day to trade at 7804.21 after slipping from as high as 7844.21/weekly high inspired by a BOE - induced rally. During its February meeting, the Bank of England voted by a majority of 7-2 to raise interest rates by 50 basis points to 4.0 percent, pushing the cost of borrowing to the highest level since late 2008. It was the 10th consecutive rate hike amid policymakers' efforts to combat high inflation despite the risks of an expected economic recession this year.

Meanwhile, the central bank dropped its pledge to keep increasing the rate "forcefully" if needed. Inflation had probably peaked, suggesting it might start reducing the pace of rate increases soon. Looking ahead, Bank Rate is seen rising to around 4.50 percent in mid-2023 and falls back to just over 3.25 percent in three years. CPI inflation was projected to fall to approximately 8.0 percent by mid-2023 and around 4.0 percent towards the end of the year. In contrast, policymakers projected a much shallower contraction than previously estimated this year.

Following the BOE's decision, the British Pound fell further to $1.31 after rising to as high as $1.238 as markets digested the latest monetary policy decision. Additionally, the yield on the UK's 10- year Gilt fell below 3.2%, touching its lowest level since mid-December. 

The Bank of England's interest rates decision came hours before the European Central Bank (ECB) also announced it had raised its interest rate on the main refinancing operations by 50 bps to 3.0% during its February meeting, pushing up borrowing costs to the highest level since late 2008 and pledging to deliver another 50 bps rate hike at its next monetary policy meeting in March. Commenting on the two European Central Bank decisions, "The ECB was more or less in line with expectations and the Bank of England sounded a bit more dovish, so I think that's helping to slow the dollar's decline," said Joe Manimbo, senior market analyst at Convera in Washington. "You get the sense that central bankers are taking a little bit of comfort from inflation moving in the right direction." It is worth noting the two European Central Bank decisions came a day after the Federal Reserve slowed the pace of its rate hikes by delivering a modest 25bps hike, which was in line with market expectations.

On the corporate side, JD Sports Fashion (London: JD) jumped more than 10% to lead the FTSE 100 after the retailer outlined its strategic focus for the next five years, including plans for 250 to 350 new stores every year.

In other corporate news, Shell (London: Shel) posted a record annual profit of $40 Billion in 2022, more than double what it raked in the previous year after oil and gas prices soared following Russia's invasion of Ukraine. According to a report by CNN, Europe's largest oil company by revenue reported adjusted full-year earnings of $39.9 billion on Thursday - more than double the $19.3 billion it posted in 2021 — driven by a strong performance in its gas trading business. Following the better-than-expected earnings revenue, the company's stock was up 2.6% in London midday on Thursday. 

As we advance, In the UK 100 Index, the best-performing sector on Friday was the Discretionary consumer sector, led by JD Sports Fashion (London: JD), rose 11.14%/18.20 points to trade at £181.50 per share. The Real Estate sector followed second, topped by Segro Plc (London: SGRO), which added 8.26%/70.20 points to trade at £920.20. The financial sector came in third, led by Intermediate Capital Group Plc (London: ICP), which gained 7.93%/111.0 points to trade at £1511.50 per share.

On the other hand, the worst-performing sector was the Industrials sector, led by BAE Systems Plc (London: BAES), which lost 2.81%/24.00 points to trade at £830.00 per share. The Energy sector came in second, topped by BP Plc (London: BP), which declined 2.77%/13.65 points to trade at $ £478.80 per share. The materials sector came in third, topped by Rio Tinto Plc (London: RIO), which shed 2.23%/138.0 points to trade at £6064.0 per share.

Technical Outlook: Four-Hours UK-100 Four-Hours Price Chart

From a technical standstill, the price extended the modest rebound from the vicinity of 7844.61 level after a firm rejection from the key resistance level plotted by an ascending trendline extending from late January 2023 swing to higher-highs. Subsequent selling would drag spot prices towards the key support level plotted by a one-week ascending trendline extending from late January 2023 to swing high lows. It is worth noting price will, first of all, need a clear break below the key supply zone before any further progression of the downward trend. That said, sustained weakness below the aforementioned zone followed by a clean break afterwards below the key support level would pave the way for aggressive technical selling. The downward trajectory could then accelerate toward the key Demand zone ranging from 7712.11 - 7718.77 levels. A convincing break below these zones would pave the way for additional losses around the UK100 Index.

All the technical oscillators are in positive territory, indicating the overall bias is bullish, and the recent downtick could be short-lived. Additionally, the price is still above the technically important 200 Exponential Moving Average (EMA), which adds credence to the bullish bias. The RSI (14) is at 53.36 and above the signal line, portraying a bullish filter. On the other hand, the Moving Average Convergence Divergence (MACD) Crossover is also above the signal line, pointing to a bullish sign for price action.

On the flip side, if buyers and technical traders jump back in and trigger a bullish reversal, initial resistance appears at the key resistance level plotted by an ascending trendline extending from late January 2023 to swing higher highs. If buyers manage to pierce through this level, upside momentum could pick up, paving the way for a rally toward retesting the 7880.87 key support level. A clean break above this level would pave the way for additional gains around the UK 100 Index.