We look set for a flat UK Index finish this week, however this masks the exciting gains and then declines for Miners and Oil (and gains for housebuilders and financials). Which is great for those who missed out, as it offers another bite at the uptrend cherry next week. Especially with the index still holding above 7300 and a raft of stats to support our thesis which stands since last week, when we suggested looking at buying the UK Index dip.

Firstly, 25% of UK 100 stocks are trading within 5% of their 2017 lows. This offers potential support to prevent them from trading much lower, thus buoying the index. And with the UK Index already bouncing again from 7300 to test 3-week falling highs resistance, this may already be in motion. Other supportive stats include 25% of the index still trading within 5% of their 2017 highs (potentially still rising) and 30% holding within 10% of their all-time record highs, even after the UK Index ’s 300pt (4%) pullback from 7600 record highs.

Secondly, 55% of the UK Index index continue to trade above their 200-day moving average, and the index sits a whole 100pts north of its own. So we are not on for a major trend change just yet; we’d need to fall further first. We also continue to flirt with December rising support, and all the while we do increases the chance we bounce properly. And even after gains of 3.0% YTD (6.4% at recent highs), a quarter of the index still offers investors dividend yields of over 5% (some even 7%+), another supportive reason encouraging buyers after the shares have given up some ground.

There’s excitement ahead with US Q2 reporting season kicking off next week, the big banks (Citigroup, JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley) updating us on their financial performance and, more importantly, their outlook. The read across for UK banks – already excited at the possibility of a Bank of England rate rise in August – could help the sector drive the UK Index higher.

We also have UK corporate trading updates next week including Marks & Spencer, Barratt  Developments and Burberry to name but a few. Again, sales and profits are important but the lynch pin for sentiment is likely to be the outlook, especially as we negotiate Brexit, although the UK Index ’s international focus can offer insulation. Positive updates could fuel share price gains that propel the index north.

Lastly, we had surprise M&A this week (Worldpay) which rekindled interest in select names oft touted as takeover candidates. My colleague has gone into more detail on this, but the overall bullish boost to sentiment (a 20% premium was paid for WPG) is just another thing to help keep us above that 7300 platform which would prove the springboard for a recovery to 7600.

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Mike van Dulken, Head of Research, 7 Jul 2017