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FTSE In Bear Market

After diving 8.5% lower on the open the FTSE has picked up from session lows and is showing some signs of stabilising down around 7% in a chaotic trading session. Pandemonium broke lose as investors attempted to gauge the financial impact of an oil price war and escalating coronavirus concerns. The FTSE has slipped into a bear market, down 22% from its recent high. Can UK government and /or BoE help boost confidence and lift the market?

Cues from Wall Street have been just as concerning with the S&P diving 7% and hitting a circuit breaker, pausing trading for 15 minutes in an attempt to allow investors to reevaluate and to stabilize conditions.

Oil picks off low
Heavyweight oil major BP topped the loser board shedding over 18%, whilst Royal Dutch Shell is not far behind, down over 13% as the reality of an oil price war between Russia and Saudi Arabia hits home. Brent continues to trade in the mid-$30 per barrel range, up from session lows of $31.88, still down 20% on the day at $36.55 per barrel but with bargain hunters getting involved.
Whilst falling oil prices are usually considered favourable for the consumer, the fact that demand expectations have fallen heavily as a result of the coronavirus outbreak is adding to rising fears over the state of the world economy.

Social distancing next
Coronavirus cases are also on the rise with Boris Johnson chairing an emergency cobra meeting after the third coronavirus death in Britain. This could result in social distancing measures, which could panic investors further putting some businesses under more strain.

BoE patience
While the Fed jumped in with a 50-basis point rate cut last week, the BoE have so far adopted a patient approach. Fiscal stimulus will be in focus as investors become increasingly aware that a combined fiscal and monetary stimulus approach is needed to even begin to tackle the growing problem. And that is with even mentioning Brexit.

Will Sunak’s Budget save the day?
With that in mind attention investors will turn towards Wednesday’s Budget. The question is will Rishi Sunak be able to push the right buttons and offer sufficient support to the UK economy in the face of the coronavirus threat. The German announcement of fiscal stimulus missed the mark, falling short of businesses expectations. Traders will most likely want to see what Rishi Sunak has to offer before deciding whether the FTSE has further to fall or whether its time to pick up stocks at bargain prices.

Levels to watch FTSE
The FTSE is down 7% and is finding support at 6000, registering its biggest one day drop since 2016, whilst hitting fresh four-year lows. The outlook is bearish and a move over 6500 is needed to negate the bearish mood.
Immediate support can be seen at 5891. A breakthrough here could see 5788 (low 27th June ’16) comes into play, prior to 5704 (12th Feb’16 low).
On the flipside, immediate resistance is at 6462 (today’s high). The next level is at 6705 (Friday’s high).

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