The FTSE 100 index continued its strong rally this week as it moved deeper into its all-time high. The blue-chip index surged to a high of £8,110 on Friday as the corporate earnings season got into high gear.
Why the Footsie is soaring
There are three main reasons why the FTSE 100 index is in a strong bull run. First, there seems to be high demand for British companies, which are believed to be severely undervalued compared to their global peers.
BHP, the biggest mining company in the world, announced that it was interested in Anglo American (JO:AGLJ) in a deal valued at over £31 billion. While Anglo American has rejected the offer, analysts believe that it just wants a higher price.
On Friday, Thoma Bravo, an American private equity company, said that it would acquire Darktrace (LON:DARK) in a £5 billion deal. Earlier this month, DS Smith agreed to a £5.8 billion buyout from International Paper, an American rival.
Most analysts believe that more British companies are ripe for acquisitions because of their cheaper valuations. The FTSE 10O has a price-to-earnings ratio of 18, lower than the S&P 500 average of 24.
Second, the index has jumped because of the ongoing earnings season. Some of its key constituents have published strong financial results. On Friday, NatWest’s share price surged after its revenue and profit figures came out stronger than expected.
Other British banks like Barclays (LON:BARC) and Barclays also published strong financial results, which has helped them maintain their bull run. HSBC (LON:HSBA) and Standard Chartered (LON:STAN) will release their results next week.
Third, the FTSE 100 index has jumped because of the general view that the Bank of England (BoE) will start cutting interest rates soon. The general view is that the country’s inflation figures will drop to the BoE’s target of 2.0% soon, leading to cuts.
That explains why the British pound has continued falling. It has crashed to 1.2500 against the US dollar, down from the year-to-date high of 1.2892. The FTSE 100 index does well when the BoE has embraced a dovish tone.
Further, the FTSE 100 index has soared because of the rising industrial metal prices like copper, iron ore, and silver. This performance is important because the index is made up of the biggest mining companies like Rio Tinto (LON:RIO), Anglo American, Antofagasta (LON:ANTO), and Glencore (LON:GLEN).
FTSE 100 index forecast
FTSE chart by TradingView
The daily chart shows that the FTSE index has been in a strong bull run in the past few months. It has now crossed the crucial resistance point at £8,047, its highest point in February 2023.
The stock has surged above the 50-day and 200-day Exponential Moving Averages (EMA) while the Relative Strength Index (RSI) and the MACD have pointed upwards. There are signs that the stock has formed a cup and handle pattern.
Therefore, the outlook for the index is extremely bullish for now, with the next target to watch being at £4,500.