UK prepares fresh business bailout scheme as FTSE 100 eyes 6,500

UK Chancellor Rishi Sunak is working on a fresh business bailout scheme to support larger UK companies. In the meantime, the FTSE 100 closed the week only 0.95% lower, despite trading as much as 4.5% down over the course of the week. 

Fundamental analysis: Sunak to aid larger companies

After unveiling a large scheme to support small and medium-sized enterprises (SMEs), and the self-employed, Rishi Sunak is working on a new bailout program to support larger companies, Sky News reports. 

Accordingly, the Treasury has shared a draft document with local institutions centered around the mechanism that would “pool individual loans into securitisation vehicles”. These securities will be partially backed by the UK government or sold to the Bank of England (BoE). 

"By providing funding for, and protection against severe losses on, sub-investment grade loans, such an approach could support lending to these companies,” it is noted in the Treasury document.

Three main industries targeted by the Treasuries are hospitality, retail, and aviation. If passed, the new scheme would cost tens of billions of pounds to materialize. Sky reports that a provision of allowing individual loans of up to £200m is being discussed.

"The government would expect, at a minimum, loans to be available to firms with a turnover above £500m that are not eligible for the CCFF," the document said.

Sunak is scheduled to unveil the new £1bn rescue package for start-ups on Monday. 

Invezz reported last month that 38 Members of Parliament (MPs) sent a letter to UK Chancellor Sunak, asking him to take measures to help airlines during the coronavirus crisis.

Technical analysis: FTSE 100 closes the week in a strong manner

FTSE 100 gained nearly 3% on Friday after trading nearly 5% lower on Wednesday and Friday. The UK’s benchmark index has been battling to stay above the horizontal resistance 5,780 all week, and it appears that the buyers were marginally successful in this mission. 

This weekly close now opens the door to buyers to push the price action above the 6,000 mark, with the horizontal line at 6,100 marking the initial resistance. The key midterm resistance is located near 6,500 (the thick blue line). 

On the downside, the intraweekly support is located at 5,500. 

Summary

British media report that Chancellor Sunak is working on the new business bailout scheme to support larger UK companies, mainly focused on retail, aviation, and hospitality. The multi-billion scheme may provide another boost for the FTSE 100 as the UK’s blue-chip index continues its rebound from the 8-year low.