FTSE 100 Index eyes crash to £10k as UK bond yields points to a hawkish BoE

The FTSE 100 Index has slumped by over 5% from its peak this year as investors have embraced a risk-off sentiment amid the ongoing war in Iran. It dropped to £10,305 on Thursday, down by 5.65% from its highest level this year.

Iran war has led to a risk-off sentiment 

The FTSE 100 Index has slumped because of the ongoing Iran war, which has pushed investors to embrace a risk-off sentiment.

These risks increased on Thursday after Iran launched an attack on a major gas plant in Iraq, a response to Wednesday's attack on its gas fields by Iran. As a result, UK gas prices jumped by over 22% to $171. It has jumped by 132% this month, leading to a major squeeze in the British economy.

Crude oil prices also continued rising, with Brent, the global benchmark, rising to an intraday high of $115.

Therefore, there are concerns that these energy prices will worsen the British economy, which is already in stagflation. The most recent data showed that the country’s inflation remained above 3% in January, while the labor market continues to struggle, with the unemployment rate remaining at 5.2%.

As such, there is a possibility that the Bank of England (BoE) will maintain a highly hawkish tone in the coming meetings. This explains why UK bond yields have jumped, with the ten-year rising to 4.735% from this month's low of 4.235%. Some City analysts expect the bank to hike interest rates once this year.

Most FTSE 100 Index companies have slumped in the past 30 days. Barratt Redrow, one of the biggest house builders in the UK, has become the top laggard in the FTSE 100 Index in the past 30 days. It has dropped by over 25% in the last 30 days.

EasyJet stock has slumped by 23% as the war has pushed jet fuel prices higher and disrupted some of its routes.  Like other airlines, it has been forced to hike prices, which may lead to lower demand. IAG, the parent company of  British Airways and Aer Lingus, has also dropped by 18% in this period.

The other top laggards in the index are companies like Diageo, Persimmon, Melrose Industries, Hikma Pharmaceuticals, and Reckitt Benckiser, which have all dropped by over 18% in the same period.

On the other hand, energy stocks have been the top gainers, with BP and Shell jumping by over 18%. RELX, Admiral Group, BAE Systems, and London Stock Exchange are the other top gainers.

FTSE 100 Index technical analysis 

Footsie Index chart | Source: TradingView 

The daily chart shows that the FTSE 100 Index has slumped in the past few weeks, moving from a high of £10,920 last month to the current £10,200. It has dropped below the 25-day Exponential Moving Average (EMA).

The index has formed a bearish flag pattern, which is made up of a vertical line and a horizontal channel. It is now forming the channel section.

The index has already flipped the Supertrend indicator from green to red, while the Relative Strength Index (RSI) and the MACD indicators have all continued falling.

Therefore, the index will likely continue falling, with the next key target being the psychological level at £10,000.