FTSE 100 Index futures enter correction as top UK shares plunge

The FTSE 100 Index futures continued the recent downtrend, reaching its lowest level since January 5 this year. It dropped to £9,800 on Monday, down by 10% from its highest point this year, officially entering a correction. 

Top reasons why the FTSE 100 Index is falling 

There are two primary reasons why the Footsie Index is falling this year. The most notable one is that the ongoing Iran war has led to a strong sell-off in global indices.

For example, in Europe, top indices like the German DAX, French CAC 40, and Spanish IBEX have all plunged by nearly 10% from their highest levels this year.

The same trend is happening in the United States, where futures tied to the Dow Jones, S&P 500, and Nasdaq 100 indices fell on Monday. These indices have all dropped sharply from their highest levels this year.

The FTSE 100 Index has also slumped because of the actions of the Bank of England (BoE), which is contending with a situation known as stagflation, which happens when inflation is rising amid the slowing of the economy.

Data coming this week is expected to show that the UK’s inflation remained above 3% last month, higher than the central bank’s target of 2.0%. Inflation will likely continue rising in the coming, with gas prices rising by 104% this year. Crude oil prices have also jumped, with Brent, the global benchmark, rising to $112, up sharply from the year-to-date low of $55.

Stagflation is a central bank’s main nightmare. Cutting interest rates to stimulate economic growth often leads to high inflation, while hiking rates to lower inflation leads to low inflation.

Most FTSE 100 Index companies have plunged this year. Barratt Redrow stock has dropped by 32% this year as property developers have continued cutting prices. 

EasyJet stock has dropped by 30% this year as jet oil prices have continued soaring, a move that will affect its margins over time. 

Entain stock has dropped by 29% as competition from companies like Polymarket and Kalshi have continued gaining market share. Other betting companies like DraftKings and Flutter have also plunged in the past few months.

The other top laggards in the FTSE 100 Index are companies like Intertek Group, Sage Group, Experian, Barclays, and Burberry Group. All these companies have plunged by over 22% this year.

On the other hand, some companies have done well this year. Beazley stock jumped by 50% after being acquired by Zurich, a major insurance company. Schroders stock has soared by 40% this year after being acquired by Nuveen. 

BAE Systems stock has jumped by 31% this year because the company will benefit substantially from the ongoing war in Iran as it will lead to more demand. The other top gainers are companies like BP, Glencore, Shell, Centrica, and BT Group.

Footsie Index chart analysis 

Footsie Index chart | Source: TradingView 

The daily timeframe chart shows that the FTSE 100 Index has slumped in the past few weeks, moving from the year-to-date high of £10,920 last month to the current £9,800.

This index has dropped below the key support level at £10,080, its lowest swing on March 9 this year. It has slumped below the 23.6% Fibonacci Retracement level at £10,116.

The index tumbled below the 50-day and 100-day Exponential Moving Averages (EMA), while the Relative Strength Index (RSI) moved close to the oversold level of 30.

Therefore, the stock will likely continue falling in the near term, potentially to the 50% Fibonacci Retracement level at £9,225. It will then bounce back later this year when there are signs that the war is ending.