The FTSE 100 whipsawed on Tuesday as any hopes of lower borrowing costs in the near term were hit by comments by a Federal Reserve official, and Chinese data curtailed sentiment.
The Federal Reserve’s highly accommodative monetary policy involving ultra-low interest rates and quantitative easing in the wake of the financial crisis was often referred to as a ‘punch bowl’ for markets due to the associated bullishness and asset price inflation.
The beginning of the tightening cycle nearly two years ago marked an end to this period, and the world has endured steadily increasing borrowing costs since.
However, last week, we saw a glimmer of what may be to come when the Federal Reserve eventually cuts rates again. A weaker US jobs reports had some raising the question of rate cuts early next year, and global equities surged.
Interest rate hopes dashed
Unfortunately for the bulls, the prospect of the ‘punch bowl’ of easier monetary policy returning was dealt a blow on Monday after Fed official Neel Kashkari alluded to additional rate hikes by saying: “We haven’t completely solved the inflation problem. We still have more work ahead of us to get it done.”
Equities whipsawed in what was a tentative European session. The FTSE 100 was down 0.1% at the time of writing while US futures were pointing to a lower open across the pond.
Poor Chinese economic data was also dragging on the FTSE 100 with Antofagasta, Anglo American and Glencore making up the top three fallers.
“While signs of a softer economy in the US are typically taken as a positive by markets as they anticipate an end to their trial by interest rate hikes, weak economic data from China is just bad news,” said AJ Bell investment director Russ Mould.
“Worse-than-expected Chinese trade data prompted a gloomy start to proceedings on Tuesday as some of the euphoria from rate pauses in the US and UK ebbed away. Helping to sour sentiment was news of Australia’s central bank going against the grain and increasing rates for the first time in five months.”
AB Foods was the FTSE 100’s best performer after announcing strong sales growth at Primark as the retailer took the decision to maintain a competitive pricing, despite input cost inflation.
AB Foods shares were 7% higher at the time of writing.
UK housebuilders
Housebuilders were among the gainers after Persimmon increased their full-year completions target and Halifax said UK house prices rose 1.1% in October.
“House prices have proven fairly resilient. They’re down 3.2% in a year, but we’re still sitting on enormous gains since the onset of the pandemic,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
“And while prices are likely to drift further south in the coming months, they’re holding up impressively in the face of horrible pressure – actually rising in October.
“However, this isn’t because buyers are rushing back to the market: they’re still horribly thin on the ground. The resilience of house prices is due to the fact that so many sellers have decided to stay away for now too. According to Rightmove, it takes around 60 days to agree a sale at the moment – roughly double the time it took during the pandemic boom.”