The FTSE 100 fell for a second straight session on Tuesday as comments from central bankers reminded investors that markets were not completely out of the woods in terms of inflation and possible interest rate hikes.
Global equities staged a material rally earlier this month after major central banks signalled we are likely near the end of the tightening cycle. Since then, European equities have sagged as the euphoria diminishes and investors prepare for upcoming inflation data and central bank meetings.
“Markets are going through a one step forward, one step back motion at present, struggling to sustain a proper breakout despite investors increasingly taking the view that central banks are done with raising interest rates in the current cycle,” said Russ Mould, investment director at AJ Bell.
“The problem is that representatives of major central banks don’t want to draw a definitive line in the sand. We keep getting little comments that suggest their work to tame inflation is not finished. The latest example came from ECB President Christine Lagarde who yesterday said that the fight to contain price growth is not yet done. Every time we get such comments, investors lose confidence and equities take a small step back.”
The FTSE 100 was down 0.4% to 7,429 at the time of writing.
Rolls Royce
Rolls Royce was the FTSE 100 top gainer after the engine maker held a capital markets day and outlined plans to divest up to £1.5bn of assets that didn’t fit their medium-term goals.
The company set targets to deliver ‘record future performance’ that included operating profit of between £2.5bn-£2.8bn and operating margin of 13-15%. Rolls Royce said they were delivering a strategy with the aim of producing free cashflow of £2.8bn-£3.1bn and return on capital of 16-18%.
Rolls Royce shares were up 5% to 256p and touched the highest levels since 2019.
Miners
Iron futures fell overnight in Asian trade following reports the Chinese authorities will increase their oversight of the market after a sharp rally in futures contracts.
An integral element in steel making, iron ore prices have jumped from around $105 per dry metric ton in August to just under $130. Rising prices and associated increased prices of steel could derail a Chinese economic recovery helped by construction, prompting authorities to tighten their supervision of the market.
A Chinese administration setting its sights on managing iron ore prices is not good for miners who have been praying for higher commodity prices.
After slipping yesterday, Rio Tinto was down a further 1.3%, while Glencore dropped 0.8% and Anglo American 1%.