The FTSE 100 was weaker on Tuesday as commodity companies dragged the index lower despite a rally in UK-centric stocks on interest rate hopes.
London’s leading index was down 0.4% at the time of writing on Tuesday with oil majors shaving off a considerable number of points from the index. BP was the top faller, plunging over 4%, and Shell sank over 2%.
The catalyst was falling oil prices – Brent and WTI were both down more than 5% in midmorning trade in London.
“With the crude price failing to bounce through Asia, consolidation was the play, where we saw a tight range for much of trade, however, we’re now seeing sellers regain composure with price breaking through the US lows, with a mix of stops being taken out, and momentum-focused traders working in line with the flows,” said Chris Weston, Head of Research at Pepperstone.
“The demand side of the equation also seems to be in play with OPEC projecting weaker demand forecasts.”
Although the index was firmly in the red on Tuesday due to oil and mining shares, there was considerable positivity emanating from companies focused on the UK economy.
Hopes of lower interest rates provided support for house builders with Persimmon, Barratt Redrow and Taylor Wimpey all up more than 2%.
“Domestic-focused UK stocks were in the spotlight as the latest economic data strengthens the argument for a drop in the cost of borrowing,” says Russ Mould, investment director at AJ Bell.
“The Bank of England is carefully engineering a soft landing as the UK economy loses momentum. A decline in the unemployment rate suggests the labour market isn’t in trouble, yet lacklustre GDP figures for July and August, combined with a slowdown in the rate of pay growth, means a small interest rate cut might be warranted to help grease the wheels and get the country moving a little bit more.
“Markets are now pricing in an 83.5% chance of a quarter percentage point rate cut when the Bank of England’s monetary policy committee meets next month. Shares in housebuilders, banks and supermarkets responded favourably to the latest economic data and how it could lead to a rate cut, but not every consumer-facing stock got a bounce. Retailers Next and Currys were in the red which suggests some caution on behalf of investors, namely that another rate cut isn’t a guaranteed ticket to consumers splashing more cash.”
Easyjet was the top riser after Goldman Sachs after bumped their price target up to 600p.