The FTSE 100 recovered early losses on Tuesday as investors became increasingly concerned about a possible US government shutdown that could upset the trajectory for interest rate cuts.
London’s leading index was down as much as 33 points before recovering to trade down by less than 10 points.
“The FTSE 100 was lower on Tuesday as investors started to fret about the prospect of a government shutdown in Washington,” says AJ Bell investment director Russ Mould.
“Relations between the Democrats and Republicans are frostier than an Alaska morning, so markets are not confident on the prospects of agreeing a deal before midnight tonight.
“One of the biggest short-term concerns for markets is the impact this would have on the release of government data – particularly the jobs number due on Friday – without which the Federal Reserve might not feel as confident about cutting interest rates.”
A US government shutdown has a familiar playbook. Stocks dip as a possible shutdown looms and rebound on a resolution. The variables are whether the government actually shuts down, how much of it shuts down and how long the shutdown lasts.
The longest government shutdown was in 2018, lasting 35 days. The S&P 500 sold off sharply going into the shutdown and rebounded soon after.
There’s nowhere near the volatility of 2018 in markets this time round.
FTSE 100 constituents were finely balanced between gainers and losers on Tuesday. There was no clear sector direction, with peers trading in opposite directions.
Rio Tinto gained 0.2% while Antofagasta lost 1%. BAE Systems gave 0.9% as Babcock rose 0.6%. AstraZeneca fell 0.8% while GSK added 0.8%.
This directionless trade represents a wait-and-see approach from investors as Republicans and Democrats thrash out a deal.
BT was the FTSE 100’s top faller, losing 2.9%. Rentokil Initial rose to the top of the leaderboard after announcing the sale of its French workwear business.