The FTSE 100 fell on Thursday as investors reacted to the Federal Reserve chair’s downbeat assessment of the US economy overnight.
London’s leading index was down 0.4% at the time of writing.
“Federal Reserve chair Jerome Powell gave a pretty gloomy assessment at an event in Chicago – warning of rising prices and unemployment which sounds very much like a warning of the dreaded stagflation,” said AJ Bell investment director Russ Mould.
Powell’s comment shouldn’t have come as a surprise to market participants, but they were an unwelcome reality check. The Chair pointed to higher inflation this year and hinted that the Fed was not in a position to cut rates at this point.
Although the Federal Reserve showed little sign of cutting rates, the European Central Bank, as the first major central bank to meet in the wake of Donald Trump’s tariffs, took the opportunity to cut rates on Thursday ahead of any economic fallout as a result of tariffs.
“Although Europe has secured a 90-day reprieve from Trump’s global tariff policies, uncertainty remains high and is expected to weigh on growth,” said Bryan Conway, Director at Centrus.
“The fallout from escalating global trade tensions—particularly the intensifying US-China trade war—poses additional risks. There is growing concern that diverted goods from China could flood European markets, further dampening the region’s economic outlook. Compounding these challenges is the euro’s sharp appreciation against the US dollar since the Liberation Day announcement, which has drawn increasing concern from ECB officials.”
The FTSE 100 perked up as the US session got underway on Thursday, but still traded in negative territory.
Sainsbury’s was among the top risers following the release of a robust set of results and fresh share buyback. There will be concerns about the outlook amid a price war with discounts, but the rise in shares on Thursday suggests recent declines for the stock after a similar update by Tesco priced in the worry about earnings over the coming year.
“When Asda fired the opening salvos in a UK supermarket price war in mid-March the markets immediately sat up and took notice and the latest updates from Tesco and now Sainsbury’s suggest this was the right call,” Russ Moudl said.
“Like Tesco, Sainsbury’s wants to equip itself to protect its competitive position, hence its guidance for flat profit in the coming year as it looks to offer customers value for money.
“The main winners in a price war would ultimately be shoppers, however, there were enough positive takeaways in the results to provide some cheer. The ‘food first’ strategy under Simon Roberts is clearly yielding real benefits with a healthy increase in the dividend providing shareholders with real sustenance.”
Fresnillo was the top faller as the company lost the rights to the latest ordinary dividend and a bumper special dividend.