FTSE 100 falls as interest rate tensions return

The FTSE 100 dipped on Wednesday as interest rate tensions sapped enthusiasm for UK stocks as traders awaited important US data due to be released later this week.

Interest rate concerns have taken a back seat lately, with gains in AI-related stocks helping boost global investor sentiment. However, as we entered a new month, the focus has shifted back to central banks and their plans for borrowing costs.

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The FTS100 declines were broad yet contained. BT was the biggest faller, shedding 4%, with Prudential and RS Group not far behind. The main factor at play was another soft session in the US spilling over into European stocks.

US equities have experienced a soggy start to April, with profit takers sending many of the ‘Magnificent 7’ tech shares lower and taking the S&P 500 with it.

“After two back-to-back sell-offs on Wall Street, we’ve seen some of the negative sentiment being mirrored this side of the Atlantic, with the FTSE 100 suffering a sharp drop in early trading,” explained Adam Vettese, analyst at investment platform eToro.

“The index had clawed back some of the losses by the afternoon in London, though, with support coming from surprisingly soft eurozone inflation data, solidifying expectations for an ECB rate cut in the summer.”

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UK stocks held their own after recent selloffs in the US, but the selling pressure proved too much for the FTSE 100 on Wednesday. The index dropped below 7,900 in early trade before recovering to trade at 7,923 at the time of writing.

“Up until now the market has been remarkably sanguine about expectations on when the first interest rate cut will fall consistently being pushed back. But investors’ patience may finally be running thin,” said AJ Bell investment director Russ Mould.

“Recent releases from the US suggest both that inflation is proving stubborn but also that the economy is proving remarkably resilient. This is creating a situation where central bankers can arguably afford to keep policy tight to ensure they really have slain the inflation dragon.”

Last year, equity traders had their hearts set on rate cuts in March and took the delay to the summer well. However, any suggestions from major central banks, including the Bank of England or the Federal Reserve, that they could prolong the date of their first rate cuts beyond this will be hard for some to take.

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