Global markets were assessing the implications of another round of oil production cuts by Russia and Saudi Arabia on Wednesday as oil prices rose and threatened to reignite inflationary pressures, which had started to show signs of abating.
The FTSE 100 fell with European stocks and US equity futures as investors weighed the possibility of higher inflation and more interest rate hikes from major central banks.
“If central bankers thought energy prices were an area they could relax on a bit, then the move higher through June has firmly disabused them of that notion,” said AJ Bell investment director Russ Mould.
“The extension of output cuts by Russia and Saudi Arabia through to the end of the year has helped oil prices regain the $90 per barrel mantle for the first time in 2023 and this is likely to add to inflationary pressures. It may force the likes of the Federal Reserve to keep interest rates higher for longer and this is helping to undercut the more comfortable narrative that the trajectory for rates is on the way to shifting.
“Markets are reacting negatively as we await the next decisions from the Bank of England and Fed later this month. The recent improvement in sentiment was always fragile and the cracks are now firmly on show.”
Sectors negatively aligned to interest rates were most heavily hit on Wednesday. IAG fell as input costs threatened to derail future margin expansion for the airline, and wealth managers suffered on the prospect of generally lower equity markets and erosion of disposable income. abrdn fell 2% while Schroders dipped 1.7%.
Housebuilders were dealt not only the blow of interest rate fears but also the increased pessimism around Barrat Developments’ final results.
Barratt’s completions fell heavily last year, but it was an insight into their current forward sales which was most concerning. Barratt said forward orders were down 31% on this time last year.
Barratt Developments was down 2.1% and Persimmon lost 2.3% of its value.
B&M European Value rose 1.7% a day after snapping up 51 Wilko stores and receiving a buy rating from Shore Capital.
Johnson Matthey was the top riser as the specialist chemicals company continued a rally after Standard Industries upped their stake in the company.