FTSE 100 falls with oil as risk-on rally fades

The FTSE 100 dipped on Tuesday posting a 0.5% decline despite US stocks soaring overnight. Oil majors dragged as oil prices fell on positive developments in Hamas and Israel ceasefire talks.

The risk-on rally in UK large caps is starting to fade as investors look to the economic realities of a nearly two-year interest rate hiking cycle coming to an end.

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Markets have priced an end to rate hikes and now must prepare for the next chapter in the equity market’s story which may be slower growth.

Economic data certainly suggests the US, Europe and the UK are losing steam. Central banks will now have to carefully balance the risk of inflation increasing by cutting rates with not tipping their economies into recession by keeping them at higher levels.

Many economists predict interest cuts in the first half of next year. 

“The narrative has shifted from how fast interest rates could go up to now focusing on when rates might start to go down. Smaller companies have perked up on the market in recent weeks, alongside long duration investments such as infrastructure and property funds, which implies a slight shift in investor thinking,” said AJ Bell’s Russ Mould.

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“However, these are bouncing off a low base and it is too early to proclaim any definitive market rotation.”

FTSE 100 movers

Coca-Cola HBC was the FTSE 100’s top gainer, rising over 4%, after announcing a major share buyback programme.

BP and Shell were both down in the region of 1.5% as Brent oil prices slipped back towards $80.

Ocado was the top faller as the company failed to break through technical resistance.

It was a quiet day for FTSE 100 corporate updates, and company-specific news came largely from the mid-caps.

AO World gained after upgrading its profit guidance for the year and Capita added 6% on news of cost savings and margin expansion. 

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