The FTSE 100 reflected an indecision in markets on Thursday as the UK economy flatlined in February and investors digested the latest Federal Reserve minutes.
The FTSE 100 edged up just 0.2% points to 7,843 at the time of writing on Thursday. Tesco rose after releasing preliminary results, and housebuilders enjoyed broker upgrades.
From a macro perspective, investors were mulling over insights from the Federal Reserve and attempting to predict the next move in interest rates.
UK growth was dead flat in February, so the UK looks set to avoid recession in the near term – but its hardly an environment conducive to igniting animal spirits.
Inflation and rates considerations
US CPI inflation data yesterday was quickly followed by Federal Reserve minutes that provided little certainty to markets about the next move in interest rates.
“Minutes from the latest FOMC meeting didn’t signal a clear intention by the Federal Reserve to immediately stop hiking its key rate further or to lower it by the end of the year, despite acknowledging a material tightening of financial conditions,” said George Lagarias, Chief Economist at Mazars.
Lagarias continued to explain that while there wasn’t a clear path ahead, there was a general feeling we were nearing the end of the hiking cycle.
“However, we don’t think there’s a basis for immediate investor disappointment. Some policymakers are having second thoughts about further hikes, and we appear to be very close to the end of this rate hike cycle. One or two more rate hikes will not make a significant difference at this point,” Lagarias said.
The S&P 500 closed down 0.4% overnight and looked set to open modestly higher on Thursday.
In addition to concerns around central banks, investors will also be weighing the possibility of a US recession.
“The sceptre of recession in the world’s largest economy continues to loom in the near distance and could cloud sentiment for some time,” said AJ Bell investment director Russ Mould.
Tesco
Tesco’s preliminary results reflected the dour mood around the UK economy currently. Tesco’s revenue grew less than market expectations, and profit before tax halved compared to a year ago.
However, the reaction in Tesco shares suggested some investor saw a light at the end of the tunnel.
Housebuilders rose after HSBC analysts issued upgrades across the sector.
Of the FTSE 100 housebuilders, HSBC upgraded Persimmon to a ‘buy’ from hold with a 1,550p price target, Barratt Developments to a ‘buy’ from hold with a 570p price target, and Taylor Wimpey to a ‘buy’ from hold with a 150p price target.
HSBC raised Berkeley Group to ‘hold’ from reduce and issued a 4,000p price target.
