After what has been a dreadful August for the FTSE 100, London’s leading index made only tepid gains this week despite positive influences from the US tech sector.
Interest rate fears raised their head on Friday and halted the FTSE 100’s recovery in its tracks.
The FTSE 100 closed Friday 5 points higher at 7,338 after finishing last week’s trade at 7,262.
“So much for Nvidia’s knock-out earnings triggering a new global stock market rally. The celebration was short-lived, with Wall Street ending Thursday on a sour note as the Nasdaq closed the day nearly 2% lower. The negative sentiment extended to Asia and parts of Europe on Friday, including a 2% decline in Japan’s Nikkei 225 index,” said Russ Mould, investment director at AJ Bell.
“There is a saying with investments that it can be better to travel than arrive, and one might conclude that Nvidia’s stellar share price run was susceptible to a bout of profit taking and that’s precisely what we got.
“Despite the good fortunes of Nvidia and positive news flow from the company, there is no getting over the fact that investors remain worried that interest rates will stay higher for longer and that casts a downer on the markets as a whole.”
These fears were justified as Federal Reserve Chair Jerome Powell spoke at Jackson Hole on Friday in what was a hawkish delivery that sent global equities lower.
*POWELL: `WE WILL PROCEED CAREFULLY' ON WHETHER TO HIKE AGAIN
— zerohedge (@zerohedge) August 25, 2023
*POWELL: FED PREPARED TO RAISE RATES FURTHER IF APPROPRIATE
*POWELL: REAL RATES POSITIVE, WELL ABOVE MOST NEUTRAL ESTIMATES
*POWELL: PERSISTENT ABOVE-TREND GROWTH COULD WARRANT TIGHTENING
Having traded as high as 7,388 on Friday, the FTSE 100 traded negatively before closely just higher at 7,338. US equities sank but were off their worst levels at the time of writing.
Powell’s comments pave the way for additional US rate hikes over the next couple of months and are at odds with a new narrative that has started to build on when rates will be cut.
Earlier in the year, some had predicted the US would cut rates this year. That school of thought is dead in the water.
Investors will watch intently next week for how equities price higher-for-longer US rates. The UK has its own rate fears and today’s developments could play into those sectors highly exposed to interest rates such as FTSE 100 housebuilders and banks.