The FTSE 100 was tracking US market lowers on Wednesday as concerns about interest rates and growth proved too much to stomach for traders.
As we discussed yesterday, a sharp market rally on a potential Federal Reserve pivot may have been premature after Federal Reserve members signalling continued rate hikes in the foreseeable future in recent days.
“A 2% to 3% drop in the main US indices last night was the market waking up to the fact it had been too complacent about interest rates and inflation,” said Russ Mould, investment director at AJ Bell.
“January’s global stock market rally represented a shift in investor sentiment, with many people believing that central banks, particularly the Federal Reserve, were close to the end of the interest rate rise cycle. With signs of inflation easing, investors thought the cost of borrowing wouldn’t get too much more expensive and so risk appetite was returning for equities, cryptocurrencies and more.”
“A bucket of cold water was poured on the market last week when two Federal Reserve members indicated they would support a 50 basis-point hike in the next US interest rate decision. In essence, a larger hike than some expected, and a signal that the Fed would be nowhere near the end of its rate hike cycle, let alone the prospect of seeing rates come down later in the year.”
95 of the 100 FTSE 100 constituents were down as the FTSE 100 sank 0.9% at the time of writing.
Lloyds
Lloyds echoed NatWest and Barclays’ full year results on Wednesday in as far as suggesting net interest margins – a key profitability metric – had likely peaked last year. Lloyds shares were 1.6% weaker at the time of writing.
However, Lloyds losses were less severe than Natwest and Barclays’ near double digit dives last week. lnvestors were likely happy to see Lloyds commit to a further £2bn share buyback. Barclays only committed £500m to additional share buybacks.
Rio Tinto
Rio Tinto shares were 2.9% softer after the diversified miner said free cashflow nearly halved to $9bn in 2022 as lower metals prices wided $8.8bn from their EBITDA.
“Despite challenging market conditions, we remain resilient because of the quality of our assets, our great people and the strength of our balance sheet,” said Rio Tinto Chief Executive Jakob Stausholm.
“That is why we delivered strong financial results with underlying EBITDA of $26.3 billion, free cash flow of $9.0 billion and underlying earnings of $13.3 billion, after taxes and government royalties of $8.4 billion. This enables us to continue to invest in strengthening the business while also paying a total dividend of $8.0 billion, a 60% payout, in line with our policy.”
In an interview with Bloomberg TV, CEO Jakob Stausholm discussed Rio’s wishes to increase their exposure to lithium and the ongoing battle with car-makers for the best assets.