The FTSE 100 slipped on Thursday as several large dividend payers traded ex-dividend and investors sold equities in the face of an uncertain wait for interest rate cuts that may be few and far between when they eventually come.
Interest rates are a hot topic for the market currently, and unfortunately, for equity bulls, the outlook has become a lot worse in the past 24 hours.
The FTSE 100 failed to stage a recovery from yesterday’s selloff as concerns about a lack of interest rate cuts this year sapped enthusiasm for stocks. US CPI came in hotter than expected yesterday and the ECB kept rates on hold today saying they would keep rates at the current level until inflation falls – which could mean a long wait.
That said, the ECB is likely to be the first major central bank to cut rates, possibly in June, as the European economy weakens.
“With the European economy weak and inflation falling, interest rate cuts are justified and needed. The same is not necessarily true of the US, where economic growth ‘exceptionalism’ is keeping its inflation uncomfortably high, calling into question whether the Fed can cut rates at all this year,” said Ben Laidler, Global Market Strategist at investment platform eToro.
We kept our interest rates unchanged at our latest meeting.
— European Central Bank (@ecb) April 11, 2024
See our monetary policy decisions https://t.co/nLLQk6w1bL pic.twitter.com/rZ8Wex669f
Higher oil prices added to inflation concerns after the US reported Iran was considering retaliatory measures against Israel, risking a serious escalation in Middle East tensions.
“After yesterday’s US inflation figures knocked the market for six, it’s no wonder that equities struggled for direction on Thursday,” said Russ Mould, investment director at AJ Bell.
“Hotter than expected inflation data has given the Federal Reserve yet another reason to sit on its hands and kick the prospect of a rate cut further down the road. The signs have been clear to see for a while and investors are now having to readjust their expectations for when we will finally see the much desired ‘pivot’ in monetary policy.”
The FTSE 100 was down 0.38% at session lows shortly after the ECB announced their rate decision on Thursday.
Ex-dividends
Aviva, Phoenix Group, and Lloyds all traded ex-dividend on Thursday and were among the top fallers. Aviva was the top faller, down 6.1%, after losing the rights to a chunky 22.3p dividend due to be paid 30th May. Phoenix Group was down 6%.
Easyjet was a big faller as oil prices spiked higher and travel stocks generally fell.
AstraZeneca was among the top risers after hiking its dividend 7% as shareholders voted on leadership remuneration.
“The main UK corporate news story today comes from pharmaceutical giant AstraZeneca, who have hiked their dividend by 7% on the same day as a key vote on leadership remuneration,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
“Shareholders won’t be blind to the fact that this is a barely disguised sweetener, but it may quell appetites enough to get the divisive package through. The bigger picture for Astra still centres on the work it does on rarer and more complex treatments – dominating this area of the market takes very deep pockets, and that doesn’t appear to be under threat.
