The FTSE 100 tracked US stocks lower on Thursday as fears around higher interest rates and renewed volatility in regional US banks knocked confidence.
The FTSE 100 was down 0.76% to 7,728 at the time of writing.
Fed hikes
The Federal Reserve hiked rates 0.25% to the highest level in 16 years overnight and signalled they were not yet ready to cut rates.
Investors keenly listening to the Fed Chair’s press conference would have been disappointed to learn rate cuts were still a way off. However, Jerome Powell did suggest the Fed was ready to pause rate hikes and wait for further data before amending rates again.
Traders reacted to comments suggesting rates will remain elevated for an extended period by dumping equities overnight. The selling spilled over into the European session this evening.
“We on the committee have a view that inflation is going to come down not so quickly,” Fed chair Powell said.
The risk is the transmission lag between higher rates and economic impact is yet to kick, which could result in a recession later this year.
Non-Farm Payrolls
Many economists are predicting a US recession later this year. While no one will truly welcome an economic downturn, a recessionary environment will help bring down inflation and bring easier monetary policy closer.
Non-farm payrolls due to be released tomorrow will provide insight into the health of the US economy.
PacWest
Regional US banks added to the cautious tone after PacWest was reported to be exploring asset sales and a possible capital raise.
The bank made an announcement after shares sank around 60% following reports the bank was seeking options.
PacWest shares were down 40% going into the US open but the heavy selling was primarily limited to US regional banks.
FTSE 100 movers
Shell was trading 1% higher after a solid Q1 2023 in which the oil giant generated $9.9bn free cash flow. The company will return $4bn to shareholders.
“Despite continuing pressure on the oil price, Shell is still throwing off vast quantities of cash. It’s renewed its efforts to return some of this to shareholders,” said Derren Nathan, head of equity research at Hargreaves Lansdown.
Next shares increased 2% after the retailer demonstrated they were able to withstand economic pressures and maintain healthy sales levels. Sales in the most recent did fall, but less than had been expected.
Stocks trading ex-dividend including Glencore and St James’s Place were the biggest fallers down 6% and 5.5% respectively.
UK banks and miners were also suffering as concerns around interest rates hit cyclical sectors.
