The FTSE 100 was again a laggard in the global equity arena on Wednesday as London’s leading index failed to partake in a rally spurred by US interest rate optimism.
The FTSE 100 underperformed Europe on Wednesday as the composition of the index meant it wasn’t as well placed to benefit from dovish US central bank comments as European peers.
Indeed, the German Dax was 0.95% higher at the time of writing, while the FTSE 100 languished in negative territory, down 0.1%. The S&P 500 was 0.3% higher.
“Comments from a usually hawkish Fed policymaker that there could be room for cuts to interest rates if the price spiral keeps heading in the right direction look set to push Wall Street higher at the open,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“But the FTSE 100 has opened on the backfoot with little to spark a wave of buying. Central bank policymakers in Europe have been more guarded, with Christine Lagarde of the ECB stressing that wage pressures remain elevated, and Andrew Bailey of the Bank of England warning that higher rates will be needed for a prolonged period.”
The FTSE 100 was held back by heavyweight financials reacting adversely to the prospect of lower rates.
“Financials helped to drag the FTSE 100 lower amid speculation about rate cuts given the potential implications for their profitability,” said AJ Bell investment director Russ Mould.
The FTSE 100’s banks have been beneficiaries of the global rate hiking cycle as rising interest rates drove higher income margins.
As the narrative around interest rate cuts starts to grow, it is likely banking institutions will increasingly fall out of favour for fear of lower earnings in the coming periods.
This was most evident in Asia-focused Standard Chartered and HSBC on Wednesday HSBC slipped 1.8%, and Standard Chartered gave up 2%.
Silver-focused precious metals miner Fresnillo was among the best performing FTSE 100 stocks as the dovish Federal Reserve comments buoyed gold and silver prices.
Ocado displayed its ‘tech stock’ attributes and jumped over 4% on hopes interest rates would soon be cut and provide support for technology growth shares that thrive as discount rates fall.