The FTSE 100 continued yesterday’s decline early on Friday after optimism around a rate cut was quickly replaced by concerns about global growth.

London’s leading index was down 0.4% at the time of writing. “So much for the big equity rally when interest rate cuts take centre stage,” said Russ Mould, investment director at AJ Bell.

“Investors thought rates cuts – which have just happened in the UK and looked poised to take place next month in the US – would energise stock markets. The opposite has happened with a bad day on Thursday and weakness extending into Friday, meaning August is so far off to a bad start.

“Weak economic data from the US spooked the market and reminded investors there are negative reasons why central banks might cut rates, not simply lowering the cost of borrowing because the rate of inflation is easing.”

We have previously alluded to global markets’ capacity to focus on only one big theme at a time. The fixation on global interest rates and when they will be cut diverted attention away from underlying growth rates and the consequences for equities.

Now that two major central banks, the Bank of England and the European Central Bank, have cut interest rates, and the Federal Reserve looks set to cut rates in the very near future, investors have quickly shifted their focus to growth rates, which aren’t fantastic.

The UK’s unemployment rate is slowly ticking higher, Europe’s GDP is growing at a snail’s pace, and the US manufacturing sector is in contractionary territory. 

With markets free of the preoccupation of when central banks will cut rates, they are now looking at growth, and they don’t like what they see. The result is sharp declines in US equities that spilt over into the European session on Friday morning. Poor results from Amazon overnight has further dampened sentiment.

Investors will do well to hold on to their hats for the rest of the session. The Non-Farm Payrolls report, due for release at 1.30pm this afternoon, promises fireworks. A miss of expectations could see further downside, while a much better-than-expected read has the potential to spark a sharp rally after all the losses of late.

The risk-off approach to Friday’s trading was evident in a clear divide between the winners and losers. Safer defensive sectors such as pharmaceuticals, utilises, and precious metals were well-bid, while pretty much everything else was in the red.

Endeavour Mining, GSK, Haelon, and Fresnillo were among the top gainers. The only anomaly in the risk positioning was IAG’s decision to abandon its pursuit of the takeover of rival Air Europa. IAG shares were 6% higher.

Mondi was the top falling following the slashing of its price target by a plethora of brokers.

First Class Metals shares fell on Friday after completing a discounted placing to fund working capital and exploration activities.

Earlier this year, we wrote that, despite the attractiveness of First Class Metal’s assets, they were in danger of having to raise funds again in 2024, and the placing level could well be beneath 3p. That article can be read here.

First Class Metals has now completed two placings beneath 3p in just two weeks, and the amounts are far less than the placings in 2023, which raised £600,000 and £1,000,000.

Today’s placing raised gross proceeds of £256,500 at 2.7p, a 16% discount to yesterday’s closing price. The prior placing 17 July raised £85,000 at 2.8p.

The funds will be allocated to the ongoing ‘potentially significant impact exploration programme’ at the Hemlo gold project’s Dead Otter Trend North. Helmo is First Class Metal’s flagship project.

“In light of the recent announcements regarding the high priority status of the Dead Otter Trend, it was considered wise to take advantage of the crews and equipment already mobilised at the site to increase both the number and scope of stripping sites,” said James Knowles, FCM’s Executive Chairman.

“We believe that the Dead Otter project holds transformative potential for FCM’s future, and completing this capital raise promptly will allow significant additional work this summer, thus enhancing our understanding of the geology and the target’s true potential.”

With FCM shares now down 52% year-to-date, shareholders will certainly hope the recent fundraises can facilitate material progress over the summer.

ITM Power PLC has announced a significant improvement in its financial outlook for the fiscal year ending 30 April 2024. The green hydrogen technology firm, based in Sheffield, has revised its EBITDA loss forecast, painting a much rosier picture than previously anticipated.

Previously, the company had projected an EBITDA loss between £39.0m and £44.0m, as stated in their 6 June trading update. This figure already marked an improvement from earlier estimates. However, today’s announcement signals further material improvement, with ITM Power now expecting losses to narrow to between £30.0m and £32.0m.

The driving force behind the dramatic improvement is the resolution of disputes tied to legacy projects. With these matters now settled, ITM Power has been able to release a provision previously set aside, significantly bolstering its EBITDA financial position.

As the audit process nears completion, investors will be gearing up for 15 August, when the preliminary results will be released.

ITM has recently signed deals with industry heavyweights such as Shell and shareholders will be looking forward to further insight into progress in the rollout of ITM’s electrolyser stacks.

The FTSE 100 gained on before falling back Thursday after the Bank of England cut interest rates for the first time since the pandemic when it took rates to record lows to support a ravaged economy.

Since then, the BoE has increased interest rates from 0.1% to 5.25%, which has had broad-reaching effects on businesses, households, and the stock market. Today’s cut to 5% doesn’t take interest rates anywhere near where they have been over the past decade, but the move will have a significant impact on confidence.

“Whilst nominal in absolute terms it is a meaningful milestone in the direction of travel for monetary policy should add to the already building momentum in UK business and consumer confidence,” said Indriatti van Hien, Fund Manager at Henderson Small Companies Investment Trust.

Consensus for the decision to cut rates or not had been on a knife edge leading up to today’s historic announcement, which represents the Bank’s victory in controlling inflation and beckons an easing of pressures on households.

“The central bank has decided to fire the starting pistol on rate cuts in a move that will invigorate investors and mortgage holders alike,” said Rachel Winter, Partner at Killik & Co.

“The Bank of England was clearly satisfied with the recent fall in CPI to the 2% target level, and its choice demonstrates a deviation from the Federal Reserve across the Atlantic, which has yet to cross the finish line in its battle with inflation.”

The FTSE 100 gained in the initial reaction to the announcement, but the rally was sold into as the session progressed.

Market reaction

The FTSE 100 was supported by a string of upbeat earnings from companies including, Next, Barclays, and Shell on Thursday. Although the announcement was well received, with a sharp uptick of 30 or so points for the FTSE 100, the move was far from europhic.

The interest rate-sensitive housebuilding sector spiked higher but was quickly sold into, with Taylor Wimpey and Persimmon gaining just 0.5% at the time of writing.

Banks have been reducing mortgage rates in preparation for the rate cut, and today’s news is unlikely to offer any additional boost to the sector in the short term. Whether the Bank of England signals more cuts in the coming months will have a greater effect. Interest rate futures traders seem to think they will cut rates again, judging by current pricing.

Elsewhere, Next was storming ahead after yet another beat of expectations – something investors have become accustomed to. That said, another quarter of producing sales growth amid tough economic conditions was not lost on the market, and shares were over 8% higher at the time of writing.

Shell was 1% higher after it was confirmed that it was still a cash-generating machine, as free cash flow increased despite lower earnings.

The standout gainer was Rolls Royce, adding 10%. Investors cheered the reintroduction of shareholder distributions to commence later this year as the jet engine maker’s operating profit soared. The company embarked on a streamlining strategy that is now rewarding investors.

It’s been a solid earnings season so far for FTSE 100 banking earnings, and Barclays has done nothing to break the mould with stronger than expected earnings pleasing investors on Thursday.

Barclays enjoyed improving net interest margins in the second quarter across most business units in the second quarter culminating in a group net interest margin (NIM) of 4.2% compared to 4.12% in the first quarter.

Stronger NIMs will be welcome news for investors in the face of money markets positioning for interest rate cuts and the pressure of increased competition.

“Banks are booming, and Barclays has joined the party,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“Second quarter results pretty much beat across all lines. As we’ve seen from peers, Barclays continues to call out the strong UK borrower with low missed credit card payments, good mortgage quality, and an improved economic outlook all helping to keep those pesky impairment charges down. Barclays also has a huge US card business, and impairments were also better than expected, but our friends across the pond are under a little more pressure and write-offs have been ticking higher.”

A key differentiator for Barclays is its investment banking arm, which can provide a welcome boost to underlying income as capital markets activity picks up.

Although global capital markets are still well below their peak, deal flow has increased, helping Barclays Investment Banking income rise 10% in the second quarter.

The Investment Banking unit is by far Barclays’ largest single unit in terms of revenue and was the key driver in group revenue increasing in the second quarter.

“Barclays Investment Banking revenue beat is positive for mid-term targets, our specialists argue that the 50% IB RWA target needs to be achieved through top-line revenue growth and this seems like a step in the right direction,” said Max Georgiou, Analyst at Third Bridge.

“To continue executing this strategy we expect to see a continued focus on regrowing share in the US market. The risks within this are potential human resources attrition from lay-off rounds and lower additional compensation and challenges in reaching high fee floors across completed advisory work.”

Rounding off an all-round solid update for Barclays, the bank announced a fresh £750m share buyback programme in addition to a 2.9p dividend for the first half.