Tuesday Jan 16 2024 13:22
4 min
London's FTSE 100 index hovered near a one-month low on Tuesday, facing downward pressure from global risk-off sentiments as hawkish comments from central bankers outweighed the positive impact of better-than-expected UK wages data.
The FTSE 100 saw a 0.6% decline, reaching its weakest level since mid-December at 7,549.81, while the domestically focused midcap FTSE 250 index remained relatively unchanged.
Selling pressure affected Asian and broader European equities, with European Central Bank (ECB) officials warning against discussing interest rate cuts on Monday. There were more mixed remarks from ECB officials on Tuesday.
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At the Davos summit, ECB official Joachim Nagel said discussions about cutting interest rates were premature given the persistent high inflation. His Austrian counterpart, Robert Holzmann, was also skeptical about the likelihood of rate cuts in 2024. In contrast, French ECB representative Francois Villeroy de Galhau stressed that the ECB should not declare victory over inflation now, suggesting that the central bank's next move is likely to be an interest rate cut later in the year.
Markets.com Chief Market Analyst Neil Wilson weighed in on the dynamics in his daily summary, saying that markets were pricing in too many interest rate cuts this year:
“I think this really goes to the point that I’ve been making for a while now – the market is pricing way too many cuts; [central banks] are going to look at lumpy, non-linear disinflation and not feel completely assured that they are in a position to cut. Labour market tightness provides the cover to stay higher for longer.”
The FTSE indices faced headwinds despite upbeat data indicating that British wages grew at the slowest pace in almost a year, signaling a gradual cooling of inflationary pressure in the labor market that has worried the Bank of England. UK equities began the year on a downward trajectory as investors scaled back expectations of aggressive monetary policy easing, especially in light of better-than-expected economic data — particularly from the United States.
Rightmove Plc, the UK's largest property portal, saw the most significant decline in the FTSE 100, dropping 4.9% after J.P. Morgan downgraded the stock to "underweight."
The recovery narrative for FTSE 100-listed engine giant Rolls-Royce also faced a setback as a "sell" recommendation for its shares stalled its progress. Rolls-Royce shares, which surged by 221% in 2023 and reached 310p last week, declined by 3.8p to 296.2p following Berenberg's ratings switch and 240p target price.
Rating updates triggered a number of other big moves in the FTSE 100, notably impacting pharmaceutical and biotech firm AstraZeneca, which dropped by 3% or 354p to 10,498p after UBS issued a "sell" rating after indicating it now preferred rival GSK.
On the flipside, Ocado Group rose 5.6% as online supermarket Ocado Retail affirmed it would meet its forecast of a return to positive earnings for the full 2022/23 year.
Experian gained 2.4% after the credit data firm reported a 9% rise in third-quarter revenue, driven by robust demand for its new products and business successes.
In the mid-cap segment, Qinetiq saw a 6.3% increase after the defense group initiated a share buyback program worth £100 million ($126.54 million) and reported quarterly earnings in line with estimates.
The FTSE 100 index has fallen by close to 2.3% so far this year, while its midcap counterpart, the FTSE 250, has declined by 2.64%. The performance of UK equities runs in contrast to U.S. stocks — the S&P 500 has gained 0.3% year-to-date, while the NASDAQ Composite Index has kept its losses relatively contained at –0.26%.
When considering shares and indices for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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