- FTSE 100 closes 228 points below
- US benchmarks are also falling
- Khaki the worst heavyweight performer
16.55: FTSE closes more than 3%
The FTSE 100 fell on Thursday to close more than 3% as markets worried about rising interest rates and the outlook for recession.
The UK’s major stock index fell around 228.43 points, or 3.14%, to 7,044.98.
On Thursday, the Bank of England raised its base rate by 0.25 percentage points to 1.25% to deal with inflation, a 13-year high. It followed the move by the U.S. Fed last night to raise rates by 0.75 percentage points.
“We have now had five consecutive rate hikes as the Bank of England faces unprecedented public pressure to control inflation. It is noteworthy that policymakers decided not to follow their US counterparts to impose a bigger increase, ”said Rachel Winter, a partner in the investment group. Killik & Co, on a note.
“This is clearly a big balance for our central bank. The figures suggest that the UK will have the highest G7 inflation in 2024, mainly due to persistently high energy prices. It poses a serious challenge to the time to tame the spiral of wages and prices. “
“On the other hand, the UK economy is shrinking faster than expected and there is a serious risk of a setback. This latest decision shows that the Monetary Policy Committee is well aware of putting too much pressure on the brakes “.
16.01: Falling feet
Despite dropping more than 200 points, the FTSE 100 actually has nine stocks up.
The London Heavyweight Index fell 212 points (2.9%) to 7,061.
Ironically, on the day the stock returned strong performance, the best performer was the London Stock Exchange Group PLC (LSE: LSEG), which rose 2.7%.
The worst performer was Persimmon PLC (LSE: PSN), which fell 11% to 1,956.5 p.
15.01: US stocks fall
In the US, the Dow Jones industrial average returned all yesterday’s gains and more.
The Dow fell 706 points (2.3%) to 29,962, while the S&P 500 fell 104 points (2.8%) to 3,686.
Things are not going better in London, where the FTSE 100 has fallen 222 points (3.1%) to 7,051, with Scottish Mortgage Investment Trust PLC (LSE: SMT) down 6.3%, once again suffering as the Nasdaq Composite of the United States. down 3.3%.
13.35: Retailers line up to offer bad news
The Bank of England’s interest rate decision turned out to be a non-event, leaving investors focused on corporate news, most of which has been alarming, especially for the retail sector.
ASOS PLC (LSE: ASC) is the biggest drop of the day, with a 29% drop to 825p after its trading statement. The online retailer narrowed its year-round profit targeting to reflect the impact of inflation on consumer behavior, it said in a business statement today.
The Boohoo Group PLC (AIM: BOO) sector was also at war, announcing that revenue fell 8% year-on-year for the three months to the end of May as inflation affected the costs of ” its supply chain and its competitive international proposal “. “
Compared to ASOS, it dropped relatively slightly: 13%.
Another online retailer, THG PLC (LSE: THG), was as popular as a selection of Gareth Southgate’s team, with the company losing a fifth of its market value as it said it had rejected all takeover bids during the period in which it was. in play.
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Even the old street retailers were putting it around their necks today. Halfords Group PLC (LSE: HFD) issued a new earnings guide that was about 15% below the consensus forecast among the analyst community, resulting in a 21% reduction.
None of the above is part of the FTSE 100, which is probably as good as the index has its own problems, with a drop of 173 points (2.4%) to 7,100.
12.15pm: Bank of England meets expectations
The Bank of England has adhered to the script and raised its key interest rate to 1.25% from 1.0%.
Rachel Winter, a partner at Wealth Management Company Killik & Co., noted that we have now had five consecutive rate increases.
“It is noteworthy that policymakers decided not to follow their US counterparts to impose a larger increase,” Winter said.
“This is clearly a great balancing act for our central bank. The figures suggest that the UK will have the highest G7 inflation in 2024, mainly due to persistently high energy prices. It poses a serious challenge to when it comes to taming the wage-price spiral, it is understandable that employees are demanding higher wages to cover the higher cost of living, which in turn will drive companies up.
“On the other hand, the UK economy is shrinking faster than expected and is at serious risk of investing. This latest decision shows that the Monetary Policy Committee is well aware of too much pressure on the brakes.
“Given the pace of inflation, rising rates only provide a modest boost for cash savers. A long-term investment strategy may be more appropriate to help maintain the value of savings while we we are facing a potentially prolonged period of uncertainty, “he said.
Les Cameron of M&G Wealth, whose title appears to be a “financial expert,” said today’s announcement came as no surprise, and we now look forward to seeing how savings and loan rates will react.
“With the current high levels of inflation we are experiencing, a modest increase in savings rates would still mean that most cash or near-cash savers, such as National Savings & Investments, would see their wealth eroded in terms of Of course, many of those who have cash savings are pensioners who spend a higher proportion of their savings on energy costs, which we know are rising at a much faster rate than even general inflation rates. of the cost of living would mean that those who pay the debt, who do not have a fixed rate, will certainly feel the pinch even more if the rates go up.
“With higher inflation and potentially higher borrowing costs, reviewing your finances to make sure you’re ready for the future has never been more important, and for many, this will involve seeking some form of financial advice. professional, “Cameron said.
Me, all I’m looking for is breaking news about rising fuel prices and the Bank of England raising interest rates every 3 days. £ 100 starts at £ 10. Is this a simulation or what the hell ???? #FuelPrices #interested pic.twitter.com/EHfOs6udTZ
– Midnight black ??????????? (@ DrMac558) June 16, 2022
The FTSE 100 cheered a bit after the announcement, relieved that the Bank of England had not followed the example of the US Federal Reserve and opted for a bigger rise.
However, the index was still below 7,100, at 7,096, down 177 points (2.4%) on the day.
11.20am: US markets will open lower
U.S. markets were expected to open lower on Thursday as the initial favorable reaction to the US Federal Reserve’s 75 basis point rise in interest rates on Wednesday gave way to persistent concerns about economy.
The aggressive rise in interest rates had been expected and then eased, but more general concerns about the outlook for the economy amid a sharp rise in interest rates have not shifted, mainly because inflation does not seem to have peaked.
Dow Jones Industrial Average futures fell 1.9% in pre-market trading, while broader S&P 500 futures lost 2.5% and Nasdaq-100 contracts were 2.9% lower.
“The Fed made it clear yesterday that it is willing to risk a recession, but is not willing to let the inflation reading warm up, so it raised the interest rate by 75 basis points in instead of 50 basis points, “said Naeem Aslam, head of the market. analyst at avatrade.com.
He noted that Fed Chairman Jerome Powell has made it clear to traders and investors that future monetary policy depends heavily on data, adding that market players should expect interest rate hikes to rise. between 50 and 75 basis points during the year.
“Looking at the points plot, it’s clear that the Fed is likely to raise interest rates by 50 basis points at each meeting until the rest of the year.”
It remains to be seen whether the Fed’s interest rate hikes will help curb inflation, which peaked at 41 in May. There are also serious concerns about whether the economy as a whole can withstand the sharp rate hikes. Many worry that the world’s largest economy could fall into recession.
“For example, if you look at the number of retail sales yesterday, it was a disaster and made it clear that consumers are reluctant to spend. Americans are immersing themselves in their savings to deal with the “Prices are rising, and this is evident in the recent fall in the personal savings rate, which has fallen to its lowest level since 2008,” Aslam said.
Retail sales in the US fell 0.3% month-on-month in May, disappointingly below the 0.2% increase forecast.
In addition, Aslam argued that the Fed has a serious reputation problem.
“First of all, they called inflation a transitional issue, and they allowed it to escalate and they could not reduce their peaceful monetary policy in a timely manner. Now, they are desperate to put a strap on inflation at any cost, and traders are nervous that their desperation to reduce inflation could lead them to make another policy mistake, “he said.
In the energy markets, WTI crude oil futures fell 0.5% to $ 114.79 a barrel and Brent crude oil futures lost 0.6% to $ 117.81 a barrel.
In London, while the countdown to the Bank of England’s interest rate decision continues, the FTSE 100 fell 176 points (2.4%) to 7,097.
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