After the UK dozed through the drama of flash-crash Monday on the markets, the FTSE 100 certainly remained half-asleep on Tuesday when UK stock trading reopened after the bank holiday. The blue-chip index slipped 0.3% to 7,518.
Metal producers and pharmaceuticals acted as a drag on the index, with the former extending losses seen after the recent quarterly updates from mining sector – most of whom reported operational challenges.
Markets are particularly worried about lockdown in China and how fast US interest rates might go up. We’ll get clarity on the latter tomorrow when the Federal Reserve gives its latest policy decision, with markets expecting half a percentage point increase in the Fed Funds rate. Central banks typically raise rates by a quarter percentage point, but the Fed is under pressure to be more aggressive to combat rising inflation.
“While all eyes are on the Fed this week, it is important not to forget the Bank of England’s next interest rate decision will be made on Thursday,” said AJ Bell’s Russ Mould.
“The market expects a quarter percentage point increase to 1% for UK rates which will prompt a lot of chatter about recession, particularly as consumers are already under a lot of financial pressure from the rising cost of living. There couldn’t be a worse time to push up borrowing costs, but the Bank of England needs to do something to tame inflation and that means raising rates.
“Bucking the negative market trend was the financial sector, with M&G, Legal & General and Barclays among the top risers on the FTSE 100.”