Banks among stocks dragging FTSE 100 to six-week low

Political upheaval in Europe and interest rate uncertainty in the UK and US today triggered fresh jitters in a bleak session for FTSE 100 stocks ranging from Glencore (LSE:GLEN) to Marks & Spencer Group (LSE:MKS).

Having held firm in initial dealings after the release of today’s labour market report, London’s top flight surrendered 110 points by mid-afternoon to stand at its lowest level since late April.

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The deterioration came as the selling of banking shares, including those of Societe Generale SA (EURONEXT:GLE)and BNP Paribas Act. Cat.A (EURONEXT:BNP), resumed after Moody’s described Emmanuel Macron’s decision to call a snap election as credit negative for France’s economy and its Aa2 rating.

The instability weighed on the mood in London’s banking sector as Barclays (LSE:BARC) followed yesterday’s decline of 2.5p by losing another 3.3p to 211.5p. Lloyds Banking Group (LSE:LLOY) gave up half a penny to 53.75p and NatWest Group (LSE:NWG) fell 7.2p to 303.6p to extend the decline from last month’s 326p.

The risk-averse mood also included the retail sector after the latest robust trends in wage growth cast fresh doubt over the potential for a summer cut in UK interest rates.

Marks & Spencer fell back below the £3 threshold and Next (LSE:NXT) lost 146p to 9062p as markets priced just a 7% probability of a rate cut next week and only 46% for August’s meeting.

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That’s despite a noticeable cooling in the jobs market after a jump in the UK’s unemployment rate from 3.8% at the end of last year to 4.4% in today’s labour force survey.

The caution reflects the inflationary impact of regular earnings growth still running at an annual rate of 6% after April’s rise in the National Living Wage.

However, Deutsche Bank notes there’s now more slack in the labour market and that pay deals should soften as the number of working days lost to strikes is its lowest since February 2022.

Services-sector strength meant the most recent inflation number surprised to the upside at 2.3%, with May’s print due a day before the Bank of England makes its decision next Thursday.

ING economist James Smith said: “We think May’s numbers should be less surprising, and we think the Bank is lining up for a rate cut at the August meeting.”

The central banks of Europe and Canada cut rates last week but the wait for the Federal Reserve to do so is also set to continue tomorrow.

The focus of the meeting will be on updated economic projections, which are expected to show slightly slower growth, higher unemployment and inflation still above target.

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The latest reading on consumer prices is due a few hours before the Fed decision, with Wall Street braced for an unchanged figure of 3.4%.

Federal Reserve chair Jerome Powell is likely to reiterate that cuts are the most likely next move but that patience remains necessary after a long run of rates on hold at 5.25%-5.5%.

The median dot plot of expectations for 2024 is likely to show policymakers expect two cuts from September, but Bank of America warns the risk of just one cut is high.

The Dow Jones Industrial Average lost more than 360 points shortly after today’s opening bell, while the S&P 500 was more resilient with a decline of 31 points.

The weakness in the FTSE 100 left Glencore 13p lower at 462.75p and Rio Tinto Registered Shares (LSE:RIO) down 131p at 5226p, while fears of interest rates staying higher for longer kept up the recent pressure on property landlord Land Securities Group (LSE:LAND) as shares retreated 13p to 632p.