Market snapshot: FTSE 100 higher despite US interest rate fears

American growth stocks have given up all their gains of the past month, but UK shares are defiant, led higher by oil and bank sectors. Our head of markets has the story. 

Markets continued to suffer from the reverberations of Jackson Hole, erasing much of their recent hard-won gains.

The sharp sell-off on Friday spilled into another negative session on Monday in the US, following comments from Federal Reserve Chair Jerome Powell’s reiteration of the Federal Reserve’s dogged determination to curb inflation, even at the potential expense of a recession.

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While his comments did not deviate from the more recent rhetoric, investors had been hoping that inflation was showing some signs of peaking and therefore that the Fed might ease its foot off the pedal of further aggressive hikes.

However, this was not the case, with the consensus now firmly of the opinion that the September hike will be another 0.75% rise, with interest rates poised to end the year at around 3.7%. In addition, the likelihood is also increasing that rates could be higher for longer than the market was anticipating, even after the hiking cycle begins to wane.

As such, high growth stocks such as big tech have once more found themselves in the central line of fire and, following the latest lurch downwards, the Nasdaq has now lost 23% this year, putting the index firmly back into bear market territory. The other main indices have also weakened substantially compared to some recent gains and, in the year to date, the Dow Jones is down by 12% and the S&P500 by 15%.

Investors’ mettle will be tested again at the end of the week with the release of the latest non-farm payrolls report. The previous month’s blow-out figure of 528,000 jobs added came against an expectation of 250,000, with Friday’s release expected to show the addition of 285,000.

A repeat of the previous month’s outperformance against consensus would likely be another case of good news being bad news, since it would show a continuing resilience from the US economy which would support the Fed’s currently aggressive stance on rate rises.

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Asian markets were also mixed, with China’s current economic travails continuing to dominate sentiment in the region. The weakening demand led to another fall for “Doctor” Copper, so-called due to the supposed ability of the commodity’s price to reflect the health of the global economy, given its widespread use in so many manufacturing processes. In contrast, the possibility of some output cuts from OPEC+ and the ongoing conflict between Ukraine and Russia and within Libya boosted an oil price which is now ahead by 34% so far this year.

Despite the general pessimism pervading sentiment, the FTSE100 managed to eke out gains in opening exchanges. Not having had the chance to react to the sharp falls at the end of last week due to yesterday’s Bank Holiday, the index was nonetheless helped by a strengthened oil price, and now stands ahead by a marginal 0.6% in the year to date.

Early movers included unsurprising rises for the oil majors as well as the banks, the latter of which would traditionally benefit from the rising interest rate environment which looks likely to stay for the time being.

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Any number of challenges remain on a global basis, however, and further volatility is likely over the coming weeks. Quite apart from the continuing monetary tightening from central banks, inflation remains a persistent problem, with the likelihood of earnings downgrades growing as the third quarter enters its final month.

While the UK’s premier index has generally weathered the storm given its idiosyncratic composition, the more domestically-focused FTSE250 has taken the brunt of worsening economic prospects in the UK and is now down by 18.5% so far this year.