Investment Insights

The FTSE 100 Falls to an 8-Month Low

  • Jul 13, 2023
  • Andrew Gillham

Markets moved back into reverse last week as better than expected economic data suggested central banks have more room to raise interest rates further. The blue-chip S&P 500 and technology focussed Nasdaq indices each declined 1.0%

The UK’s FTSE 100 fell another 3.4% to an 8-month low. It has significantly underperformed blue-chip indices in other developed economies as inflation continues to run hotter elsewhere and the Bank of England will likely need to raise interest rates higher than other central banks.

JPMorgan warned last week that the BoE could raise interest rates to as high as 7%, compared to market expectations of 6.3%, increasing the risk of a hard landing for the UK economy as a tightening in credit conditions is likely to weaken consumer demand.

Wages, excluding bonuses, in the UK grew by 7.3% in the March to May period from a year earlier, the highest growth rate on record. The tight labour market has undermined the fight against inflation, leading to calls from both the BoE’s Governor Andrew Bailey and Chancellor Jeremy Hunt for more wage restraint.

Stronger than expected US employment reports also raised the raised the prospect of further interest rate hikes across the Atlantic. The yield on 2-year US Treasuries spiked to a 16-year high of 5.12% on Thursday afternoon after the ADP Research Institute reported that 497,000 private sector jobs were added in June, nearly twice as much as forecast.

Stronger than expected US employment reports also raised the raised the prospect of further interest rate hikes across the Atlantic. The yield on 2-year US Treasuries spiked to a 16-year high of 5.12% on Thursday afternoon after the ADP Research Institute reported that 497,000 private sector jobs were added in June, nearly twice as much as forecast.

The US unemployment rate held steady at a multi-decade low of 3.6% and wage growth was stronger with average hourly earnings increasing 4.4% on a year-on-year basis. There are 1.7 jobs open for every available worker in the US, strengthening their bargaining position in wage negotiations.

Shares in Facebook’s parent, Meta Platforms, extended their year-to-date gains to 144% in the week which saw it launch Threads, a text-based social media platform developed to rival Twitter. Threads has been made available in 100 countries through the Apple and Google app stores, although it has not yet launched in the EU due to regulations which include provisions on sharing personal data across different platforms.

Users can access the new platform with their Instagram credentials and posts have a higher 500-character count limit than standard Twitter accounts.

Meta revealed that the new platform had already signed up more than 100 million users in its first 5 days and web traffic to Twitter was down last week. Whilst it is far too soon to know whether Threads will become a real competitor to Twitter which has 250 million active users, the launch has intensified the public spat further been Mark Zuckerberg and Elon Musk.

Coca-Cola Hellenic Bottling Company was second best performing stock in the FTSE 100 on Friday after it upgraded its annual profits guidance. The Swiss-based company predicts earnings will rise between 9% and 12% this year due to price hikes and strong demand for its drinks. Aside from Coca-Cola, the company bottles and distributes a range of drinks across Europe, including Monster Energy, Costa Coffee and Fanta.

OSB Group didn’t have such a good day and its shares dived 29% after it warned that it will take a hit of up to £180 million as customers rush to refinance mortgages earlier amid rising interest rates. Customers at its Precise Mortgage Brand are spending less time on variable rate mortgages and instead opting for fixed-rate deals. The average two-year fixed rate mortgage in the UK has risen above 6.5% but is lower than the variable rate of 7.7%.

Energy prices rebounded and Brent Crude rose $3 to $78 a barrel. Saudi Arabia confirmed it will extend its unilateral product cut of 1 million barrels a day until at least August and Russia revealed plans to reduce exports by 500,000 barrels a day. Further support came from reports that China, the world’s largest importer of Crude oil, is preparing more stimulus to boost its economy.

(Cover Image Source: Azzedine Rouichi)

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.