The FTSE 100 started brightly this morning but has since regressed as the weight of the tech sell-off in New York infects European bourses. London’s large caps were down 0.1 per cent by mid morning with shares in Frankfurt down a touch more. In Paris, the Cac was down more than half a per cent. This followed what on the surface looked like a poor day in New York, but digging into the detail shows this was entirely a tech issue.
The Magnificent Seven stocks were down more than 1 per cent on average, the biggest daily drop since the so-called ‘liberation day’ falls. The S&P fell 0.24 per cent, while the tech-heavy Nasdaq dropped 0.67 per cent. However, all other sectors were in the green, so it’s the US’s concentration that’s overshadowing what is an otherwise mundane summer trading period. The fall in tech shares is a continuation of what’s been happening since Tuesday, when a report suggested AI investment wasn’t really reaping rewards for businesses, amid ongoing concerns about bubbles.
In London yesterday the FTSE 100 managed to notch up a 1 per cent rise as fears over the Bank of England halting rate cuts were superseded as the day went on. Yesterday’s higher-than-expected inflation print initially shocked markets, but the underlying data, which showed that disinflation taking hold among non-volatile prices, meant traders were happy to push down yields later in the day, helping the stock market. However, assuming that this means it’s all OK would be foolish; the MPC has a lot to contend with and it’s unlikely to figure out the right path, if there even is one, any time soon.
It’s not the only central bank committee coming under fire. Across the pond, things are more serious. Donald Trump’s latest attack on a FOMC member has seen him call on governor Lisa Cook to step down due to an alleged breach of mortgage rules. Cook said in response she would not be bullied out. If she did exit, you would assume the US president would replace her with a dovish voice, in what could be a serious blow to central bank independence. In a way that’s already happening: Fed minutes published yesterday showed two members pushed for a cut at the last meeting, one being Christopher Waller, who’s in the race to replace chair Jerome Powell in part because of his dovishness. The minutes did tell us that the FOMC is perhaps more hawkish than markets were giving it credit for, and odds on a September rate cut fell, but only down to an 80 per cent chance from 84. The central bank gathering Jackson Hole kicks off tomorrow, with Powell the keynote so it’ll be worth watching for any hints on September’s move, and any sideways jabs at the President.
While the FTSE 100 is unmoved this morning, one of the biggest falls has come from FTSE 250 constituent WH Smith, which is down more than 30 per cent. The company misstated profits in its US division, and an inquiry is under way. More on that here
By Taha Lokhandwala