The FTSE 100 has endured a difficult couple of weeks since setting a new all-time high in mid-May.
London’s premier index lost 0.77 per cent last week and is about two per cent off its record high, set on 15 May. In that time the FTSE faced six consecutive days of losses, its worst string of losses since last August.
“After hitting record highs, the UK’s flagship index hit a bit of a wall and investors will be hoping it can now push on to set new all-time highs,” AJ Bell head of investment analysis Laith Khalaf said.
There has not been a huge amount of data to spark these concerns, nevertheless, markets are clearly worried about the prospect of higher for longer interest rates, especially in the US.
With inflation remaining sticky, markets do not expect the US Federal Reserve to start cutting interest rates until at least September, potentially even later. Minutes from the latest Fed meeting showed that rate-setters were open to hiking interest rates again due to the stubborn price pressures.
Figures out yesterday will have done little to reassure rate-setters, with the core personal consumption expenditure (PCE) index coming in at 2.7 per cent.
“Although not quite as bad as the first three months of the year, inflation was still running above target in April,” Paul Ashworth, Capital Economics’ chief North America economist said.
While investors still think the Bank of England is likely to be in a position to cut interest rates in August, April’s inflation data revealed worryingly high services inflation which might slow the pace of rate cuts.
Dan Coatsworth, investment analyst at AJ Bell, told City A.M. that markets were “coming to terms with the prospect of interest rates staying higher for longer”.
“While that has knocked some of the wind out of the sails, it might only take one or two economic data points to perk up investor sentiment once again,” he added.
Despite the poor recent run, the FTSE 100 has still climbed over seven per cent so far this year, putting it slightly ahead of the CAC in Paris but slightly behind the DAX in Frankfurt.