FTSE 100 close: US recession jitters outweigh oil price surge on London index
London’s FTSE 100 lost momentum in the afternoon session today after new data revealed the US economy is wilting under the weight of the Federal Reserve’s interest rate hikes.
The capital’s premier index slipped 0.1 per cent to 7,600 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, dropped 0.19 per cent to 19,113.55 points.
London’s top index zipped higher during opening exchanges as oil giants soared after OPEC+ amplified production cuts, putting upward pressure on prices.
The group of major oil producing nations yesterday announced they would extend existing production cuts that were due to end this year to 2024.
Those moves sent oil prices on an upward spiral today, with WTI and Brent Crude, the globe’s top benchmarks, each climbing around 1.5 per cent.
In response, investors piled into London-listed oil megacaps Shell and BP, with the pair advancing 1.27 per cent and 1.12 per cent respectively. The pair shed most of those gains by the close.
“The decision by Riyadh to reduce production by a million barrels a day in July, and the pledge from other OPEC+ members to lower targets again next year was aimed at shoring up the oil price to breakeven levels,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
“Oil prices are trapped in conflicting tides between production cuts on one hand, and concerns about demand as China’s recovery slows, while a recession in the US looms,” she added.
Numbers from ISM out around 3pm UK time revealed the US services economy is running at its weakest level in six months.
ISM’s services activity index slipped to 50.3, a big undershoot compared to Wall Street’s expected 52.4 reading, adding “to worries about the outlook for the economy,” James Knightley, an analyst at Dutch bank ING said.
That downbeat release ricocheted through the City, sending the FTSE 100 rapidly lower headed into the final hour of trading.
FTSE 100 gave up gains in the final hours of trading
The Fed has lifted borrowing costs aggressively to tame inflation, the effects of which are now started to spread through the economy at speed, raising fears that the US is headed for a recession that will drag the globe’s other top economies along with it.
Miners pegged the FTSE 100’s gains, likely on lingering concerns about the ability of the global economy to withstand higher interest rates and inflation.
Endeavour Mining finished near the bottom of the index, shedding nearly four per cent, followed closely by Fresnillo.
The pound weakened around 0.14 per cent against the US dollar, arresting its strong rally last week fuelled by investors betting on the Bank of England continuing to hike interest rates to tame inflation.