FTSE extends losses on Fed recession warning and oil drop

The FTSE 100 was pushed into the red as the US Federal Reserve said it will continue to raise interest rates despite fears it will induce a recession, causing oil to drop below $110.

The FTSE 100 was back in the red today as the Federal Reserve made it clear it would not shy away from raising interest rates despite fears it will kickstart a recession.

The blue-chip index lost 0.6%, or 45 points, to trade at 7,043, adding to yesterday’s losses, after Fed chair Jerome Powell said the US central bank will continue on its swift path of interest rate rises until there is ‘compelling evidence’ that inflation is retreating.

In testimony to the Senate banking committee on Wednesday, Powell warned ‘further surprises could be in store’ on rapidly rising prices and said a recession was ‘certainly a possibility’. 

Richard Hunter, head of markets at Interactive Investor, said the hawkish stance taken by the Fed reduces the chance of a soft landing for the economy and is further fuelling recession fears.

‘Of course, the central bank is not attempting to induce a recession, but the outcome of its current stance is increasingly likely to provide one,’ he said.

‘Indeed, some economists are already calculating the risk of a recession as having recently risen to around 50%, and the blunt tool of interest rate hikes may not of itself be sufficient.’

The analyst said the issue was that inflationary pressures are not due to overheating demand but a lack of supply. As that is an issue that won’t be resolved soon ‘the odds are stacked against a smooth glide path to recovery’.

Oil and commodity stocks were major losers on the FTSE for a second day running as Brent crude dropped 1% to below $110 (£92.30) a barrel as investors expect a global slowdown to impact demand.

Antofagasta (ANTO) dropped to the bottom of the blue-chip index, losing 4.1% to trade at £11.92, Fresnillo (FRES) was down 3.5% at 977p, and Anglo American (AAL) lost 2.7% to reach £31.2. Both Glencore (GLEN) and Rio Tinto (RIO) were down 1.4% to trade at 443p and £49.50, respectively.

The FTSE 250 shed 0.5%, or 96 points, to hit 18,794. The fall was led by 888 (888), which dropped 5.9%, or 10p, to 164p after the gambling group, which is in the process of buying William Hill, said it expected interim revenues to be ‘broadly’ in line with expectations.

Micro Focus International (MCRO) fell for a second day, dropping 5.4% to 165p as the software and IT group continued to feel the impact of lower first half earnings.

Oil stocks were also down among UK mid caps, with Tullow Oil (TLW) dropping 2% to 48p and Petrofac (PFC) losing 1.6% to trade at 124p.

Zero sum gain

JZ Capital Partners (JZCP ) jumped 9.7% to 170p as the winding-down micro-cap and property portfolio received a $96.2m payout from a fund in which it is invested, enabling it to repay its zero dividend preference shares.

BlackRock Income and Growth (BRIG ) gained 2.9% to 180p on a 10% discount after half-year results showing a 4.5% investment return ahead of its benchmark’s 3.1% rise in the six months to 30 April.

Marble Point Loan Financing (MPLF ) fell 2.9% to $0.66 after the debt fund reported a 14% slump in net asset value last month as investors sold off highly-leveraged corporate debt on fears of rising defaults in a recession.

Downing Renewables & Infrastructure (DORE ) dipped 0.9% to 110.5p on a 2% premium after raising £52.9m in a share issue, just ahead of its £50m target.

In other investment trust moves, BlackRock Energy Resources Income (BERI ) dropped 3.6% to 107p in response to the falling oil price and Manchester and London (MNL ), a tech-weighted global growth fund, slid 4.7% to 346p.

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