FTSE and Wall Street fall ahead of Fed meeting

·3 min read
The FTSE 100 lost steam after staging a rally in early trade. Photo: Paul Cunningham/Corbis via Getty
The FTSE 100 lost steam after staging a rally in early trade. Photo: Paul Cunningham/Corbis via Getty

European stocks were in the red on Tuesday as inflation and economic fears rattle global stocks amid fears that an aggressive Fed rate hike could send the US into recession.

The FTSE 100 (^FTSE) fell 0.2% in afternoon trade, France’s CAC (^FCHI) was 1.1% lower on the day and the DAX (^GDAXI) dipped 0.8% in Frankfurt.

It comes as new figures on Tuesday show UK wages fell at the fastest pace in more than two decades in April as pay packets failed to keep pace with soaring prices.

According to the Office for National Statistics, adjusted for inflation, pay excluding bonuses fell 3.4% year-on-year, the biggest decline since records began in 2001.

Between February and April, real-terms pay fell 2.2%, the biggest fall since 2011, as workers grapple with the cost of living squeeze as 40-year high inflation eats away at pay increases.

The latest numbers will pile more pressure on the Bank of England (BoE) ahead of Thursday's interest rates meeting as it looks to curb inflation without pushing the economy into recession.

Read more: UK real wages fall to 20-year low as job vacancies rise to 1.3 million

Economists have warned the labour markets stats will give the Monetary Policy Committee the green light to hike rates.

"The latest jobs market numbers delivered a positive combination of rising employment and falling joblessness and inactivity," said Martin Beck, chief economic advisor to the EY ITEM Club.

"Alongside vacancies at a new record high and headline pay growth picking up, today's data reinforces the odds of the MPC [Monetary Policy Committee] raising the bank rate this week."

Investors appeared to take shelter in the greenback as the dollar surged to a near 20-year high against a basket of currencies on Tuesday.

Sterling (GBPUSD=X) fell to the lowest since March 2020 against the safe-haven, down 0.5% to $1.206 as traders focus in on upcoming interest rate decisions by the BoE and Federal Reserve.

Across the Atlantic, US benchmarks opened higher, but dipped back into the red after indexes tipped into a bear market in the previous session ahead of the Federal Reserve's two-day policy meeting.

Wall Street’s S&P 500 (^GSPC) lost 17.14 points, or 0.5%, to 3732.49. The tech-heavy Nasdaq (^IXIC) was 0.2% lower, while the Dow Jones (^DJI) declined 0.6% at London's close.

On Monday, the S&P entered a bear market for the first time since 2020 after falling 20% from its January peak, with 495 of its 500 components ending the day lower.

The US yield curve inverted further, with the five-year yield moving sharply above the 30-year yield, signalling a growing concern that the US economy is potentially headed towards a recession.

"An anaemic and now rapidly disappearing bounce in US markets shows us that investors are very cautious about going bargain hunting ahead of tomorrow’s momentous Fed decision," said Chris Beauchamp, chief market analyst at online trading platform IG. "Not just 75bps but even 100bps are being viewed as a possibility on Wednesday evening, as the committee looks to try and steal a march on inflation."

Read more: Pound hits two-year low against dollar as UK economy contracts

Asian stocks were mixed overnight with the Nikkei (^N225) down 1.3% in Japan, while the Hang Seng (^HSI) edged 0.3% lower in Hong Kong and the Shanghai Composite (000001.SS) gained 1%.

Australia's benchmark S&P/ASX 200 (^AXJO) closed 3.6% lower.

Crypto assets also fell in line with equities and bond markets, leading to several crypto trading platforms including Binance halting trading of bitcoin (BTC-USD).

On Monday, the world's largest token fell as much as much as 17% in 24 hours to $22,603, down 11% to $22,462 at the time of writing.

Watch: What is a recession and how do we spot one?

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