Week in Review: FTSE 100 loses ground as investors brace for rate rise

FTSE news

The FTSE 100 lost ground on Thursday (30 September) as investors mull over a potential rate rise in the near future. London’s blue-chip index slid 0.31% lower to 7,086.42.

• On Monday (4 October) the British Chambers of Commerce is expected to release its quarterly Economic Survey, a snapshot of business sentiment based on the responses of 6,000 UK firms.
• CIPS/Markit give their latest update on conditions in the UK’s services sector on Tuesday (5 October).
• CIPS/Markit are back on Wednesday (6 October) with their latest assessment of conditions in the UK’s construction sector.
• Halifax updates on the health of the property market on Thursday (7 October), when it releases its house price index for September.
• There are no major UK reports or announcements planned for Friday (8 October).

Sector in focus

UK oil stocks made solid gains this week as the price of crude hit $80 a barrel for the first time in three years.

The price of oil is up nearly 10% since the start of September amid rising demand and supply problems as a result of the pandemic.

In the US, production has been hampered by Hurricane Ida, leading the closure of most of the Gulf of Mexico’s rigs and refineries and further squeezing supply.

With no immediate end for the supply bottleneck in sight, Goldman Sachs this week predicted that crude could hit $90 a barrel before the year is out.

While economists fear the supply crunch could derail the global economic recovery, it has buoyed the share prices of London-listed oil firms.

Royal Dutch Shell plc (RDSA) and BP plc (BP) are currently up 7% and 5%, respectively, since the start of the week.

Economic update

The Bank of England governor this week gave his clearest warning this week that interest rates could rise by as early as this year.

In a speech to the Society of Professional Economists on Monday (27 September), Andrew Bailey said the Bank’s rate-setting Monetary Policy Committee (MPC) was ready to act immediatiely if higher inflation persists.

Annual inflation – or, in other words, the rising cost of goods and services – hit 3.2% in August and is expected to reach 4% by the end of the year – twice the target the Bank has set itself.

Until now, the MPC has agreed to hold rates at 0.1%, arguing that higher inflation would be ‘transitory’, before falling back over time.

However, Bailey warned that the committee was ready to raise rates as early as this year if price growth remained elevated.

He said: “All of this group [the MPC] were of the view that the stimulus to monetary policy enacted in response to Covid would need to start to unwind at some point, that unwind should be enacted by an increase in bank rate and, if appropriate, would not need to wait for the end of the current asset purchase programme [in December 2021].”

Fund watch

A good global equity fund provides diversification to a portfolio, spreading your money over a number of different geographies. Janus Henderson Global Equity Income I Inc (GB0031263899), for example, invests in large and mid-cap firms in the Americas, Europe and Asia. It has an ongoing charge of 0.85% and has returned nearly 38% in five years.

ETF watch

An alternative to a so-called ‘active’ global equity fund is an ETF that tracks a world index. Vanguard FTSE All-World UCITS ETF GBP (VWRL) invests in more than 3,600 large and mid-cap firms all over the globe. It has an ongoing charge of just 0.22% and has returned more than 80% in five years.

Company announcements

5 October – Greggs plc (GRG) releases a trading update for the third quarter on Tuesday (5 October), during what is a fairly quiet week for company earnings. The bakery chain is one of a number of big-name food businesses to admit to having been affected by recent supply shortages. Investors will no doubt want to know if the firm has a long-term plan to deal with the situation.

6 October – Tesco plc (TSCO), Britain’s biggest supermarket, warned last week that the lorry driver shortage could lead to empty shelves in the run-up to Christmas. Investors will get a better idea of how the current supply crisis might hit future sales and profit when the supermarket chain releases its interim results on Wednesday (6 October).