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MARKET WRAP: FTSE flops after Fed minutes, GBP slips, oil rallies

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Key Points

FTSE 100 closing price of 7,448.07 (-0.9%)
Financials outperform on the prospect of higher rates
Greggs slides as CEO departs
USD steady after Fed, GBP lower
Oil jumps as Kazakhstan protests threaten supply
Bitcoin tumbles to multi-month low

By Samuel Indyk – The FTSE 100 declined on Thursday after the publication of the minutes from Federal Reserve’s December meeting. The minutes showed the Fed is concerned about inflation and signalled that the central bank is ready to trim back stimulus, including sooner than expected rate hikes and shrinking of the balance sheet.

The comments on the balance sheet provided the most insight, with officials seemingly prepared to stop reinvestments soon after the first interest rate hike.

“Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate,” the minutes showed.

The first interest rate hike from the Fed is likely to take place in March, suggesting that shrinking of the balance sheet could begin before the summer.

The hawkish minutes weighed on major indices although financials outperformed in the UK as the prospect of higher interest rates should help profitability. Standard Chartered (LON:STAN), HSBC (LON:HSBA), Natwest (LON:NWG) and Lloyds (LON:LLOY) were the best performing stocks in the blue-chip index.

One of the big decliners in the UK was the high street bakery chain Greggs (LON:GRG). The FTSE 250 company said total sales in the 2021 financial year were £1.23 billion, up 5.3% on the same period two years ago. However, the sausage roll maker announced a succession plan for the CEO, with incumbent Roger Whiteside said to retire. Roisin Currie, currently Greggs Retail and Property Director, will take the reins in May this year.

“Roisin Currie was instrumental in getting Greggs’ delivery service to where it is,” writes Hargreaves Lansdown (LON:HRGV) Sophie Lund-Yates. “Growing this area will be an important pillar going forwards, as will efforts to have later opening hours at some sites, plus a net 150 new shops a year.”

The USD was relatively steady on Thursday following the Fed minutes. GBP, which has started off 2022 on the front foot, slipped with GBP/USD briefly dropping back below 1.3500 before staging a recovery. Focus for the FX markets turns to Friday’s nonfarm payrolls report.

WTI and Brent crude futures were both trading higher, the former breaking above $80/barrel for the first time since 17th November last year.

The turmoil in Kazakhstan has supported prices with protests turning deadly on Wednesday, triggered by a sharp rise in fuel prices. The protests could threaten output and exports from Kazakhstan, which currently produces around 1.6 million barrels of oil per day.

Bitcoin and other major cryptocurrencies tumbled following the Fed minutes as the era of cheap money looks like it may be coming to an end. The largest cryptocurrency by market cap briefly dropped below the “flash crash” low from 4th December at $42,587.


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MARKET WRAP: FTSE flops after Fed minutes, GBP slips, oil rallies

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