Market movers: FTSE 100 under pressure, oil, Jackson Hole, Lookers

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

GLOBAL MARKETS

European equity markets are under pressure, with the Stoxx Europe 600 opening in the red as basic resources and autos underperform the wider market. The FTSE 100 is trading below resistance at 7,500 with Burberry Group (LSE:BRBY), Rio Tinto (LSE:RIO) and Antofagasta (LSE:ANTO) at the bottom of the UK index. Asian stock markets declined for an eight consecutive session with China’s Shenzhen Composite Index sharply lower.

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OIL

Oil prices are hovering around the flatline with Brent crude trading just above $100 a barrel, having surged nearly 4% on Tuesday after Saudi Arabia proposed the idea that OPEC+ could cut output in the face of recent market declines. Concerns about a global economic slowdown and the knock-on reduction in demand, tight supply with declining US crude stocks, and the prospect of increased supply from Iran (if a nuclear deal is achieved) have dented oil prices lately. Comments from the Saudi energy minister Abdulaziz bin Salman acted as a form of verbal intervention, lifting prices sharply on Tuesday. In reality, imminent OPEC+ production cuts are unlikely.

JACKSON HOLE/KASHKARI

Minneapolis Federal Reserve Bank president Neel Kashkari said he fears inflation turns out to be worse than anticipated, requiring more aggressive central bank policy to bring price levels back down. The notorious Fed hawk suggested the official policy rate should increase by two percentage points by the end of next year.

The dollar is trading close to 20-year highs against the euro as central bankers get set to gather at the three-day Jackson Hole monetary policy conference in Wyoming with investors hunting for clues from Fed speakers on the strength of the US economy and the outlook for inflation.

FOMC members are walking a tightrope with the unenviable task of attempting to steer interest rates to a level that offsets some of the supply side imported inflationary pressures without inadvertently inducing an economic recession. Where that sweet spot lies or in fact whether it exists at all is yet to be seen and depends on the pace at which inflation and inflation expectations increase from here. Friday is a critical day for Fed watchers with the release of the US PCE price index (the Fed’s preferred measure of inflation) and Fed chair Jay Powell’s address at Jackson Hole, when he may signal that a recession is a necessary evil to bring inflation back to target.

Nervousness about the state of inflation has taken the wind out of the sails of US markets, with the S&P 500 down for a third consecutive session, while US futures point to a weaker open.

LOOKERS

Shares in Lookers (LSE:LOOK) are trading higher by more than 5% after the British car dealership chain reported a jump in first-half revenue from £2.15 billion in 2021 to £2.23 billion this year on profit before tax of £47.2 million, ahead of analysts’ expectations. Used cars are no stranger to inflation with prices up by a whopping 27% in the first half versus the same period last year, according to Lookers. 

This is a strong set of forecast-topping results from the used car dealer, which is outperforming despite pressures from semiconductor shortages, supply chain bottlenecks, the war in Ukraine and inflation, and speaks to the company’s effectiveness at leveraging efficiencies across the business.

Although the share price has retreated from its peak in March, the stock has still recovered extremely well from the 2020 trough rallying by more than 650% off the lows when national lockdowns destroyed the business during the pandemic.