FTSE drops for first time this year as Fed minutes spark sell-off

The FTSE 100 closed down 0.9% on Thursday.

The UK’s largest banks saw their shares rise after the Fed indicated it could hike rates (Ian West/PA) (PA Wire)

Traders in Europe gave back some of the gains they made in the first two days of 2022 on Thursday after an update from the US central bank left them worried that it might reduce its Covid support sooner than expected.

Markets across the continent fell over the day while in the US indexes were also subdued.

European traders were reacting to minutes from the Federal Reserve in which the central bankers said that they might be forced to hike interest rates and start to unwind asset purchases.

The minutes, from a meeting held in mid-December, showed that officials are worried about price increases, supply bottlenecks and a tight jobs market.

“Markets appear to have been spooked by the prospect that the Fed could well start to normalise policy at a faster rate than had originally been priced in for this year, largely due to discussions around the prospect of balance sheet reduction,” said CMC Markets analyst Michael Hewson.

“This comes across as somewhat of an overreaction, given that the Fed is still currently expanding its balance sheet, a process that will come to an end in March.

“As the day progressed European markets initially managed to pull off their intraday lows, however upside progress has proved to be difficult to sustain with US markets continuing to act as a drag in what has proved to be a very choppy session.”

Banks bucked the trend in London – they would be helped by higher rates – but by the end of the day the FTSE 100 was trading at 7,450.37.

It was a 0.9% drop as the index closed down 66.5 points.

In New York the S&P 500 was flat while the Dow Jones had dropped 0.3% shortly after markets closed in Europe.

The Frankfurt Dax lost 1.4% while the Cac 40 in Paris dropped 1.7%.

The pound rose 0.1% to buy 1.3538 dollars but was flat against the euro at 1.1976.

In company news, Greggs shares took a tumble after bosses said they had to hike prices due to spiralling costs for ingredients and staff wages.

The fast-food joint has also been forced to close several sites due to staff shortages. Greggs’ full-year sales hit £1.2 billion, up more than 5% compared to pre-pandemic levels.

But investors sent the company’s shares down by 7.8%.

Meanwhile Next’s shares dropped 3.6% despite the retailer revealing another profit upgrade that it put down to demand for partywear over Christmas.

The company said that full-price sales were up 20% compared to before the pandemic in the festive trading period. But it warned that prices are likely to be hiked this year.

The biggest risers on the FTSE 100 were Standard Chartered, up 17.1p at 477.3p; Natwest, up 6.2p at 243.6p; Lloyds, up 1.32p at 52p; HSBC, up 9.95p at 478.25p; and Barclays, up 2.53p at 200.45p.

The biggest fallers of the day were Aveva, down 193p at 3,134p; Dechra Pharmaceuticals, down 232p at 4,564p; Relx, down 112p at 2,237p; Flutter Entertainment, down 535p at 11,300p; and Experian, down 160p at 3,412p.