FTSE 100 Under Pressure as Tariffs, Oil Rout, and Risk-Off Mood Collide

The UK inevitably succumbed to the general investment misery on the back of tariff fallout, all but erasing the gains of the previous day and leaving the FTSE 100 down by 5.5% so far this year and some 13% shy of its recent record closing high.

BP (LON:BP) and Shell (LON:SHEL) came under pressure following a renewed assault on the oil price which has seen it decline by 18% over the last quarter, while tentative gains in the likes of Polar Capital and Scottish Mortgage (LON:SMT) yesterday were sharply reversed following the latest leg down for the Nasdaq.

Elsewhere, the double whammy of potential pharma tariffs alongside a number of broker downgrades sapped GSK (LON:GSK) and AstraZeneca (LON:AZN) shares, while in the FTSE 250 ITV (LON:ITV) shares sank by some 6.5% after its fortunes were reduced by price target reductions from a number of analysts.

The broader index has now lost 12.5% this year, with its domestic focus adding little attraction to its case as an investment destination, given the murky outlook for the UK economy over the next year. If there is a glimmer of light on that front, it could be that the weakness of the oil price, for example, could lead to less inflationary pressure, which may at least open the door for potential interest rate cuts from the Bank of England over the coming months.

Meanwhile, the “dead cat bounce” played out as US markets reversed some strong early gains to end sharply lower once more.

As each leg of the trade war emerges, hopes are continually dashed of negotiations, let alone concessions taking place. While it is evident that the world’s two largest economies are in the eye of the storm, the pandemic showed that the inter-connectedness of the global economy leads to reverberations which are not contained to a handful of countries.

At the same time, what is increasingly being seen as an unnecessary and self-punishing set of actions is leading to a rotation away from US stocks into any available havens, such as the Japanese yen or indeed gold, which continues its strong ascent and is now up by 15% so far this year.

The reality of the tariff implementation left investors recoiling, leaving the Dow Jones down on the day after a brisk start which had initially propelled the index some 4% higher. The other main indices were also burnt, with the benchmark S&P 500 dipping briefly into bear market territory before marginally recovering and with the Nasdaq again subject to a barrage of selling.

Apple (NASDAQ:AAPL) shares lost 5% on the day, taking its year-to-date performance to a cumulative loss of 29%, in a targeted acknowledgement of the hyper-tariffs being placed on China by the White House.

It may well be that US investors are now poised to pounce on any signs of recovery, and indeed, the S&P 500 has moved into valuation territory, which is beginning to look relatively cheap compared to the recent past. However, any positive news is in extremely short supply, and the threat of localised and, by extension, global recession are the themes which are providing a major headwind.

The evaporation of the rally in US markets added to the sharp declines being seen across the main indices, such that in the year so far the Dow Jones has now lost 11.5%, the S&P 500 15.2% and the Nasdaq 21%, with thoughts of recession and reignited inflation leaving some of the higher growth stocks increasingly high and dry.

Asian markets were unable to brush off the latest wave of pessimism, and despite a brief rally the previous day, Japan’s Nikkei 225 index fell by up to 5%. China markets were also weakened by the reality of the sharply higher tariffs being implemented and, given the rhetoric of the last few days, the authorities may yet return with a volley of countermeasures which are reportedly being considered.