The London stock market faced a notable downturn on Thursday, as the FTSE 100 index dropped 93.12 points, or 0.9%, closing at 10,309.22. The decline mirrored trends in US and European markets, driven by investor concerns over interest rates and the collapse of merger discussions between Glencore and Rio Tinto.
Bank of England Holds Rates Steady
In a closely watched decision, the Bank of England (BoE) voted to maintain the bank rate at 3.75%, with a narrow 5-4 majority. Governor Andrew Bailey’s support for the hold was pivotal, especially after his previous backing for a rate cut in December. During a press conference, Bailey mentioned that “disinflation is on track,” but cautioned that further reductions in service price inflation and wage growth are necessary to restore confidence in the inflation target.
The BoE’s Monetary Policy Committee indicated that while the current evidence suggests the bank rate may be lowered in the future, “judgments around further policy easing will become a closer call.” Kallum Pickering, chief economist at Peel Hunt, remarked that the next rate cut appears to be a matter of “when, not if,” with money markets now pricing in a 60% probability of a cut as early as March, instead of the previously anticipated April.
European Markets and US Tech Struggles
The European Central Bank also opted to hold rates steady, maintaining the deposit facility rate at 2.00%. Analysts noted a “hawkish undertone” in the ECB’s assessment that suggests a rate cut remains unlikely in the near term. European equities reflected the cautious sentiment, with the CAC 40 in Paris down 0.3% and the DAX 40 in Frankfurt falling 0.5%.
Across the Atlantic, Wall Street experienced a sharp decline, with the Dow Jones Industrial Average and S&P 500 both down 1.1%, and the Nasdaq Composite dropping 1.4%. This downturn was exacerbated by a disappointing labour market report, which revealed a drop in job openings to 6.542 million in December, a significant decline from November’s revised figure of 6.928 million.
Glencore and Rio Tinto Merger Talks Collapse
Late in the trading session, news broke that merger discussions between Glencore and Rio Tinto had fallen apart. Rio Tinto announced it would no longer pursue a merger, citing an inability to reach an agreement that would benefit its shareholders. Glencore’s response highlighted that key terms of the proposed deal undervalued its contributions to a potential combined entity. Following the announcement, Glencore’s shares plummeted by 7.5%, while Rio Tinto’s stock eased by 1.0%.
In a related context, Vodafone saw a troubling 4.6% decline after reporting third-quarter results that fell short of forecasts, particularly due to underwhelming organic revenue growth in its German operations. Similarly, Entain’s shares fell 6.2%, and Fresnillo dropped 6.3% amid a lower gold price and a downgrade from Berenberg.
Market Movers and Economic Outlook
Despite the overall market downturn, some stocks displayed resilience. The London Stock Exchange Group surged by 5.5% after reporting strong results, which exceeded consensus estimates. RBC Capital Markets noted that these results serve as a reminder of the LSEG’s diversified revenue streams, countering the prevailing “AI-loser” narratives affecting many shares this year.
As for currencies, the pound weakened against the dollar, trading at 1.3536, down from 1.3656 the previous day. Meanwhile, gold prices dropped to $4,848.34 an ounce, while Brent crude was relatively stable at $67.37 a barrel.
Why it Matters
The drop in the FTSE and the collapse of the Glencore-Rio Tinto merger highlight the fragility of the current market environment, where investor sentiment is heavily influenced by central bank decisions and corporate developments. As economic indicators continue to fluctuate, the trajectory of interest rates and corporate mergers will be crucial in shaping market stability. Investors must stay alert as these dynamics unfold, particularly with potential rate cuts looming on the horizon.
