If you read the news on Monday then everything seemed to be going south – the FTSE 100 was at a three-year low at 5,874.06, Chinese yuan at a four-and-a-half-year low, South African Rand at a record low and Brent crude oil just 13 cents short of hitting an 11-year low; at $36.33 per barrel.
Yet come Tuesday things started looking up – a strong performance from Sainsbury’s and Tesco and a rise in Brent crude price per barrel helped the FTSE 100 recover to a little over 6,000 by market close (6,020.70).
There is a feeling that a lot of this volatility, especially the decreases, is being driven by the slumping oil and wider commodity market.
A big influence on the FTSE 100
This surplus stock pile of oil is weighing heavily on the FTSE 100. Ever since the OPEC committee failed to unanimously agree on reducing oil production on Friday 4th December 2015 prices have been slowly falling.
The market is already flooded with oil and demand is down. This supply is only likely to increase with Iran set to ramp up their production should – as expected – sanctions on them be lifted in 2016.
But it is not just oil producers struggling at the moment. Mining and other commodity stocks seem to be in freefall. Anglo American shares continue to slide, even after announcing a major restructuring plan and Glencore has been going sideways for weeks.
The major banks too have faced a difficult year; all of them feeling investors’ apprehension about the state of the world economy. Lloyds Banking Group was featured in a Telegraph article on Monday as its share price dropped under 69p – below the government’s break-even price of 73.6p per share – leading to speculation that the planned spring share sale could be delayed.
It’s like a knock-on effect
When you consider that these sectors make up over 25% of the entire FTSE 100, it isn’t hard to see why they have such an influence. It is for this reason that investors will be keeping a keen eye on these major players in the FTSE 100, especially after the Federal Reserve increased interest rates.
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