FTSE lower as oil sinks

A stronger pound, weak commodity prices and National Grid weighed on the FTSE, keeping the index in the red across the day. Even Wall Street rebounding from yesterday’s heavy sell off hasn’t managed to pull the FTSE out of the doldrums.

National Grid tanks on Ofgem report
National Grid dived over 8% as investors responded to regulator Ofgem’s decision to provide relief to consumers over rising energy bills. The party appears to be over for the likes of National Grid as Ofgem vows to “drive a hard bargain” with the firms that have been taking British consumers to the cleaners. Whilst this certainly won’t be the end of the matter, investors are opting to jump ship pulling National Grid towards levels last seen in March 2017.

Oil tumbles to 14 month low
With copper 1.5% lower on global growth concerns and oil under $58.50, the FTSE didn’t have much of a chance of joining European counterparts in the black. Oil plummeted on Tuesday, reaching a nadir of $57.23 a 14-month low, before regaining some composure and heading back towards $58.40. US crude dropped to a low of $47.84 its weakest level since September 2017 before grinding higher to $48.55.

Reports of growing inventories and expectations of record output from the US and Russia, combined with fears of reduced demand as the outlook for the global economy deteriorated, has put the bears firmly in control. Whilst OPEC did agree to cut global production by as much as 1%, these cuts will not take effect until next month. However, with the demand outlook worsening, there is a good chance that production cuts just don’t go far enough. 

Global growth concerns linger
Markets haven’t been able to shake off growing fears over the health of the global economy. IFO Business sentiment data reinforced those fears falling for a fourth consecutive month in December, as business across the eurozone recorded a less optimistic outlook, taking the climate index to its lowest level in 2 years. This comes hot on the heels of disappointing eurozone pmi data and weak retail and manufacturing stats from China. With so many surprises to the downside, investors are struggling to find reasons to buy into the markets.

Fed in focus
As traders fret over the health of the global economy, the Fed will give its monetary policy announcement tomorrow 2pm E.T. Whilst the Fed is broadly expected to hike rates, the dollar is falling for a second straight session in anticipation of a dovish hike by the Fed. The Fed are expected to soften the dot plot to just two hikes across next year, down from 3 which is pulling the dollar lower.

The weaker dollar story enabled the pound to take advantage, jumping 0.3% higher even the government ramps up its no deal planning and tells business to prepare for the worst.