In early October, the FTSE 100 closed at 7318 points – which is 99.8 points down. To put that number in context, that’s a decline of 1.15% across the index. The FTSE 250 also suffered a dip of 170 points, closing at 19,918 points.
The decline has since continued, with the Footsie hovering just above the psychological 7000 barrier.
What Rattled The FTSE?
The value of UK blue-chip and mid-tier stocks seems to have taken a significant hit. But why has this happened? The value of the FTSE has lowered more than most other European and US indices. To explain this phenomenon, we have to look at a number of factors.
Firstly, the Great British pound has increased in value. It’s up 0.62% against the euro and 0.57% against the US dollar.
Because FTSE stocks are traded on the world market but measured in pounds and pennies, a global increase in the value of the pound causes a decrease in the monetary valuation of each stock.
Even if a stock or share is still strong, it will obviously be worth fewer pounds after an increase in the value of that currency.
It’s also worth noting that, even though the rise of the pound may be bad news for shareholders with FTSE stocks and shares in their portfolios, it’s great news for speculators who are holding UK currency.
Unfortunately, the rise of the pound isn’t the only reason for the decline in FTSE stocks and shares.
The real value of these stocks and shares has also dropped. One reason for this is the sudden decline in copper prices, which has had a strong, negative impact on the shares of UK mining companies and related industries.
For example, the UK’s leading copper company, ‘Antofagasta’ dropped by an alarming 5.44% to 827p per share.
Meanwhile, inflation in the United States has caused economic uncertainty and led to the selloff of many US bonds.
These selloffs may not seem to directly affect the FTSE, but this kind of major economic activity always has a global knock-on impact.
In fact, the senior market analyst at City Index, Fiona Cincotta, has stated that “the FTSE is looking as if it could revisit the dip in mid-September if the current selloffs continue”. The FTSE might take another hit next month if the sale of US bonds isn’t curtailed.
As an investor and prospective shareholder, you may be wondering whether you should take advantage of the dip to buy FTSE stocks while they’re cheap.
With Brexit muddying the waters of many UK businesses, it might be to earlier to ‘buy on the dip’. Further volatility is almost certain up until the November deadline of EU negotiations. Volatility is no bad thing for short term traders, and binaries in particular, but tread carefully.