Why new sell-off is just kneejerk reaction to Fed minutes

That stockmarkets remain in a volatile state is perfectly illustrated by the latest session on Wall Street. Just as it seemed traders had acclimatised to inflation, rising interest rates and higher bond yields, the fears that caused this month's crash were reignited by minutes from the Federal Reserve's last meeting.

The Dow Jones fell over 470 points, or 1.9% from its mid-afternoon peak Wednesday as the dollar rallied, making a one-week high against the pound.

Equities have been the only game in town for years, offering an irresistible mix of income and growth. But that broad appeal will not last as interest rates rise, while an increase in corporate borrowing costs could dilute the benefit of Donald Trump's tax reform.

We've known for some time that US policymakers might squeeze in extra rate hikes in 2018, so it's possible this new sell-off is just a kneejerk reaction to the minutes. However, the Fed must prevent Trump's pro-business reforms overheating the US economy, and there's risk here that central bankers mismanage the rate hike cycle.

London played catch-up Thursday, unwinding yesterday's hard-won gains. Big risers like Barclays and Centrica have been unable to overturn large losses across the mining and oil sector.

Profits plunged last year, but Centrica's results were all about the dividend. Instead of a widely anticipated cut, Centrica held the payout at 12p. It's promised to do the same again in 2018, but only if it hits targets for adjusted operating cash flow and net debt.

That generous dividend is a crucial prop for the share price, and any indication that Centrica could miss targets risks pulling the rug away again. 

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.