FTSE 100 below 7500 and Wall Street mixed as UK and US service sectors suffer slowdown in growth
- FTSE 100 down 67 points
- B&M boosted by positive performance
- WH Smith benefits from broker upgrade
4.55pm: FTSE closes in the red
The UK’s blue chip index finished 67 points down on the day to close at 7,450, a 0.9% loss on the day.
« The FTSE 100, and European markets generally, seem to have lost their morning optimism, having seen an opening bounce for Wall Street fade in the opening hour of trading, » IG’s Chris Beauchamp commented.
Beauchamp added: « Last night’s Fed minutes set off fireworks across global markets, and the reverberations continue to be felt this afternoon, with a feeling across markets of investors scrambling to reallocate funds from one sector to another. »
3.54pm: UK market’s attempted recovery stalls
Leading shares started the day in the red after Wall Street fell overnight as the US Federal Reserve indicated a more hawkish stance on removing its support for the economy.
And as we head to the close, an uncertain start by the US market has stifled any attempt by its UK counterpart to recover.
The S&P 500 and the Nasdaq Composite have both edged up – by 0,19% and 0.03% respectively – but the Dow Jones Industrial Average has lost 65 points or 0.18%.
So the FTSE 100 is currrently down 72.10 points or 0.96% at 7444.77.
Companies going ex-dividend are among the fallers, with software firm Aveva Group (LSE:AVV) down 5.32% and Experian (LSE:EXPN) 4.82% lower.
Banks however are in the ascendency and are dominating the risers, on the basis that interest rate rises are good for their business.
Standard Chartered PLC (LSE:STAN) is up 3.76%, HSBC PLC (LSE:HSBA)is 2.19% higher, NatWest Group PLC (LSE:NWG) has climbed 2.06%, Lloyds Banking Group PLC (LSE:LLOY) has been lifted 1.88% and Barclays PLC (LSE:BARC) is 0.67% better.
3.27pm: US services see biggest fall since April 2020
The US service sector performed much worse than expected in December even before the Omicron variant began to take hold.
The ISM services PMI fell from 69.1 to 62, the lowest since September and the biggest fall since April 2020.
Analysts had been expecting a much smaller decline to 67.
ECONOMY WATCH: U.S. economy slowed in December from rapid growth. ISM services index falls to 62% from record 69%. Labor & supply shortages still a big headache. Higher prices – inflation – also a problem. Omicron effect limited in December. Expect a bit worse in January …
— Jeffry Bartash (@jbartash) January 6, 2022
2.50pm: US investors mull over Fed news
US markets started lower in New York, with tech stocks again being sold off amid the prospect of rising interest rates this year.
The Dow Jones Industrial Average fell over 99 points at 36,307. The S&P 500 lost around three points at 6,697.
The Nasdaq Composite index shed nearly 26 points to stand at 15,074.
The minutes released on Wednesday of the Federal Reserve’s most recent policy meeting revealed an accelerated timetable of interest rate hikes and the possible reduction in its balance sheet, which sent the tech-heavy Nasdaq exchange tanking.
Traders today are also mulling over the US weekly jobless claims, which rose to 207,000 in the latest reading from a revised 200,000 the previous week. consensus had been for a figure of 195,000.
Ian Shepherdson, chief economist at Pantheon Macroeconomics said the general trend for jobless claims was downward.
« We think claims will rise a bit further in the next couple weeks, before hitting new lows at the end of this month. The fundamentals haven’t changed; the labor market remains extremely tight, and firms won’t let staff go unless they have no other choice, » he said.
« It’s possible that an extended Omicron wave would change that, but the initial impact likely is to make firms even more keen to keep people, as absenteeism due to Covid rockets. »
In the UK, the FTSE 100 has dropped further back again in the wake of the US market weakness, down 70.14 or 0.94% to 7446.73.
1.59pm: Shell is top of the league
The recent strength of the oil price has helped make Royal Dutch Shell PLC (A shares) (LSE:RDSA) the current biggest company in the FTSE 100.
Unilever PLC (LSE:ULVR) and AstraZeneca PLC (LSE:AZN) have both held the top spot over the past 12 months, but now it is Shell’s turn with a market capitalisation of around £133bn.
AJ Bell Investment Director Russ Mould said: “Technology stocks, perceived future disruptors, cryptocurrencies and meme stocks are all a taking a bit of a hammering but the old economy seems to be alive and well, judging by how Royal Dutch Shell is once again the largest company in the FTSE 100 by market cap.
« It may not be what environmental campaigners, politicians or the wider public want to hear, but oil prices are firm as energy demand rises and – for the moment at least – renewable and alternative forms of power are unable to take up the baseload slack.
« Shell [has been] buoyed by higher oil prices, which have recovered more strongly than anyone could have imagined after their pandemic-induced collapse in March 2020. »
1.47pm: US jobless claims in unexpected rise last week
US weekly jobless claims have come in higher than expected.
The number of Americans seeking unemployment benefit for the first time rose to 207,000 last week from 200,000 in the previous seven days, itself revised up by 2,000.
Analysts had forecast a figure of around 195,000.
Dan Boardman-Weston, chief investment officer at BRI Wealth Management, said: “Whilst this is a slight negative, it’s worth noting that they remain at historically low levels and continue to show significant strength in the US labour market. This is likely to add further impetus for the Fed to raise rates faster or sooner than the market had been expecting.
« Unless the rapid spread of Omicron starts to put the economy under significant pressure – which markets don’t expect will happen – then the stage looks set for continued economic growth and for monetary policy to become tighter over the coming months.”
In any event the most widely watched jobs data comes on Friday, in the shape of the monthly non-farm payroll numbers.
12.53pm: Firms face jump in cancellations
More signs of the problems facing businesses ahead of Christmas as the government’s non-restriction restrictions led to a host of cancellations by consumers.
According to the Office for National Statistics, 16% of business reported an increase in cancellations in December.
But within that, the figure for services such as hairdressers and beauty firms was 50% and for the accommodation and food services sectors, 45%.
16% of businesses reported they had experienced an increase in cancellations from customers over the last month.
Other service activities industry (which includes hairdressers and other beauty services) reported the highest percentage at 50% https://t.co/QNny8eocme
— Office for National Statistics (ONS) (@ONS) January 6, 2022
Chris Ramsbottom, director of the Coventry-based holistic therapy company The Amethyst Centre, said: « In the week before Christmas, zero customers out of the 10 booked turned up. In the week after Christmas, zero customers out of the five booked turned up. I .. hope my business is eligible for some of the money Rishi Sunak says is coming to small businesses this month. Otherwise the future is bleak at best. »
Meanwhile the percentage of businesses fully trading in late December 2021 was 81% compared to 80% at the start of the month, according to the ONS.
11.59am: US investors cautious after Fed-inspired sell-off
US stocks are expected to open mixed following a sharp selloff on Wednesday after minutes from the Federal Reserve’s most recent meeting revealed an accelerated timetable of interest rate hikes and the possible reduction in its balance sheet.
Futures for the Dow Jones Industrial Average rose 0.25% in Thursday pre-market trading, while the broader S&P 500 index gained 0.04%. Those for the tech-heavy Nasdaq 100 fell 0.32%.
The Nasdaq fell the most in almost a year on Wednesday, slumping 3.34% to 15,100 as investors shied away from rate-sensitive tech stocks. Tesla dropped 5.4%, Alphabet 4.6%, Microsoft 3.8% and Apple 2.7%.
The Dow declined by 1.07% to 36,407 and the S&P dropped 1.94% to 4,701.
“The Federal Reserve continues to wield considerable power over global markets and its latest comments are not what investors want to hear,” commented Russ Mould, investment director at AJ Bell.
“Minutes from its latest monthly meeting implied that a tight jobs market and ongoing inflation could result in a more aggressive change in monetary policy with interest rates going up sooner than expected. As a result, tech stocks have been heavily sold down, including a 3.3% decline in the tech-heavy Nasdaq index last night on Wall Street.
« A lot of tech companies trade on high valuations with the hope of large profit growth in the future rather than today, and these types of stocks are very sensitive to rising rates. »
Back in the UK, the FTSE 100 is down 48.03 points or 0.64% at 7468.84.
11.41am: Banks lifted by rate rise expectations
Banking shares are bucking the downward trend as the prospect of interest rate rises which would boost their business.
Standard Chartered PLC (LSE:STAN) is up 2.96%, Lloyds Banking Group PLC (LSE:LLOY) has been lifted by 2.27%, HSBC PLC (LSE:HSBA) is 2.11% higher and NatWest Group PLC (LSE:NWG) has added 1.85%.
Overall though the FTSE 100 is still in negative mood, down 39.50 points or 0.53% at 7477.37.
10.40am: Airlines lifted by travel restriction changes
The UK government’s easing of some travel restrictions has given a lift to airline stocks.
It announced on Wednesday that travellers arriving in the UK no longer need to take a PCR test and the need for a pre-departure test is also dropped.
So British Airways owner International Consolidated Airlines Group (LSE:IAG) is up 1.62%, Wizz Air Holdings PLC (AIM:WIZZ) has climbed 1.63% and easyJet plc (LSE:EZJ) has added 0.65%.
Overall the FTSE 100 is well off the worst levels, down 24.36 points or 0.32% at 7492.51 after earlier falling as low as 7419.
10.14am: New variant « turned high streets into ghost towns »
Not everyone seems as confident about the outlook as the services PMI report would suggest.
Simon Lister at the financial comparison website, InvestingReviews.co.uk, said: “The Omicron variant savaged the UK economy during December. Sadly the worst may yet be to come. The sheer number of hurdles facing UK businesses as they enter 2022 is frightening..
« With skyrocketing energy prices and inflation, supply chain crises, rising interest rates and tax increases to come, the disconnect between stock markets and economic reality has been more extreme than ever in recent weeks. The Fed indicating that US interest rates could rise relatively soon has given markets a reality check and the months ahead could prove exceptionally turbulent as the grim economic fallout from the pandemic starts to bite. »
And Dr Jackie Mulligan, founder of Shoplocalonline.org and a member of the government’s High Streets Task Force, said: “Reports from the thousands of small high street businesses we work with are that it’s tougher than ever right now. During the festive period, on which so many small businesses rely, the Omicron variant turned some high streets into ghost towns. We’re now facing a perfect storm of soaring energy prices and inflation, and rising interest rates, while businesses are also having have to cope with supply chain issues, rising raw material costs and the usual January lull. »
9.38am: Worst UK service sector performance for nearly a year but hope for the outlook
The UK service sector saw growth drop sharply last month to the lowest level since last February, but not quite as bad as initially thought.
The IHS Markit services PMI fell from 58.5 in November to 53.6, slightly better than the initial reading of 53.2.
IHS said the Omicron variant led to a steep fall in spending on face-to-face consumer services, escalating business uncertainty and disruptions due to staff absences.
Business activity growth was the weakest since the rebound from lockdown measures began last spring, it added. On a more positive note, job creation remained relatively strong, cost pressures eased from November’s peak and output growth expectations improved slightly.
Around 55% of the survey panel anticipate a rise in activity over the course of 2022, while only 10% forecast a decline.
Tim Moore, economics director at IHS Markit, said: “December data revealed a severe loss of momentum for the UK economy as many customer-facing businesses experienced a drop in demand due to escalating COVID-19 cases. Total new orders in the service sector increased at the weakest pace for 10 months. Mass cancellations of bookings in response to the Omicron variant led to a slump in consumer spending on travel, leisure and entertainment. Survey respondents also noted that renewed pandemic restrictions had slowed the recovery in business services
« Despite concerns that economic growth has weakened as we head into the New Year, service providers signalled strong confidence about the longer-term business outlook. »
9.17am: Mid-cap index lower as Dr Martens drops
The FTSE 250 is also on the slide, and in a slightly worse way than the blue chip index.
The mid-cap is down 1.02% at 23,528, with Dr Martens PLC (LSE:DOCS) the leading faller, down 7.26% as private equity group Permira sold a 6.5% stake, a year after bringing the shoemaker to market.
But WH Smith PLC (LSE:SMWH) is up 1.69% to 1590.5p after analysts at Berenberg raised their rating from hold to buy with a 1900p target.
Meanwhile the FTSE 100 itself has come off its worst levels and is now down 36.84 points or 0.49% at 7480.03.
8.31am: B&M rises after update
There are only a handful of risers in the blue chip index.
B&M European Value Retail SA (LSE:BME) is leading the way, up 1.8% after the discount retailer raised its full year profit forecast following a “very strong” performance in the third quarter.
J Sainsbury PLC (LSE:SBRY) has edged up 0.29% while a couple of miners have moved higher, amid signs the global economy is holding up. Anglo American PLC (LSE:AAL) has added 0.27% while Rio Tinto PLC (LSE:RIO) has risen 0.26%.
The top fallers are mainly companies seeing their shares go ex-dividend. These are Experian (LSE:EXPN), down 3%, software business Aveva Group (LSE:AVV), 2.62% lower and Auto Trader Group PLC (LSE:AUTO), off 2.58%.
Also lower is tech investor Scottish Mortgage Investment Trust PLC (LSE:SMT), down 2.84% after the heavy fall in the Nasdaq Composite.
And Next PLC (LSE:NXT) is down 2.07% as it raised guidance but warned of rising inflation.
8.12am: Leading shares lose ground in early deals
After a positive start to this week’s shortened trading week, leading shares are now under pressure in the wake of Wall Street’s overnight falls.
The FTSE 100 – which closed on Wednesday at its highest level since February 2020 – has lost 68.08 points or 0.91% to 7448.79.
The sell-off in the US came after the Federal Reserve minutes from its last meeting, which was widely deemed to be more hawkish than expected. This was not so much in the prospect of three rate rises this year, which was known. But the surprise came more in that there was discussion about reducing the balance sheet even as the Fed is still running its bond buying programme, albeit starting to taper it.
Michael Hewson at CMC Markets UK said: « What appears to have spooked markets is talk about balance sheet reduction, and it is this that has prompted a quite a bit of anxiety with some on the FOMC talking about the probability of when it might be appropriate to reduce the size of the balance sheet, thus pulling liquidity out of the market.
« This appears to have caught markets off guard, prompting concerns over tighter liquidity conditions. While this might be a valid concern, speculation that the Fed might start doing this seems a little premature given that the Fed hasn’t stopped adding to its balance sheet yet, let alone reducing it. »
Closer to home there will be more indications of the state of the UK economy with the latest service sector PMI report.
Hewson said: » In the most recent flash numbers, we saw economic activity fall sharply to 53.2 from 58.5 in November
« Since those flash numbers were released economic activity across the UK, particularly in hospitality has fallen sharply due to concerns about catching the virus just before Christmas as consumers limit their movements..
« These self-imposed limitations on their pre-Christmas movement and socialising habits have hammered the hospitality sector with government’s mixed messaging around a possible new lockdown not helping. As such, today’s final PMI could see a miss to the downside. »
6.50am: UK market set to suffer Fed fallout
The FTSE 100 is predicted to give up more than 100 points on Thursday’s open, following US and Asian markets lower.
London’s blue-chip benchmark is called down 106 points by IG Markets which makes a price of 7,412 to 7,415 with just over an hour to go until the open.
It sees the index snap-back after an otherwise positive start to the new year.
“The early performance of European markets so far this week, has been in contrast to weakness in Asia, as well as US markets, with last night’s US sell off being exacerbated by a sharply negative reaction to what has been perceived as some very hawkish Fed minutes,” said Michael Hewson, analyst at CMC Markets.
The analyst added: “Last night’s weakness in US markets, has seen Asia markets follow suit, and looks set to translate into a similarly negative European open this morning, as last night’s Fed fallout continues to reverberate.”
Wall Street saw the Dow Jones drop 392 points or 1.07% to 36,407 whilst the S&P 500 dropped 1.94% to 4,700.
The Nasdaq went further, losing 522 points or 3.3% to close out Wednesday at 15,100. Similarly, the small-cap focussed Russell 2000 lost 3.3% to 2,194.
Around the markets
The pound: 1.3526, down 0.23%
Gold: US$1,802 per ounce, down 0.4%
Silver: US$22.59 per ounce, down 0.9%
Brent crude: US$80.14 per barrel, up 0.1%
WTI crude: US$77.25 per barrel, up 0.3%
Bitcoin: US$43,027, down 7.25%
Ethereum: US$3,447, down 9.6%
6.50am: Early Markets – Asia / Australia
Asia-Pacific shares declined on Thursday after the Dow Jones Industrial Average in the US notched its first decline of 2022 on Wednesday as investors geared up for a potentially tighter U.S. monetary policy.
The Nikkei in Japan slumped 2.88% while South Korea’s Kospi dipped 1.13%.
China’s Shanghai Composite slipped 0.22% and Hong Kong’s Hang Seng index fell 0.39%.
Australia’s S&P/ASX200 saw its worst sell-off in 16 months, tumbling 2.7% to 7358.3 points, with Afterpay shares plunging nearly 11%.
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