FTSE 100 closes lower after disappointing GDP data; Wall Street weak again
- FTSE 100 closes 114 points lower
- UK quarter-on-quarter GDP growth slowed to 0.8%.
- US stocks down on inflation concerns
4.50pm: Footsie reverses
The FTSE 100 index closed lower on Thursday, reversing much of the previous session’s triple-digit rally after weak UK GDP data raised growth worries, and with US stocks weak again amid continuing concerns over US inflation data.
The UK blue-chip index ended 114.32 points, or 1.6% lower at 7,233.34, above the session low of 7,158.53 but well below the early peak of 7,347.66.
In New York, around London’s close, the Dow Jones Industrial Average was 162 points, or 0.8% lower at 31,571, while the broader S&P 500 index shed 0.6%, and the Nasdaq Composite slipped 0.1% as tech stocks’ early rally was eroded.
Michael Hewson, chief market analyst at CMC Markets UK commented: “Yesterday’s positive European session appears to have been a suckers rally coming as it has between a big decline on Monday and another hefty decline today. Today’s weakness appears to have been prompted by the sudden reversal seen in US markets overnight.
“Today’s market price action has been driven by falling bond yields, and weaker commodity prices which are pointing to a market that is becoming more concerned about slowing growth, and sticky inflation, aka rising stagflation and, or recession risk.”
Hewson added: “We’re not being helped by big moves in cryptocurrencies which in turn could be creating further instability because of forced selling as investors try and meet cryptocurrency margin calls, by selling more traditional assets like shares.”
4.10pm: UK growth woes
It has been a rough day for the FTSE 100, with the tone set early by underwhelming gross domestic product (GDP) data.
The FTSE 100 was down 117 points (1.6%) at 7,230, having fallen well below 7,200 at one point.
GDP fell by 0.1% month-on-month in March, while quarter-on-quarter (qoq) growth slowed to 0.8%.
“While real household consumption increased by 0.6% qoq (following a 0.5% gain in Q4), real consumption by non-profit institutions serving households plunged by 2.5% qoq. This slowed the rate of overall private consumption to 0.4% qoq in Q1 from 0.5% in Q4. Spending on restaurants and hotels, as well as clothing and footwear increased in Q1 whereas consumption of transport declined,” reported Kallum Pickering at Berenberg.
“Whether the UK suffers a technical recession or something more severe will largely depend on a) the choices consumers make and b) the development of external risks. With large buffers at their disposal, most households should be able to hold their noses and expand consumption in real terms even as inflation outstrips wage growth for a while – that is our call for the second half of the year – but a lasting bout of extreme consumer caution linked to the unusually high-risk environment tilts the risks to the downside. A small downside surprise to our call for zero growth in Q2 followed by a further negative inflation surprise that depressed real output further in Q3 would suffice to tip the UK into a technical recession. Would that be a big deal? Not really,” Pickering opined.
“The more serious risk to watch is that the UK suffers a genuine downturn with a sharp and protracted fall of real GDP as well as visible damage to other parts of the economy such as the labour market, housing, and production. On a one-year horizon, we see a 25% risk of such an outcome. It could happen if any the three major global risks materialises: 1) an immediate EU gas embargo against Russia; 2) prolonged large-scale lockdowns in China that disrupt global supply chains; or 3) an overtightening by the US Fed – although that is probably more of a threat for 2023 than 2022,” he concluded.
Meanwhile, the UK Residential Market Survey by the Royal Institution of Chartered Surveyors (RICS) revealed that new buyer enquiries increased in April, with the number of respondents reporting an increase 10 percentage points higher than the number reporting a decrease; in March, the balance was +9 percentage points.
As for agreed sales, however, the net balance was -2.
“Looking ahead, near-term sales expectations remain modestly positive, as a net balance of +12% of respondents anticipate a rise in transaction volumes in the coming three months. At the twelve-month time horizon, sales expectations have now eased in four consecutive reports, with the latest net balance of -4% signalling a generally flat trend is expected over the year ahead as a whole,” RICS reported.
Sarah Coles, the senior personal finance analyst at Hargreaves Lansdown, said caution crept into the property market in April.
“Some agents reported that they were having to do an awful lot of legwork for sales, as prospective buyers took their time making a decision. Several of them said that buyers and sellers were getting increasingly cautious, and one said that every single buyer now asks just how much longer price rises can continue.
“Meanwhile, one agent in the report said that buyers were starting to struggle to get mortgages and that lenders were uncomfortable with the immediate outlook for the market. There’s also a good chance that they’ve changed their affordability criteria to take account of rising costs, which is making it more difficult for people to stretch themselves. Another agent said this is causing some chains to fall apart, as mortgage companies don’t think properties are worth their asking price,” Coles said.
“However, the number of properties going up for sale has dropped again, which is going to keep prices rising. Almost every agent complained that they didn’t have enough homes on their books. It means that we can expect sales to ease off and price rises to slow rather than anything more seismic,” she suggested.
2.50pm: US stocks open lower
London’s index of leading shares has pared losses but still remains in a deep hole, and US indices look set to join it.
The FTSE 100 was down 139 points (1.9%) at 7,208.
In the US, the Dow Jones was 346 points (1.1%) weaker at 31,488 and the S&P 500 was 57 points (1.5%) to the bad at 3,878. The Nasdaq Composite was kicked hardest of all, tumbling 224 points (2.0%) to 11,141, which might explain why Scottish Mortgage Investment Trust, down 6.9%, was among the worst blue-chip performers in London today.
JD Sports Fashion PLC (LSE:JD.) defied the trend, leaping 4.1% to 123.8p, after it said expects annual profits for the year to next January to be at least equal to that for the past year, after a period of improved sales in the first 14 weeks of the current fiscal year.
1.30pm: Languishing below 7,300
The FTSE 100 remains down more than 2%, grazing below 7,200, levels last seen in the ides of March, but this is small beer compared to crypto losses.
Lulled into a false sense of security amid sharp price rises during the pandemic, crypto investors are now facing a rude awakening, with digital coins plunging across the board.
While bitcoin has crawled back up from its low of US$26,000 reached early today, but at a nudge above US$28,000, it’s down 8% over 24 hours and 20% over the last five days.
TerraUSD’s collapse yesterday have caused an “industry-based panic”, said analyst Ipek Ozkardeskaya at Swissquote Bank.
Today bigger fallers include luna, Terra’s own crypto coin (not a ‘stablecoin’), while others such as Ether are down almost 20%.
Crypto companies like Coinbase and Microstrategy are down over 50% over the past five days as coin prices plummet.
It’s also going to be a further weight on young adults, says Myron Jobson, analyst at Interactive Investor.
Research by Interactive found that 45% of young adults aged between 18 and 29 have made crypto their first investment of choice, with many funding this through a cocktail of credit cards, student loans and other loans.
« The worry is many have been hit with a double whammy of investment loss and a deeper plunge into debt. The debt issue is made worse with rising interest rates, » said Jobson.
He added that the sell off has been driven by a culmination of long and short term factors including worries about regulation, security breaches as well as pressures buffeting traditional markets such as geopolitical uncertainty and US interest rate hikes.
“The spat of crypto scams has also undermined confidence in the asset. Recent news of infamous ‘Cryptoqueen’ Ruja Ignatova being added to Europol’s most wanted list, for convincing people she invented a cryptocurrency to rival Bitcoin before disappearing with billions of their cash, reinforces the crypto market’s Wild West reputation.
“Whatever the reason, the crash is a tough pill to swallow for those who made their very first investment in cryptos. »
12.25pm: Another retail boss calls for help for families
The boss of another high-profile retailer has called on the government to introduce a relief package to help poorer people cope with sharply higher prices.
Dame Sharon White, the head of Waitrose owner John Lewis Partnership and a former senior civil servant, said the government need to pull another rabbit out of the hat, much as it did during the height of Covid pandemic.
“The decisive action we saw, I thought the government did incredibly well at the pace and scale during Covid, I think we need to see the same decisive action taken at speed and at pace,” White said.
Earlier this week, John Allan, the chair of Tesco PLC (LSE:TSCO), joined calls for a windfall tax on energy companies, with the money raised to be used to offset rising energy prices for consumers.
The FTSE 100 was down 152 points at 7,195.
11.45am: US stocks expected to open lower
US stocks were expected to retreat further on Thursday with worries about inflationary pressures continuing to undermine sentiment.
Consumer prices inflation data spooked markets on Wednesday, leading to widespread falls and putting the focus on factory gate price data due out today. A higher-than-expected number will likely add to share price woes.
Futures for the Dow Jones Industrial Average shed 0.5% in premarket trading, while those for the broader S&P 500 index lost 0.6% and contracts for the Nasdaq-100 fell 1.0%.
“US inflation data didn’t print a soft-enough figure to reverse the market sell-off,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noting that core inflation, which excludes the most volatile food and energy prices, rose 0.6% in April from 0.3% in March.
Data out yesterday showed a headline consumer price index (CPI) inflation figure of 8.3% in April, slightly higher than expected but lower than the 8.5% seen in March.
“There is still hope that the 8.5% print of March was a peak, but it looks like the overheating in consumer prices won’t be easy to cool down,” she said, adding that the producer price index (PPI) expectations are for a slowdown to 10.7% in April from 11.2% in March.
The producer price data is scheduled for release today at 1.30pm UK time.
As prices show little sign of abating, the US Fed is expected to continue on a path of aggressive rate increases despite the possible threat to economic growth. Many now fear that the rate hikes may not work too well to staunch inflation.
Elsewhere, the US dollar’s gains are adding to fears over economic activity.
Oil prices also remain elevated signalling that commodity price pressures are going to be a mainstay. WTI crude futures were 1.4% down at US$104.23 a barrel while Brent crude futures were 1.4% lower at US$106.04 a barrel.
Over in China, fears of a slowdown were offset slightly amid news of falling COVID-19 cases in Shanghai, taking the edge off fears that supply chain constraints are looming.
“There is one good news on the wire, though: Covid cases in Shanghai halved this week, sparking hope that the lockdown measures could soon be over in China’s economic heart. Yet, zero Covid is hard to achieve, and the risk of a renewed lockdown is omnipresent if the Chinese government doesn’t soften the rules, which they don’t seem to be willing to do,” noted Ozkardeskaya.
In London, the FTSE 100 was showing little sign of getting up off the canvas; the index was down 169 points (2.3%) at 7,179.
Mining stocks were under the cosh as commodity prices subside while Scottish Mortgage Investment Trust PLC (LSE:SMT), down 6.5% at 730p, remained out of favour as tech stocks continue to get the sharp end of the barge-pole.
10.20am: Inflation fears add to investors’ worries
Footsie nosedived in early trading, losing 168 points to 7,179. The UK economy contracted in March by 0.1% as the rising cost of living reduced demand, with the Bank of England warning inflation could hit 10% by the year-end.
Walt Disney reported an increase in sign-ups for its streaming services, while revenues rose, and profits fell in the first quarter. This comes after rival Netflix announced a decline in subscriber numbers.
Apple lost its position as the world’s most valuable company amid a sell-off of technology stocks. Saudi Arabian oil and gas producer Aramco reclaimed its top spot.
Among the small caps, Caledonia Mining reported a 51% jump in first-quarter profit on record gold production and higher gold prices. It also reported strong production in April and reiterated that it was confident of meeting its full-year output guidance.
Seraphim Space Investment Trust agreed terms on several new investments that should complete in the coming quarter. The investment trust’s net asset value was £250mln at the end of March.
AEX Gold acquired two exploration licences in South Greenland from Orano Group. The licence area increases its exposure to metals such as nickel, copper, zinc and others.
8.53am: Risers and fallers
London’s index of heavyweight shares has, as the hoary old market report’s phrase has it, fallen out of bed with a bump.
The FTSE 100 index was down 175 points (2.4%) at 7,172, with just half a dozen of the index’s constituents in positive territory.
One of those was BT Group PLC (LSE:BT.A), which was up 1.6% at 179.2p after it agreed to spin its BT Sport broadcast arm into a new 50-50 joint venture with the newly merged Warner Bros Discovery Inc (NASDAQ:WBD) , which owns Eurosport.
The telecoms giant also released its full-year results.
“’BT Group saw revenue fall 2% as expected in the financial year as supply chain problems and a delayed recovery from Covid-19 took weighed on its topline, but a tight handle on costs meant adjusted Ebitda rose 2% to £7.6 billion and came in higher than expected. That will install greater confidence around BT Group’s ambition to grow annual revenue for the first time in six years and deliver higher adjusted Ebitda of at least £7.9 billion in the 2023 financial year,” said City Index market analyst, Joshua Warner.
Also defying the trend after results was Rolls-Royce Holdings PLC (LSE:RR.), up 0.6% at 80.98p.
“Rolls Royce hasn’t been able to catch a break over the past few years, but we’re finally starting to see green shoots amid a budding recovery. The recovery in engine flying hours is continuing to build, though the ever changing state of affairs in China means getting back to pre-pandemic levels is still some way off. Still, the resumption of air travel is a net positive for the new, leaner business. It’s encouraging to see new orders coming through the pipelines as airlines work to build up capacity and pounce on a travel-hungry public,” said Laura Hoy, an equity analyst at Hargreaves Lansdown.
Talking of Hargreaves Lansdown PLC (LSE:HL.), its shares were leading the Footsie’s retreat, tumbling 9.5% to 809.4p after a trading statement failed to hit the spot so far as the market is concerned.
“The challenging backdrop driven by unprecedented macro-economic and geo-political events has impacted markets and investor confidence, in turn leading to moderated flows and asset levels with net new business of £2.5 billion in this period,” the wealth management firm’s chief executive, Chris Hill, admitted.
On the macroeconomic front, consumer weakness weighed on UK gross domestic product (GDP) in March.
Quarterly GDP growth was 0.8% in the first quarter, less than the 1.0% economists had expected and it fell by 0.1% month-on-month in March, thanks to a significant fall in consumer-facing services.
The UK economy put in a mid-table performance among G7 countries in Q1 – GDP was 0.7% above its Q4 2019 level. Households, however, were shielded from higher energy prices more than those in other countries in Q1 (thanks to Ofgem’s price cap). Expect the UK to underperform in Q2 pic.twitter.com/wenfn073PA
— Samuel Tombs (@samueltombs) May 12, 2022
“Year on year the economy grew at 8.6%; however, the underlying picture is weak. A return of tourism could be mistaken as real evidence of a post-pandemic normality but by and large momentum for consumer-facing services is weakening,” said George Lagarias, the chief economist at Mazars Wealth Management.
« Production and construction also disappointed. Both sectors are suffering from high input costs and wildly unbalanced supply chains. While production might be less important for GDP, it is usually a precursor for services. Currently, consensus forecasts 3.7%-3.8% growth at year-end. »
« While we believe that the UK economy will probably grow this year, versus the previous one, we expect more economic weakness in the coming months. This is a result of higher interest rates, tax hikes and persistent inflation reducing real income, as well as external pressures due to the general slowdown in the global economy, » Lagarias opined.
6.50am: Big drop in prospect unless GDP provides a pleasant surprise
All the FTSE 100 index’s gains from the previous day are expected to be undone on Thursday as markets continue to reflect worry about inflation, central bank tightening and potential recessions.
Spread-betting platforms were predicting drops of 100 to 120 points for the London benchmark, undoing all the work from the day before, when it gained just over 104 points or 1.44% to finish at 7,347.66.
Another Wall Street sell-off took place overnight, following US consumer price inflation fell slightly to 8.3%.
Tech and growth stocks on the Nasdaq led the decline, tumbling another 3.2%, with the S&P 500 falling 1.65% and the Dow Jones dropping 1%.
“While there was disappointment that inflation didn’t fall as much as expected, the initial move higher in yields didn’t last long, with the US 10-year yield unable to sustain a move above 3% and closing lower for the third day in a row,” said market analyst Michael Hewson at CMC Markets.
“This failure would appear to suggest concern that bond markets are becoming less worried about inflation, than they are about a slowdown in the wider economy.
“In any case, what these wild market moves are telling us is that investors have very little idea of whether we’re near a short-term base, or whether we’ve got further to fall.”
Today’s news in London includes a glut of macroeconomic data, including quarterly GDP, industrial and manufacturing production, and trade data, coming days after the Bank of England warned that a recession could be on the cards.
The UK economy is expected to have slowed from the fourth quarter expansion of 1.3% to around 1%, although March likely to be the weakest month.
On the company diary, there’s results from BT Group PLC (LSE:BT.A), Grainger and Versarien PLC, as well as trading updates from Balfour Beatty plc (LSE:BBY), Coca-Cola HBC and ConvaTec.
6.50am: Early Markets – Asia / Australia
Asian shares tumbled on Thursday following overnight losses on Wall Street as the US consumer price index in April remained near its highest level in more than 40 years.
The Shanghai Composite in China declined 0.46% while Hong Kong’s Hang Seng index fell 2.25%.
Japan’s Nikkei 225 was trading 1.80% lower and South Korea’s Kospi slipped 1.65%.
Australia’s S&P/ASX200 fell 1.75% as the country’s first cryptocurrency ETF met with lukewarm reception on its debut on Thursday with the underlying price of bitcoin falling to a six-month low of US$26,766.
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