FTSE 100 drops more than 2% as Wall Street slide continues, while UK factories see pricing pressures pick up
- FTSE 100 down 158 points
- Warnings from US retail giants spark panic
- Royal Mail heads the list of blue-chip fallers
3.57pm: Footside off worst levels but still under pressure
Leading shares are off their worst levels as we head into the close, but remain deep in the red.
The FTSE 100 is down 158.46 points or 2.13% at 7279.63, having earlier fallen as low as 7228.
Fears of rising inflation causing a recession are growing, as central banks step up the pace of interest rate rises even amid a cost of living crisis.
Updates this week from US retail giants Target and Walmart combined with comments from US Federal Reserve officials to do the damage.
International Monetary Fund managing director Kristalina Georgieva was the latest to warn on inflation.
She told Reuters at a G7 meeting that it was harder for central banks to bring down inflation without causing a recession, due to rising energy and food prices caused by Russia’s war on Ukraine, China’s COVID-19 lockdowns and the disruption to global supply chains.
She said she stopped viewing inflation as « transitory » – a central bank buzzword not so many months ago – when the Omicron variant emerged.
She said: “I think what we need to start getting more comfortable with is, that may not be the last shock. »
Meanwhile the day’s fallers in the leading index are across the board, although consumer focused companies are under pressure as money becomes ever tighter.
Royal Mail PLC (LSE:RMG) took an early lead in the race for the unwanted wooden spoon, and so far has not been toppled.
Its shares are down 12.3% following a disappointing update.
Michael Hewson at CMC Markets UK said; « Royal Mail shares have fallen to the bottom of the FTSE 100 after missing expectations on full year revenues and warning that adjusted operating profit consensus for its Royal Mail division is for £303mln with downside risk, due to higher fuel costs and wage demands.
« To mitigate this the company warned it would have to raise prices on parcels and stamps in the coming months. »
3i Group PLC (LSE:III) is down 11.63% while going ex-dividend left Unilever PLC (LSE:ULVR) down 5.54% and Bunzl PLC (LSE:BNZL) 5.07% lower.
A handful of miners made an effort to stay in positive territory, with precious metal miner Fresnillo PLC (LSE:FRES) up 2.89% as gold became attractive as a haven against recessionary fears.
Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) rose 2.84% while Anglo American PLC (LSE:AAL) edged up 0.26%.
3.21pm: US housing market falters
US home sales fell for the third month and more declines are expected.
Existing-home sales fell 2.4% in April to 5.61m, according to the National Association of Realtor. This wasslightly lower than the 5.65mln forecast and the lowest level since June 2020.
Month on month sales were split amongst the four major US regions, with two areas posting gains and the other two experiencing falls in April.
« Higher home prices and sharply higher mortgage rates have reduced buyer activity, » said Lawrence Yun, NAR’s chief economist.
« It looks like more declines are imminent in the upcoming months, and we’ll likely return to the pre-pandemic home sales activity after the remarkable surge over the past two years. »
2.58pm: US markets continue their negative trend
US stocks opened lower as the sell-off continued amid growing recession concerns.
Just after the open, the Dow had shed 344 points or 1.1% at 31,146 points.
The S&P 500 was down 26 points or 0.7% at 3,897 points and the Nasdaq had slipped 33 points or 0.3% at 11,386 points.
ZEDRA global head of fiduciary investment services Toby Sturgeon said: « The spectre of a recession is back in focus and investors have sought safe havens.
“If US markets do fall this week, it will be the longest run since 2001. The mere fact that this didn’t happen during the great financial crisis and with many indicators pointing towards being in oversold territory, perhaps investors should hold their nerve.”
Back in the UK, the FTSE 100 is not exactly holding its nerve, down 177.18 points or 2.38% at 7260.91.
1.44pm: Cadent workers set to strike
Workers at gas giant Cadent are planning strike action later this month in a dispute over pay and conditions.
Around 2,000 members of the GMB union will take industrial action on Monday 30 May and Tuesday 31 May 2022, in a move the union says could potentially cause outages at homes and businesses throughout five regions in England; North West, East and West Midlands, East Anglia and North London.
The strike comes after workers rejected a below inflation pay increase of 2% for 2021 and 4% from July 22.
The consumer price index is currently at 9%, as reported yesterday.
GMB says Cadent made an operating profit of £901mln in 2021, while chief executive Steve Fraser was paid £1.4mln in 2020/21.
Cadent’s Australian owners MacQuarie are currently heading up a consortium to buy the gas transmission and metering business of National Grid PLC (LSE:NG.) for £4.2bn.
Shares in National Grid meanwhile are down 1.53% after its latest update.
1.37pm: US jobless claims unexpectedly rise
US weekly jobless claims have come in higher than expected.
The number of Americans claiming unemployment benefits for the first time was 218,000 last week, compared to expectations of a figure of 200,000.
That is 21,000 more than the previous week’s 197,000, itself revised down by 6,000.
11.58am: No respite for US markets
US stocks were expected to open lower again as stubbornly high inflation, coupled with tough talk from the US Fed sustained concerns that the global economy may be headed for a recession.
After Wednesday’s intense sell-off in equities, their worst in two years, futures for the Dow Jones Industrial Average were down 1.32% in pre-market trading, while those for the broader S&P 500 index fell 1.38% and the tech-heavy Nasdaq lost 1.46%.
“The sentiment in the market is highly negative as traders and investors are largely concerned about an economic downturn and soaring inflation,” said Naeem Aslam, chief market analyst at Avatrade.
He said the latest set of disappointing earnings from large US retailers such as Walmart and Target signalled that conditions “must be immensely dire” for smaller to medium businesses that do not have the luxury of passing off higher costs to consumers, raising fears of a recession.
Aslam noted that talk in the market of some consumers continuing to maintain their lifestyles by borrowing is adding to market concerns because higher debt at a time of looming recession is “the perfect cocktail for a major disaster”.
Later today come the US home sales figures for April, which are expected to show a third-straight monthly fall, and the latest jobless claim numbers, forecast at 200,000.
Oil prices are also slipping on recession fears, with Brent crude down 1.12% to US$107.89 a barrel and West Texas Intermediate, the US benchmark, 1.7% lower at US$107.73.
11.43am: Mid cap index follows Footsie lower
There is little let up in the selling.
The FTSE 100 is now down 2.53% or 188.53 points at 7249.56.
If it stays like this, it would be the biggest daily percentage fall since 4 March.
Meanwhile the FTSE 250 has lost the same amount, dropping 2.53% to 19,444.8.
11.13am: UK manufacturing grows in May although confidence falls
Some positive signs from UK factories, according to the latest CBI industrial trends survey, although pricing pressures are picking up.
The report showed UK manufacturing output grew at its fastest pace in ten months over the quarter to May, with a balance of +30, up from +19 in the three months to April. Output still failed to keep pace with demand, however, as the volume of stocks of finished goods became less adequate compared with last month.
The balance of firms expecting to raise selling prices in the three months ahead increased slightly, from +71 to +75 and moving closer to March’s record high of +80.
Expected domestic price growth for the three months ahead picked up slightly in May, moving closer to March’s survey record high. #ITS pic.twitter.com/wZcxrtlvLN
— CBI Economics (@CBI_Economics) May 19, 2022
Confidence showed a further decline in the quarter to May (-30%), while investment plans for buildings (-6%) and plant and machinery (-2%) remained weak.
Anna Leach, CBI deputy chief economist, said: « “Manufacturers have reported output growth and order books improving in May. But cost pressures remain acute and are pushing manufacturers to raise prices. Sentiment among manufacturers has fallen in recent months as the outlook has deteriorated following Russia’s invasion of Ukraine, and investment plans are being scaled back.
“Rising costs are hitting consumers and businesses alike, and the government can and must take action now to support the economy through the challenging months ahead. Putting pounds in the pockets of people already struggling should not be delayed, and must be coupled with action to support firms’ cashflow and to stimulate investment.”
10.44am: Firms increasingly concerned about inflation and energy prices
It will come as no surprise but businesses are increasingly worried about price inflation and the surge in energy costs.
According to the May report from the Office for National Statistics, around 26% of firms said input price inflation was the main concern for their business, up from 24% in April.
Some 20% were worried about energy prices, compared with 21% in April 2022.
In April,, 22% of businesses with 10 or more employees experienced global supply chain disruption; this was up from 20% in March 2022.
26% of businesses reported input price inflation (e.g. inflation of goods and services prices) as their main concern for May 2022.
Energy prices was the second highest concern (20%) https://t.co/Vor5L7cBnN pic.twitter.com/Wp1gPcqLB5
— Office for National Statistics (ONS) (@ONS) May 19, 2022
9.57am: Sell off gets worse
The sell-off is intensifying as investors bail out on growing fears of stagflation.
In the wake of warnings from US retail giants Target and Walmart and expectations of hefty rate rises to come, the UK market is following the global slide.
The FTSE 100 is now down 150.50 points or 2.02% to 7287.59.
The index is on course for its worst day since it fell 2.32% on May 9. Not that long ago obviously but it does mean we are heading for a grim month overall.
AJ Bell investment director Russ Mould said: “After the Walmart wobble on Tuesday, Target struck terror into the hearts of the US retail sector and was a big contributing factor behind the worst day for US markets since 2020 on Wednesday.
“The extent of the impact of inflation on these giants of American retailing has woken investors up, once again, to the huge impact surging prices are having on every facet of the economy.
“Combine this with hints from the US Federal Reserve about more aggressive interest rate hikes and it’s little wonder that stagflation fears – a slowing economy combined with inflation running hot – are stalking the markets once more. »
At the moment there is not a single riser in the leading index.
Among a broad range of leading fallers, Royal Mail PLC (LSE:RMG) heads the list, down 10.92% after its disappointing update.
3i Group PLC (LSE:III) is down 8.08% while Scottish Mortgage Investment Trust PLC (LSE:SMT) is off 5.09% after its figures.
The ex-dividends continue to weigh, with Bunzl PLC (LSE:BNZL) 5.52% lower, Kingfisher PLC (LSE:KGF) falling 4.81% and Tesco PLC (LSE:TSCO) sliding 4.7%.
9.16am: It’s not all gloom – quite
There are some bright spots in what is proving a down day.
Airtel Africa PLC (LSE:AAF) is up 1.26% after the telecoms and mobile money services group said its SmartCash Payment Service Bank had started operations in Nigeria.
It will provide accounts and cards for Nigerians who do not currently have access to financial services, and it will be expanded gradually across the country over the next few months.
Among the mid-caps, Homeserve PLC (LSE:HSV) is 10.83% higher after the home repairs business agreed to be taken over by Canadian investment giant Brookfield for almost £4.1bn.
8.23am: Ex-divs do some damage
The market mood is not being helped by a raft of major companies going ex-dividend.
Among those quoted without the right to the latest shareholder payout are Kingfisher PLC (LSE:KGF), down 4.58%, Tesco PLC (LSE:TSCO), off 4.02%, Unilever PLC (LSE:ULVR), 2.25% lower and Pershing Square Holdings (LSE:PSH), which has fallen 1.75%.
All that has helped push the FTSE 100 even lower. The leading index is now down 84.53 points or 1.14% at 7353.56.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’A red wall of worry has built up across financial markets with investors increasingly nervous that economies are set to career into recession..
« Indices across the board [are] in the red as traders assess just how difficult it is going to be for central banks to rein in rampant inflation without pushing economies into reverse. »
8.14am: Markets unnerved by seemingly unstoppable inflation and rising rates
Leading shares are heading south as the spectre of inflation – less a spectre and more a full-bodied monster at this point – at the same time as an economic slowdown loomed ever more prominently.
The FTSE 100 is down 57.56 points or 0.77% to 7380.53 after US markets recorded their worst daily drop for almost two years.
The rout on Wall Street and the follow-through in Asia came after weak US retail results from Target and Walmart and remarks from US Federal Reserve chair Jerome Powell and other policymakers suggesting interest rates could rise even faster than expected to cope with surging prices.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: « Powell said this week that the Federal Reserve would go beyond what could be a neutral rate to tame inflation.
« But at this point, no one knows where the neutral rate is, even the central bankers don’t have a clue. »
CMC’s Hewson said; « Powell’s comments that the Federal Reserve wouldn’t hesitate to tighten the rates ratchet beyond neutral until there is clear evidence that inflation is under control, has sparked concerns of a much more aggressive pace of rate rises, beyond what was outlined at the last Fed meeting.
« While markets seemed comfortable with the idea of this month’s 50bps move, followed by another 50bps in June, there now appears to be talk of 50bps in July as well, after comments from Philadelphia Fed President Patrick Harker to that effect last night, with the possibility of more moves at a measured pace thereafter.
« With US inflation already at 40-year highs and starting to look increasingly sticky, the tone from some Fed officials appears to shifting to an even more hawkish pivot with the intent to soften the market up for faster moves in the Fed funds rate.
« Sentiment has been further damaged by inflation in the UK surging to a record high on the CPI measure of 9%, and Canadian CPI jumping to a 32 year high, it is becoming more apparent that prices will stay elevated for a lot longer than originally thought. That will be bad news for consumers, margins and therefore growth, and ergo could well signal further weakness for stock markets. »
Among the fallers on the UK market, Royal Mail PLC (LSE:RMG) has dropped 6.76% to 319.72p as it delivered an 8.8% drop in pretax profits to £662mln and warned on an uncertain outlook for the economy.
6.50am: Footsie on the back foot
The FTSE 100 is expected to start on the backfoot after the latest stock sell-off in the United States dealt another blow to sentiments.
CFD firm IG Markets sees London’s blue-chip benchmark down 45 points, making a price of 7,389 to 7,293 with just over an hour to go until the open.
Wall Street’s latest bout of selling came as results from big-store retailer Target missed the mark, triggering a 25% collapse in its NYSE share price.
Walmart, Amazon, Apple and Starbucks were among the American consumer-facing stocks that took a hiding along with Target.
The Dow Jones meanwhile slumped 3.5% lower to 31,490 and the S&P 500 was down 4% at 3,923.
As tech stock tumbled the Nasdaq shed another 4.7% to 11,418 and the small-cap Russell 2000 index gave up 3.5% to 1,774.
In Asia, Japan’s Nikkei was 1.74% lower and Hong Kong’s Heng Seng was softer still losing 2.69% to 20,088. The Shanghai Composite dipped 0.38% to 3,074.
“This weakness in US and Asia markets is set to translate into a sharply lower open for European markets, as we look ahead to the latest US weekly jobless claims numbers which in recent weeks have started to edge higher again, above 200k,” said Michael Hewson, analyst at CMC Markets
“The latest Philadelphia Fed business survey for May will also be closely monitored after the recent huge miss on the Empire manufacturing survey from earlier this week.”
Around the markets
The pound: US$1.2376, up 0.3%
Gold: US$1,814 per ounce, down 0.12%
Silver: US$21.41 per ounce, up 0.4%
Brent crude: US$110 per barrel, down 1.8%
WTI crude: US$110 per barrel, down 2%
Bitcoin: US$29,067, down 3%
Ethereum: US$1,946, down 4.7%