FTSE 100 ends lower but off worst as Wall Street edges higher; IMF cuts growth estimates

• FTSE 100 sheds 16 points
• US stocks edge higher
• IMF cuts growth forecasts

5.00pm: Footsie off lows at close

The FTSE 100 index ended weaker on Friday but came off earlier lows in the afternoon as Wall Street pushed higher again focused ahead to the latest US corporate earnings season.

At the close, the UK blue-chip index was 16.62 points, or 0.2% lower at 7,130.23, below the day’s peak of 7,146.05 but well above the session low of 7,063.43.

On Wall Street around London’s close, the Dow Jones Industrials Average was 101.61 points, or 0.3% firmer at 34,597.67, with the broader S&P 500 index and the tech-laden Nasdaq Composite also both up 0.3%.

Joshua Mahony, senior market analyst at IG, a global leader in online trading commented: « The IMF has provided a less than encouraging assessment of the global economic outlook, with downgrades to growth forecasts coming as they warned of overvalued markets and increased risks within emerging markets. Easy lending conditions have brought higher valuations, which the IMF see as a major risk as we move towards a inflation-fuelled phase of monetary tightening. »

He noted: « Gazprom has stepped in to ramp up natural gas supplies to Europe today, with fears of rampant upside in prices easing for now. However, while inflation fears have eased after Russian intervention, the recent resurgence in lumber and iron ore prices highlight the inflation evident across most physical assets. Despite the weakness evident throughout European markets, it is once again the FTSE 100 which outperforms its mainland European counterparts. »

4.10pm: UK market seeks direction

Leading shares remain in the red but well off their worst levels, even though a combination of the rise in energy prices, concern about interest rate rises and the fate of China’s Evergrande continues to unsettle investors.

The FTSE 100 is now down 19.92 points or 0.28% at 7126.93, having fallen as low as 7063 earlier.

Miners continue to be under pressure, with () down 1.47% and () off 0.81%.

Michael Hewson, chief market analyst at CMC Markets UK), said: « A negative lead from Asia saw markets in Europe open sharply lower earlier today, and although we’ve rebounded off the lows, it’s still difficult to determine an overall direction. Investors shrugged off a minor downgrade to global growth for this year from the IMF…

« The biggest laggards have been in basic resources, which helped underpin yesterday’s FTSE 100 gains…Since July we’ve seen moves to the upside, as well as the downside, but within a clearly definable range.

« While investors want to believe a narrative that can see equity markets move higher, any optimism is being tempered by the prospect that rising prices, as well as supply chain disruptions, may well negatively impact profit margins, as well as prompting a consumer slowdown.

« The main change since July has been a sell-off in bond markets, which has seen yields move quite a bit higher, reflecting much more elevated inflation expectations over the next six to 12 months, and it will be company guidance over the next few months that may well dictate where we head next. »

If so then the signs are not good for airlines.

EasyJet PLC suggested a recovery for the sector was underway, but investors paid more attention to its forecast of a full year loss of just over £1bn.

Its shares are down 3.24% while British Airways owner International Consolidated Airlines PLC has fallen 2.64%.

But () has put on 1.28% after a report that private equity was casting an eye over its £40bn consumer division, which it is planning to spin off.

Over on Wall Street, the Dow Jones Industrial Average has now edged into positive territory, up 60 points or 0.18% while the S&P 500 and Nasdaq Composite are both marginally higher.

3.30pm: IMF cuts, US jobs data dips

As foreshadowed last week, the International Monetary Fund has trimmed its global growth forecasts amid supply chain problems and rising inflation.

It now expects the world economy to grow by 5.9% in 2021, down from its forecast of 6% in July.

The UK will grow by 6.8% this year, down from the previous figure of 7% while the US figure is cut from 7% to 6%.

IMF Outlook adds to stagflation fears. IMF trims 2021 global growth forecast to 5.9%. Cuts its 2021 forecast for US by full percentage point to 6%, forecast for German GDP by 0.5ppt to 3.1% mainly b/c of supply constraints. IMF increases 2021 inflation outlook by 0.4ppts to 2.8%. pic.twitter.com/UyydOwhMd4

— Holger Zschaepitz (@Schuldensuehner) October 12, 2021

IMF economic counsellor Gita Gopinath said: “The global recovery continues, but momentum has weakened, hobbled by the pandemic. We have a slight downward revision for global growth for this year to 5.9 percent; for next year, our projection remains unchanged at 4.9 percent. The divergences in growth prospects across countries, however, persist and remains a major concern. »

Meanwhile US job openings have come in lower than expected at 10.439mln for August.

That compares to forecasts of 10.925mln, although the previous month’s figure has been revised up from 10.934mln to a record 11.098mln.

This is the first time they have fallen this year, but are still close to a peak.

The argument that this is a temporary pause in labor demand is supported by layoffs & discharges, which hit a record low in August, as employers hoard scarce labor in anticipation of continuing difficulty hiring after the Delta wave abates.#JOLTS 2/ pic.twitter.com/28Y9xC1XG5

— Daniel Zhao (@DanielBZhao) October 12, 2021

The jobs news has tipped US markets into the red.

The Dow Jones Industrial Average is now down 63 points or 0.18% while the S&P 500 is 0.08% lower while the Nasdaq Composite is virtually flat.

In the UK the FTSE 100 is fairly unconcerned, down 24.97 points or 0.35% at 7121.88, off its low of 7063.

2.58pm: US investors remain cautious

US markets are showing marginal gains as investors worry about rising energy prices and await a week of big company earnings.

The Dow Jones Industrial Average is up just 0.03% or 12 points while the S&P 500 has added 0.07% and the tech heavy Nasdaq Composite is 0.14% better.

2.26pm: To raise or not to raise…

The pound has edged up against the dollar, but it has been under pressure recently on concerns the may be acting too precipitously if it raises interest rates before the end of the year.

Craig Erlam at Oanda said: « The pound has been punished as a result of the ‘s apparent determination to raise rates at all costs. A move that is seemingly being deemed a policy mistake by the central bank that will pressure an already shaky recovery.

« Or perhaps more worryingly, a sign that the worst is yet to come as the country faces up to the reality of a much greater inflation problem that threatens to weigh heavily on the economy? Either way, the currency has struggled and while it has bounced back this month, it is widely being viewed as a temporary recovery with more pain to come.

« On the face of it, the labour market data from the UK today doesn’t look so bad and may support the case for the central bank to tighten monetary policy. But a quick look under the hood shows the numbers are flattered by various factors. The most notable being the furlough scheme which only ended last month and with 1.3 million making use of it, that’s a lot of people that may have since become either unemployed or underemployed.

« While the average earnings increase of 7.2% in August also looks very healthy and a potential cause for concern, the number is far more modest when accounting for one-off factors, like a drop in the use of the furlough scheme. With those factors stripped out, the ONS believes the range is 4.1%-5.6%, which while still high is also likely to recede over time as employers face higher costs.

« It may explain the additional angst on the committee, though, which will make the data between now and December interesting. Not to mention the monetary policy report in a little over three weeks when the BoE publishes its new forecasts alongside its rate decision. Either way, it will surely hold until at least December to see how the environment evolves in the interim. »

At the moment the pound is up 0.15% at US$1.3611.

The FTSE 100 meanwhile is down 23.79 points or 0.33% at 7123.06.

12.33pm: Investors await start of US earnings season

US stocks are expected to open fairly flat as rising energy prices stoke fears of accelerating inflation while upcoming earnings reports are also keeping the market on edge.

Futures for the Dow Jones Industrial Average futures were up just 0.03% in Tuesday pre-market trading, while the broader S&P 500 index edged up 0.1% and the tech-heavy Nasdaq 100 rose 0.31%.

Stocks closed down on Monday after US oil benchmark WTI crude oil topped $82 a barrel at its session highs before trading around $80 as () cut its US economic growth forecast for 2022 to 4% from 4.4% and its 2021 estimate to 5.6% from 5.7%. 

The Dow dropped by 250 points, or 0.72%, to 34,494, while the S&P 500 fell 0.69% to 4,361 and the Nasdaq declined 0.64% to 14,486.

The US earnings season gets underway in earnest on Wednesday, with results from JP Morgan. Other big banks including Citigroup and () report later in the week.

Meanwhile the FTSE 100 is currently down 30.41 points or 0.43% at 7116.44.

12.08pm: Pharmaceutical group could face private equity move

() is on the rise on talk its consumer arm – set to be spun off the pharmaceuticals business – could be attracting the attention of private equity.

Its shares are the biggest riser in the FTSE 100, up 2.56% after Bloomberg said the likes of Advent International, Blackstone, Carlyle Group, CVC Capital Partners, KKR and Permira could be interested.

That’s pretty much everyone of course.

The business could be worth around £40bn. 

Glaxo has come under pressure from activist investors who want board changes along with the planned demerger.

1.38am: Evergrande problems still in the spotlight

It is not just energy price rises and the prospect of higher interest rates unsettling investors.

The problems at beleaguered Chinese property giant Evergrande have not gone away, with reports that it missed key payments on a couple of bonds which were due on Monday.

That helped undermine Asian markets, and in turn has hit the mining sector here.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: 

« The mining sector is .. highly sensitive due to renewed jitters about contagion from a possible collapse of the huge Chinese property group Evergrande. The company looks set to miss payments on interest payments due yet again. It’s feared the waves of repercussion risk pulling down a flotilla of smaller property companies.

« Although it’s still likely Beijing will try and stop the crisis spreading to financial firms, with the expectation that more state owned companies could step in and buy parts of Evergrande, the situation is still likely to cause a further marked slowdown for China’s property and construction sector, with a knock on effect on mining companies in particular. The additional concern is that a big slide in house prices will knock consumer confidence in China and if consumption dips, that might cause fresh ripples on financial markets.”

So () is leading the fallers, down 2.7%, while () is off 2.17% and BHP PLC is 1.62% lower.

Overall the FTSE 100 is down 33.14 points or 0.46% at 7113.71, having earlier fallen as low as 7063.

10.39am: Airlines fail to take off

Airlines seem to be taking little comfort from easyJet’s pronouncement that « It is clear recovery is underway. »

The sector has of course been hard hit by the pandemic and the subsequent restrictions on travel, which are indeed being eased gradually.

But easyJet shares are down 2.3% as it forecast a full year loss of between £1.12bn and £1.17bn compared to consensus of £1.17bn.

There is also the prospect of jet fuel prices climbing and hitting margins.

Meanwhile, comments that easyJet had seen a rise in business travel seem to have upset British Airway’s owner International Consolidated Airlines PLC, which among the biggest fallers in the leading index with a 2.4% decline.

Russ Mould at AJ Bell said: « easyJet seeing greater business travel demand could.. be the result of companies cutting their spend and telling staff to switch from the traditional airlines of choice like British Airways to cheaper options.”

Mould said easyJet had a strong brand and the pick up in demand from business and from people seeking a half term break in the sun was good news: “EasyJet needs to get back on the path to normality as there is only so long it can sustain hefty losses. A £1.2bn rights issue has given it some breathing room on the financial front, and it is encouraging to see the company generate positive operating cash in the three months to the end of September.

“There are some obvious negative factors to consider. The fact people are booking flights close to the departure date means limited earnings visibility for the airline. The decision not to pay a dividend may be disappointing to shareholders but shouldn’t really be a surprise. And the lack of financial guidance for the new financial year is annoying but understandable.

“Nonetheless, it does feel as if the airline sector is at a turning point and there are enough positive signs to take a more positive view of the industry’s outlook.

Overall the FTSE 100 is off its worst levels but still down 39.95 points or 0.52% at 7109.9, as the strong jobs data increased the expectation of a UK interest rate rise, even as energy prices continue to rise.

9.21am: Asia-focused firms under pressure

There is little immediate sign of a turnaround on the UK market as a cocktail of concerns continues to weigh on investors minds.

The FTSE 100 is currently down 59.27 points or 0.83% at 7087.58, with companies exposed to Asia under pressure after worries about the economies in the region and new crackdowns by China.

Russ Mould, investment director at AJ Bell, said: “China’s regulatory interference is back to haunt markets once again, with Beijing casting its eye on the financial sector to stamp out corruption. The Evergrande saga also continues to rumble on, with reports that some bondholders didn’t receive interest payments from the heavily indebted property group due on Monday.

“These factors have knocked investor confidence once again, leading to a 1.7% drop in the Hang Seng index in Hong Kong, with financials, technology and healthcare among the worst performing sectors. »

In the UK, () is down 2.32%, () has fallen 1% and Burberry PLC is off 0.93%.

The general mood is not helped by the rise in energy prices.

Mould said: “The energy crisis is showing no signs of abating, which means considerable cost pressures on companies, and consumers facing the prospect of having less money in their pocket to spend on products and services, thereby having a negative effect on the economy. »

8.32am: Jobs figures could mean rate rise is on the cards

Leading shares have started on the back foot, after falls in the US and Asia.

Concerns about rising energy prices are outweighing optimism about the economic recovery, while the prospect of central banks including the hiking interest rates before too long is also proving unsettling.

Some analysts believe the latest UK jobs data only give more credence to the action.

Laith Khalaf, head of investment analysis at AJ Bell, said: “The dials in the labour market are pointing towards an interest rate rise, with job vacancies at a record high, unemployment falling, and the number of payrolled employees back to pre-pandemic levels.

« The only sign that tightness in the labour market might be easing was the continued fall in average earnings, as base effects start to fall out of the equation. The record number of job vacancies suggests even this moderation may peter out, as employers find themselves competing for workers with cold hard cash. »

The FTSE 100 is down 60.61 points or 0.85% at 7086.24, with miners among the leading fallers.

() is down 2.3%, () is 1.98% lower and () has lost 1.76%.

7.52am: Staff shortages grow

Job vacancies have hit a record high in the three months to September – the last months of the furlough scheme – according to the latest UK employment figures.

The Office for National Statistics said: « The number of job vacancies in July to September 2021 was a record high of 1,102,000, an increase of 318,000 from its pre-pandemic (January to March 2020) level; this was the second consecutive month that the three-month average has risen over one million.

« All industry sectors were above or equal to their January to March 2020 pre-pandemic levels in July to September 2021, with Accommodation and food service activities increasing the most, by nearly 50,000 (59%). »

Julia Kermode, founder of IWork, said: « The jobs market is completely candidate-led in sectors where there are shortages of workers. We’ve all seen the headlines about HGV drivers but other sectors that are starved of people include health, social care, hospitality, agriculture, distribution centres and factories. Shortages are so bad that the UK’s army of temporary workers, the traditional back-stop for businesses in need, cannot meet the demand. It’s incredibly competitive, with some firms opting to increase pay rates, but many businesses simply don’t have pots of money to throw at the problem. »

Tony Wilson at the Institute for Employment Studies said: “Today’s figures show that labour shortages are now affecting the whole economy, with fewer unemployed people per vacancy than at any time in at least forty years.  We estimate that there’s nearly a million fewer people in the labour market than on pre-crisis trends, with this being driven particularly by fewer older people in work and more young people in education. 

« These shortages are holding back our economic recovery, and won’t fix themselves by just exhorting firms to pay people more.  Instead we need to do far better at helping some of the six million people who are outside the labour market because of ill health, caring or full-time study to get back into work. »

The report also showed that for the three months to August, the unemployment rate decreased by 0.4 percentage points, to 4.5%, as economists had expected.

6.50am: Another fall on the way

The FTSE 100 is expected to take a sharp tumble on Tuesday as surging energy prices intensify inflation worries and join with looming central bank action to unnerve the market.

Overnight, Wall Street stocks finished on a low, with all three indices diving into the red, with the Dow Jones dropping 0.7% and the S&P 500 and Nasdaq by 0.6%.

London’s blue-chip index is heading the same way, with a 45-point fall predicted by spread-betters on the IG index, wiping off almost all of the progress made at the start of the week.

“Despite US bond markets being closed for Columbus Day, inflation nerves continued to rattle market nerves driven by energy prices, which surged once again overnight,” said market analyst Jeffrey Halley at Oanda.

“Equity markets retreated and the US Dollar resumed its climb as inflation looks less transitory and more embedded by the day.

“ () downgraded its US growth forecasts overnight, and the quarterly earnings season, which starts this week, has equity markets on edge over whether profit forecasts will be tempered for 2022 given the rich valuations prevalent in stocks everywhere.

“Add in the creeping, but relentless implications of the Fed taper and it is no surprise that equity markets remain on edge.”

It seems rather counterintuitive to be speculating that we may well see a rate hike from the by the end of this year, said Michael Hewson at CMC Markets, though he acknowledged that a hike may be warranted in the months ahead.

“They do appear to be painting themselves into a corner, when it comes to a rate rise, which is always a dangerous place to be.” 

Hewson said today’s UK unemployment data may well reinforce the rate rise narrative.

“The unemployment picture for the UK economy has improved considerably over the last few months, a trend that has been no better illustrated than with the decline seen in the claimant count rate since March, when it was at 7.2%. Since then, we’ve seen steady declines, falling to 5.4% in August, as businesses continued to reopen, even with the delay to July 19th. 

“The ILO rate has also fallen steadily falling to 4.6% in July, and looks set to fall again for the three months to August to 4.5%, even as furlough continues to roll-off, with the seemingly of the mind that we may not see a post furlough move higher, » he said.

Around the markets

• Oil – Brent crude up 0.3% to US$83.91
• Gas – Henry Hub up 0.6% to US$5.43
• Pound – up 0.1% to $1.3606 
• Gold – up 0.5% to US$1,761.72
• Bitcoin – up 1.1% (over 24 hrs) to US$57,006

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region tumbled on Tuesday as the rise in energy prices fuelled concerns that the transitory lift in inflation seen in the wake of the pandemic may prove to be longer lasting.

China’s Shanghai Composite slumped 1.79% while Hong Kong’s Hang Seng index fell 1.47%

In Japan, the Nikkei 225 dipped 0.97% and South Korea’s Kospi slipped 1.19%.

Australia’s S&P/ASX200 dropped 0.26% to 7,280.70 even as the iron ore price continued to rebound from a 14-month low, with the spot price on Monday climbing 9.4% to US$135.03 a tonne – a 45% climb in just three weeks.

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