FTSE 100 finishes week in topsy-turvy style, Wall Street undecided on sell-off
- FTSE finishes up 9 points
- UK retail sales stronger than expected
- US stocks mixed
The FTSE 100 index closed modestly higher on Friday, rallying after a volatile week dominated by central bank policy moves around the globe, together with more restrictions to curb the spread of the Omicron coronavirus variant.
At the close, the UK blue-chip index was up 9 points, or 0.3% at 7,269.92, below the day’s peak of 7,286.50 but above the session low of 7,236.17.
For the week, the Footsie closed around 22 points lower.
On Wall Street, around London’s close, the Dow had dropped 1%, while the S&P 500 had shed 0.6%, but the tech-powered Nasdaq was up 0.1% after slump the previous day.
« The FTSE100 is holding up better than most despite the energy and financial sector being the worst performers today, as a big slide in oil prices has seen BP and Shell slip back, » said Michael Hewson at CMC Markets
« We’re also seeing the likes of Lloyds and NatWest Group give up some of the gains that we saw yesterday in the wake of the surprise rate hike by the Bank of England. »
This week’s best performers have been Ocado, in a year that has seen it languish amongst the worst-performing FTSE 100 stocks, while AstraZeneca PLC (LSE:AZN) is also up on the week after it was found that its Evusheld antibody cocktail combination was found to work well in treating symptoms against the Omicron variant.
READ: Citi recommends buy of AstraZeneca on the back of Evusheld announcement
« The travel and leisure sector is undergoing a bit of an end of week rebound after a bad week, with British Airways owner IAG amongst the best performers today, in a week that has seen the shares come under increasing pressure with the announcement of various travel bans these past few days, » said Hewson.
4.15pm: FTSE up, down and all around
Almost every time you look back at the Footsie today it’s on the other side of the line from where it was the last time.
The index is now back up, 17 points in fact at 7,277.52, but give it a few minutes.
Over on Wall Street, the Dow Jones and S&P 500 are in the red but a fightback has been mounted on behalf of the tech giants of the Nasdaq, which is up 0.5%, with Tesla Inc (NASDAQ:TSLA) and NVIDIA Corporation (NASDAQ:NVDA) notable risers.
As market analyst Chris Beauchamp says, it has been a topsy-turvy week in stock markets.
« Macro concerns might be playing a part but a lot of investors have been edging towards the door for some days now, and the lack of any lasting bounce in stocks this week has meant that more are looking for ways to book gains ahead of the two volume-light weeks that will bring 2021 to an end. »
While the initial reaction to the US Fed’s taper acceleration was positive, as Wednesday’s meeting and Thursday’s Bank of England hike recede into the past, Beauchamp says investors « appear to be much more cautious, contemplating a year ahead where the tide of central bank largesse definitely starts to go out ».
He also points to the pound, where traders have been hitting the sell button hard in recent weeks, and after a short bounce yesterday the wall of selling has returned.
« It appears that there is plenty of scepticism out there that Bailey and the rest of the MPC will opt to hike again any time soon. The best hope for sterling bulls probably lies in some short-term dollar softness instead. »
3.19pm: Red everywhere
Share prices are in the red on both sides of the pond, with Wall Street continuing its sell-off for a second session, giving London investors another excuse for a further setback.
The FTSE 100 is down 10 points at just under 7,251, with Shell, Croda, NatWest, Scottish Mortgage Investment Trust and BP PLC.
All three of the New York indices are down over 1%, with the Dow Jones worst of the trio.
As we come to the end of the week, thoughts turn to next week.
« The week ahead is going to be rather quiet from a macro point of view, » says market analyst Fawad Razaqzada at ThinkMarkets, « with only a handful of scheduled events to look forward to.
« As traders slowly unwind ahead of the festive period, the question of how tighter monetary policy will play out on overvalued technology stocks will dominate the agenda.
« Investors will also keep a close eye on the coronavirus situation as omicron continues to spread like wildfires.
« The latest measures to curb the infection rate is likely to hurt the economic activity a little, which should keep the pressure on all sorts of risk assets, including crude oil and commodity dollars.
« So, volatility is likely to remain elevated in the week ahead despite a quieter macro calendar. The markets will close on Friday for US and German investors in observance of Christmas eve. »
2.03pm: Knocked back
Just when it was starting to look more confident the FTSE gave up all its (meagre) gains for the day and tumbled out of the ring as oil heavyweights weigh and US traders entered the fray in a grumpy mood.
But, typical for the back and forth day, the Footsie is immediately back on its feet, trying to look confident but dancing on wobbly legs.
Here’s Craig Erlam at Oanda to sum up things as he sees them: « Stock markets are ending the week on a downbeat note after central banks around the world largely adopted a more hawkish stance in recent days.
« Only time will tell whether investors support the moves from central banks this week as much as they initially appeared to. More than a decade of ultra-low interest rates has been kind to investors and the path that many central banks have embarked on makes life a little harder for them, but not nearly as hard as high inflation.
« It can be tough to take the pulse of the markets in times of such volatility and uncertainty, as we’re currently seeing. But I’m inclined to look at the way they’ve traded in the run-up to, and immediate aftermath of, the central bank announcements and deduce that investors are comfortable with the decisions that have been taken and view them as being in the long term interest of the bull market. What’s happened since may have more to do with the period we’re now heading into as investors prepare for the festivities.
« A modest tightening is far more preferable than the risk of soaring inflation and a more aggressive monetary response further down the line. Central banks can’t afford to take those risks, not at a time when their economies are performing well, labour markets are tight and inflation is becoming more ingrained and widespread. The time has clearly come to address the inflation elephant in the room. »
Oil prices are also down around 2% on Friday, sending Shell and BP lower to put a big weight on the FTSE.
Oil cartel Opec group has put a floor under the price for now, says Erlam, after announcing that adjustments could come at any time depending on the incoming data, « but that will only hold so long if restrictions weigh on demand ».
He noted that gold is up on central banks tightening and addressing inflation.
« You would be forgiven for thinking this would be a negative development for the yellow metal and, in the longer term, I expect it will be, » Erlam says.
« But it’s also a development that was almost entirely expected and priced in. So we may be seeing some profit-taking on the pre-meeting moves which is pulling yields a little lower and weighing on the dollar. This should be a short-term relief move, although that may depend on what the omicron data tells us in the coming weeks. It’s spreading like wildfire here in the UK and other countries appear to having a very similar experience. »
Looking at the crypo markets, Erlam says it’s a « strange end to the year ».
« I keep falling into the trap of trying to link moves in bitcoin to events that are triggering responses across financial markets and it’s becoming quite clear how pointless that was, » he says.
« The cryptocurrency has been consolidating for weeks since its flash crash and everything that’s happened in that time that has been the catalyst for volatility across various asset classes has done little to pique the interest of this particular corner of the market. It feels strange to be talking about massive volatility in the markets and not including bitcoin. But then it’s been another strange year and I’m sure 2022 will be no different. »
12.21pm: FTSE up, US futures down
London investors seem to have decided today might be a good day and the Footsie is building on its recent gains, up 26 points or 0.4% to almost 7,287.
Leading the way are gold and silver miners Fresnillo and Polymetal, along with travel-related and other consumer stocks like International Consolidated Airlines Group (LSE:IAG), Associated British Foods PLC (LSE:ABF) and Sainsbury’s, along with telecoms groups Vodafone PLC and BT Group.
The mid-cap FTSE 250 is being more indecisive, flitting back and forth as top risers National Express PLC, Syncona Ltd and Capita plc are offset by falls for Trustpilot and a trio of popular investment trusts: Fidelity China Special Situations PLC, JPMorgan Japanese Investment Trust PLC and Allianz Technology Trust PLC.
Looking across the Atlantic, US stocks are expected to end the week on the back foot as concerns about the omicron variant of coronavirus, rampant inflation and the prospect of higher interest rates in 2022 result in a rotation out of rate-sensitive tech stocks and into financials and consumer staples.
Futures for the tech-heavy Nasdaq 100 are pointing to a 0.9% fall to follow the 2.6% tumble overnight, while the Dow Jones are down 0.15% and the broader S&P 500 index is 0.4% lower.
Looking the other direction, the Central Bank of Russia is flexing its muscles like horseriding president Putin, with the decision to hike interest rates by 100 basis points to 8.5% – take that, the West!
Going into today’s event, the ruble was trading moderately stronger as markets were expecting hike, with gains after the event limited as this was largely expected by markets and risks around stricter sanctions linger, said Ima Sammani, FX market analyst at Monex Europe.
Sammani went on: « The Bank of Russia has been fairly responsive to inflation throughout the past nine months with 325bps of hikes so far this year, which meant the ruble was relatively shielded from the broad USD strength stemming from more hawkish expectations of the Fed.
« Along with Brazil, Russia was the first to hike interest rates in Q1 this year. While today’s substantial rate hike failed to persuade investors sufficiently for the ruble to strengthen, the CBR’s commitment to fight inflation and keep the tightening cycle running means the monetary and inflation outlook may not be the biggest concern for the ruble as markets view the CBR as credible on balance.
« Instead, the return of looming sanction risks has now become an increased threat for Russia.
« The US and Britain had already agreed to impose further economic sanctions on Russia if the Russian military invaded Ukraine, and since Thursday, the European Union has joined them after Washington increased pressure on Brussels.
« The result of such sanctions, especially if levied on capital markets, is likely to be substantial RUB depreciation, which will only make the CBR’s job of tackling inflation harder. »
Russia’s central bank may not be done with hiking rates by large multiples just yet if this scenario plays out, Sammani said.
11.27am: Rollercoaster of London
Between the move towards higher interest rates, QE tapring and rising omicron cases, markets have seen plenty of volatility of late.
With all this, belief in the traditional Santa rally has been « somewhat shaky this time around », says Joshua Mahony, market analyst at IG.
« However, with this week providing greater clarity over the outlook for monetary policy, it is likely that markets will soon look beyond the impending sharp omicron wave and buy the temporary dip in retail and travel names.
« Markets will typically pre-empt any major market moving event and look to the medium term. »
This thus raises the attractiveness of ‘reopening’ names as seen today for the likes of WH Smith PLC (LSE:SMWH), Restaurant Group PLC (LSE:RTN), Card Factory (LSE:CARD), and Cineworld Group PLC (LSE:CINE), he added.
Also worth noting is the declining UK GfK consumer confidence number, which saw a smaller than expected drop to -15 from -14.
This was above all due to a setback in the ‘major purchases’ sub-index to -6 from -3, with other metrics little changed, which analysts said was unsurprising given the headwinds for household finances due to the spike in inflation and for non-discretionary items.
With Germany’s Ifo business climate figures falling more than expected for December, Mahony said it all serves to highlight « how the latest surge in Covid cases and rising inflation has dented sentiment throughout Europe.
« Coming into a critical festive period for businesses, there is a strong chance that we see spending and consumption fall short of previous expectations.
« Nonetheless, while we are likely to see bumps in the road, there is a strong chance that stocks continue to gain ground thanks to loose monetary policy and a relatively effective set of Covid vaccines and treatments developed over the course of the past two-years. »
9.39am: Running out of steam
London’s blue chips have dived into the red after their initial move higher, with the index now five points in arrears at just under 7,2567.
Analysts are flagging that, after the central bank action in previous days, the rise in the pound to its highest since the start of December and fall in the dollar has led to a large rise in UK real yields and a decline in US real yields.
As omicron concerns meet a tightening Fed (and Bank of England), can the economy handle higher rates, ponders Neil Wilson at Markets.com, noting that broad stock markets were doing a little better yesterday as banks rallied.
« Maybe quicker pace of tightening is sinking in, or it’s omicron only.
« If it were the latter, tech would be a safety net. Yields are actually lower, so tech ought to be solid. These mega cap names have been holding up the entire index for a while –as discussed a few days ago most stocks are well off their all-time highs.
« Once these last redoubts of safety get blown out we can look for a broad-based rally to take shape but there may be further damage first.
« A 10% drawdown in the S&P 500 would only take the index back to its October lows. It looks like a very confused picture right now which is going to lead to volatility – macro picture not well understood due to omicron, expect some slowing in economic growth, [central banks] no longer on side – albeit not exactly going super-hawkish given the inflation levels. »
Wilson felt it was all « rather messy » but the market playbook for omicron learnt from the delta wave is for « pullback, tentative recovery and then a period of sideways chop and underperformance ».
He said the key question for traders right now « is whether we get a Santa Rally: my honest opinion is it’s just too hard to make a call on that right now, though seasonality is in its favour. »
Analyst Danni Hewson at AJ Bell has been mulling the earlier strong retail sales figures but noting that December’s already shaping up to be a very different story.
“Footfall is down dramatically and there will be some consumers deciding what they don’t have now they won’t be buying, or they’ll resort back to their virtual baskets, » she said.
“What is fascinating though is that whilst sales have been stonking over the three months to November, they’ve not come close to levels of spend over the summer. It could be some items have been impossible to find or it could be that the rising cost of living was cooling people’s appetites, making them more cautious about their financial futures.
“What is certain is that Omicron has unsettled. Hospitality venues are already reporting cancellation after cancellation which perversely should help turn around those retail food sales which had slipped slightly over the last month. If people can’t have exactly the Christmas they’ve been dreaming of they will turn back to the comfort of the kitchen table.”
8.41am: Surprisingly move higher
The FTSE 100 wrong-footed futures traders by opening higher on Friday, led by a jumble of various stocks.
BT Group PLC (LSE:BT.A), precious metals miner Fresnillo PLC (LSE:FRES) and royal rat catcher Rentokil Initial PLC (LSE:RTO) were atop the blue chip leaderboard in early trades.
Biggest fallers were tech-focused Scottish Mortgage Investment Trust PLC (LSE:SMT) and hedge fund Pershing Square, dragged down after last night’s Nasdaq blood-letting.
Overnight Apple was down 4%, Tesla fell 5%, Microsoft by 3%, Amazon 2.5%, Nvidia almost 7% and Cathie Wood’s ARK Innovation ETF tumbling 4%.
Investors were also reacting to UK retail sales data, with a 1.4% month-on-month rise for November, which was higher than expected, with sales up 4.7% compared to the previous year.
It was a second successive strong month, suggesting consumer spending was in decent shape before the Omicron variant emerged.
The subsequent government Plan B announcements and the latest inflation print, could have a more detrimental impact for December, said Richard Hunter at broker Interactive Investor.
“Following a few days of generally hawkish actions from central banks, investors have been rotating into more economically sensitive sectors at the expense of growth, » he said, which explained why New York’s Nasdaq bore the brunt of the selling pressure overnight, while the likes of financials and utilities saw some support.
Ahead of future volatility as monetary support from central banks is wound down, Hunter reflected that the US stock markets have made strong progress in 2021, with the Dow Jones still ahead by 17.3%, the S&P500 by 24.3% and the Nasdaq by 17.8%.
The FTSE 100 and 250, however, are up a more modest 10.7% and 10.4% respectively so far this year.
The former was up 14 points or 0.2% to 7,275 after just over half an hour, with the mid cap index dropping initially before climbing higher.
Hunter said the UK indices performance today reflected the caution of US and Asian markets overnight.
« The theme was also similar to the US, with some early strength in cyclical stocks such as the miners and the housebuilders slightly offset by a tepid showing from the oil majors following a dip in the oil price.
6.40am: Slide expected
The FTSE 100 is expected to retreat early after yesterday’s interest rate excitement.
A late sell-off of tech stocks undermined the US and Asian markets and this is expected to spill over into London this morning, said traders.
Footsie is forecast to shed around 30 points when trading gets underway, reversing some of Thursday’s 89-point gain to 7.250 which was sparked by the Bank of England’s surprise decision to up rates to 0.25%.
That made the scores on the doors of the central banks this week- modest interest rate increases in the UK and Norway, a more hawkish stance in US with a firm commitment on rises to come and no change in Europe or Japan.
Retail sales today
Today’s economic releases focus on the mood of the British consumer with data on both retail sales and confidence.
Retail sales will be keenly watched after October showed a surprisingly resilient gain of 0.8% excluding fuel as demand for non-food items and games and toys picked up amid the scare stories about Christmas supplies.
Consensus is for November to see a similar 0.8% rise, though economists suggest if anything the number might be a little higher butwith the outbreak of Omicron the numbers might already be of academic interest only.
Focusrite, Moderna, Glaxo
Company announcements are starting to wind down with Christmas just a week away but Focusrite’s comments ahead of its AGM should be noteworthy given the home studio equipment specialist was a clear winner from lockdown.
GlaxoSmithKline PLC (LSE:GSK) might also be worth keeping an eye on. Shares in rival pharma Moderna tumbled overnight in the US after disappointing results from a new flu jab it is developing.
The mRNA-based vaccine did no better than the approved alternatives said the study, the makers of which include Glaxo and also AstraZeneca and French group Sanofi.
Moderna said it needs to assess the full results of the study but its shares fell 10% nonetheless.
6.50am: Early Markets – Asia / Australia
Stocks in the Asia-Pacific region were mostly lower on Friday as the US said it was imposing trade restrictions on Chinese research institutes and entities over human rights violations and the alleged development of technologies such as brain-control weapons.
China’s Shanghai Composite fell 1.06% and Hong Kong’s Hang Seng index dropped 1.04%.
The Nikkei in Japan slumped 1.79% while South Korea’s Kospi gained 0.38%.
Australia’s S&P/ASX200 rose 0.11% to close at 7304 points, as the energy, materials and utilities sectors helped keep the index in the green.
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