samedi, mai 18, 2024

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FTSE 100 slumps more than 1% as US inflation comes in higher than expected, despite talk of UK U-turn on tax plans

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  • FTSE 100 down 98 points

  • Informa boosted by buy note

  • Ex-div shares slip back

1.58pm: Stock markets plunge on US data

The worse than expected US figures have sent the leading index sharply into reverse, not long after talk of a UK U-turn on tax had pushed it higher.

The FTSE 100 is now down 98.63 points or 1.44% at 6727.52 with Wall Street futures also heading south on concerns the Federal Reserve might push interest rates even higher than previously thought, given inflationary pressures show no signs of easing.

The Dow Jones Industrial Average is now expected to open down 1.78%, the S&P 500 2.71% lower and the Nasdaq Composite off 2.95%.

1.34pm: US consumer price index and jobless claims both beat forecasts

US inflation has come in higher than expected, adding more fuel to the argument that the Federal Reserve will become more hawkish on interest rate rises.

The consumer price index for September was 8.2%, slightly down on the previous month’s figure of 8.3% but worse than the forecast of 8.1%.

Core prices were up from 6.3% to 6.6%, when analysts had been expecting a rise to 6.5%.

The month on month figures showed even bigger moves than anticipated.

Meanwhile US weekly jobs claims came in at 228,000 from 219,000 the previous week, compared to forecasts of an increase to 225,000.

1.04pm: Markets higher on tax cut speculation

Talk of a U-turn and news that the Bank of England bought £4.4bn of government bonds yesterday – the biggest daily amount so far – have sent the pound higher and gilt yields down.

Sterling has jumped 1.44% against the dollar to US$1.1259, while it is up 1.06% against the euro to €1.1555.

In the gilts market the 30 year yield is down 28 basis points at 4.524% while the 20 year has dropped a similar amount to 4.6%. Both these were above 5% yesterday.

The FTSE 100 has also improved, up 30.12 points or 0.44% at 6856.27.

One suggestion is that corporation tax could be lifted next year, rather than the planned cancellation of a rise from 19% to 25%.

Craig Erlam at Oanda said: « There have been rumours of a meeting between number 10 and the Treasury to discuss possible u-turns including on corporation tax which would be another humiliating climb down, albeit one that is boosting the pound… UK yields are also in retreat on the back of those rumours. »

12.53pm: More U-turns on the way?

There is a lot of speculation about what the government is planning in the wake of the turmoil in markets following the mini-budget.

After the U-turn on the 45p tax rate, there are an increasing number of suggestions that further changes to the plans could be unveiled, as more MPs oppose the proposals. Even if it seems to go against everything Liz Truss and Kwasi Kwarteng were keen to push ahead.

Now there is talk another U-turn could indeed be on the cards, but only when the chancellor returns from Washington.

12.30pm: OPEC+ production cut could tip economy into recession – energy agency

Last week’s move by OPEC+ to cut production by a higher than expected 2mln barrels a day could tip the global economy into recession, the International Energy Agency has warned.

In its monthly report, the agency responded to the move by cutting its forecasts for demand growth by 60,000 barrels a day in 2022 to 1.9m and by 470,000 barrels in 2023 to 1.7mln.

It said: « The relentless deterioration of the economy and higher prices sparked by an OPEC+ plan to cut supply are slowing world demand.

« With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession. »

The report comes a day after OPEC cut its own forecasts for demand.

In the market, Brent crude is up 0.39% at UKS$92.81 a barrel while West Texas Intermediate is 0.31% higher at US$87.54.

Meanwhile the FTSE 100 is a little higher, up 11.44 points at 6837.59.

11.50am: US markets set to edge higher ahead of inflation data

US stocks are expected to open slightly higher, finding some stability after recent steep falls, ahead of key data on inflation for September.

Trading is expected to remain cautious, however, amid widely held predictions that US rate setters are unlikely to step back from hiking interest rates aggressively.

Futures for the Dow Jones Industrial Average were up 0.4% in pre-market trading, while those for the S&P 500 were 0.4% higher, and contracts for the Nasdaq-100 added 0.2%.

Minutes from the Federal Reserve’s last rate-setting meeting, published yesterday, indicated that interest rates would continue to rise. Share prices fell after the minutes revealed concerns among rate setters that they may be doing too little to tame inflation. It also did not help that the Fed lowered projections for the economy, expecting GDP to grow at just a 0.2% annualized pace in 2022 and 1.2% in 2023.

That puts the focus firmly on US consumer price data for September due out later. Investors fear that the Fed’s three 75-basis point rate hikes have not had their desired effect to rein in headline inflation, which remains stubbornly around 40-year highs.

Weekly jobless claims will be another closely-watched indicator of whether the labor market is beginning to show signs of strain amid rising interest rates.

Back in the UK, the FTSE 100 is fairly directionless, up just 2.09 points at 6828.24.

10.44am: Entain a winner, Rank not so much

A tale of two gaming groups.

Following its latest update and optimism about the World Cup, Ladbrokes and Coral owner Entain PLC (LSE:ENT) has added 4.36% and helped peer Flutter Entertainment PLC (LSE:FLTR) climb 2.89%.

But it is a different story for casino and bingo hall operator Rank Group PLC (LSE:RNK), which has disappointed the market with its first quarter report and seen its shares fall 8.53%.

AJ Bell investment director, Russ Mould said: « There’s a saying that during tough times our appetite for betting increases. People feeling the pinch of a higher cost of living or gloomier economic conditions are often prepared to bet the remaining cash in their pocket in the hope of winning big on the horses, football or other sports or games.

“Thus, faced with the current miserable backdrop, one might expect gambling firms to be raking it in. The evidence suggests it’s not that clear cut.

“Rank runs casinos and bingo halls across the UK and is certainly not popping champagne bottles in terms of soaring earnings. More people might be visiting its Grosvenor and Mecca venues, yet they’re spending less. And outside of London, customer spending levels are noticeably weaker.

“Takings in Rank’s Spanish operations have shown much stronger gains but overall, there is a sense that the group may not see the heyday some might have expected.

“Entain is a more global beast, but it too hasn’t seen a large pick-up in net gaming revenue in its most recent quarter when looking at its online operations. However, its physical shops have seen more encouraging growth.

“The key thing stopping investors from panicking about sluggish overall progression for the business is the World Cup which kicks off on 20 November. Traditionally this attracts an elevated level of betting from sports fans, for many it might be the only gambling they do this year.”

10.07am: Mixed picture from financial firms survey

Financial services firms saw strong growth in business in the three months to September, but face challenging conditions ahead.

Business volumes grew strongly from 0% in June to +31%, according to the latest CBI/PwC Financial Services Survey.

But growth is expected to ease in the quarter ahead to +13%.

While slowing slightly on the previous quarter (+24% from +30%), profitability growth across the sector remains robust and is expected to increase at a quicker pace in the next three months (+44%).

Despite volumes and profitability growth holding firm, industry sentiment over the third quarter fell at the fastest rate since September 2019, from -43% in June to -55%.

Investment intentions were lacklustre across the sector.

Rain Newton-Smith, CBI chief economist said: “While activity in the financial sector looks to be in a good position, with profitability and volumes growth remaining strong, the rapid fall in sentiment and lacklustre investment intentions illustrate the challenging conditions that firms find themselves in.

“Recent market volatility stemming from the Government’s “mini”-Budget – alongside other global developments – underlines the clear need to restore macro-stability and boost business confidence. The decision to bring forward the publication of the OBR forecasts and medium-term fiscal plan is the right one and can help demonstrate to investors that the UK has a credible plan for stabilising debt to GDP at a sustainable level.”

Meanwhile the FTSE 100 has come off its worst levels and edged up 1.92 points to 6828.07.

9.22am: Bank and government at odds ahead of intervention deadline

Yields on UK government bonds are edging lower at the moment following the recent turmoil.

But with the Bank of England’s intervention programme due to end tomorrow and it seemingly at odds with the UK government, more instability is a distinct possibility.

Neil Wilson at Markets.com said: « Chancellor Kwasi Kwarteng says any market volatility next week would be down to the Bank of England, saying any instability “is a matter for the governor”. This is extremely unhelpful and points to the fiscal and monetary sides being at odds with each other…

« [Bank governor Andrew] Bailey is attempting to assert independence by sticking to this Friday deadline (a bluff?). Kwarteng knows that everyone knows the instability is down to the Budget, despite some shocking gaslighting from certain corners of the political spectrum..

« The Bank meanwhile has found itself in a corner where it’s damned if it does and damned if it doesn’t; ‘fiscal dominance’ looms ever larger – with the central bank forced to use its monetary powers to keep the cost of government debt down – who blinks first?

« The government ought to back down and let the Bank get on with fighting inflation. Bailey seems intent on pressing this – three days to get your houses in order – and this could lead to near-term volatility and longer term financial instability until the political/fiscal bit is back under control…

« For now gilts and sterling seem exposed to further downside risks. »

At the moment the 10 year yield is down a couple of basis points at 4.396% while the 30 year is 7 basis points lower at 4.731% and the 20 year down the same amount at 4.835%.

As for the pound, it has lost 0.1378% against the dollar at US$1.1084. 

And against the euro it is off 0.09% at €1.1423.

In equities, the FTSE 100 has fallen 34.18 points or 0.5% to 6791.97.

8.29am: Taylor Wimpey leads builders lower

Housebuilders are again among the biggest fallers, on fears that the recent surge in mortgage rates following the mini-budget will see a slump in housing sales.

A new report from the Royal Institution of Chartered Surveyors suggests homeowners will struggle to meet mortgage payments, and repossessions are likely to rise next year.

It said enquiries from potential homeowners fell for a fifth month in September, while sales fell to their lowest level since May 2020 when the pandemic hit the market.

This could mark the end of the housing boom after 13 years of low interest rates.

So Taylor Wimpey PLC (LSE:TW.) is down 5.76%, Barratt Developments PLC (LSE:BDEV) has lost 2.21% and Persimmon PLC (LSE:PSN) is off 1.54%.

Taylor Wimpey has not been helped by its shares going ex-dividend.

Others in the same boat include WPP PLC (LSE:WPP), down 2.66% and Tesco PLC (LSE:TSCO), 1.61% lower.

Leading the rises is Informa PLC (LSE:INF), up 2.35% at 547.8p after analysts at Goldman Sachs (NYSE:GS) issued a buy note with a 775p target price.

8,14am: Footsie on the downward path again

After closing at an 18 month low yesterday, leading shares are heading south again.

The FTSE 100 is down 37.84 points or 0.55% at 6788.31 in early trading.

Markets remain nervous about the prospect of higher interest rates causing a recession, the conflict in Ukraine, and of course the turmoil in the UK bond market following the mini-budget.

Prime minister Liz Truss is coming under increased pressure to drop more of the unfunded tax cutting measures unveiled by chancellor Kwasi Kwarteng, ahead of the fiscal plan due on October 31. Whether at this point that would be enough to restore confidence in the UK among investors remains to be seen.

At the IMFannual meeting in Washington, Kwarteng is expected to speak and whatever he says will be keenly followed by the markets.

Meanwhile the Bank of England will end its bond buying programme tomorrow, which is likely to create more instability in gilts.

Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said: ‘’The realisation that the Federal Reserve is in it for the long haul when it comes to setting and maintaining higher interest rate has  sent a fresh wave of worry through financial markets.

« After a volatile day trading stocks in Wall Street ended lower for the sixth session in a row, sparking falls for equities in Asia and setting up the FTSE 100 for a lower open. »

7.47am: Hefty Fed rate rises likely no matter what US CPI does

Given the tone of the US Federal Reserve minutes, today’s inflation numbers are not likely to prevent another hefty rise in interest rates across the pond however they turn out, analysts believe.

Michael Hewson, chief market analyst at CMC Markets UK, said: « Last night’s Fed minutes contained little in the way of surprises, with central bank officials indicating that rate hikes were likely to continue, given that inflation remained unacceptably high, and that it was likely to remain higher for longer than expected…

« Today’s US CPI numbers for September aren’t likely to alter the dial that much when it comes to a 75bps rate move in three weeks’ time, given the way the US dollar reacted with respect to the higher-than-expected August numbers. 

« Even though headline CPI slipped back to 8.3% from 8.5%, a surge in core prices saw a big move higher in the US dollar as well as yields, after core prices rose sharply from 5.9% to 6.3%, a bigger than expected increase.

« The big rise in core prices would appear to suggest that inflation is likely to be much stickier over the next few months that markets had originally been hoping, thus adding to the risk we could see the Federal Reserve not only be much more aggressive on rate hikes, but keep those rates higher for longer.

« Powell has already gone on the record that the Fed will keep at it until there is clear evidence that inflation is on a sustainable downward path, and while core prices are expected to fall again in September to 8.1%, core prices are expected to rise from 6.3% to 6.5%.

« It will take a sizeable miss on both numbers to the downside to alleviate the upward pressure on yields and downward pressure on stocks. »

7.40am: Pound loses pips to Euro; US dollar stays strong; JPY/USD in danger zone

The US dollar remains strong among the G10 set on Thursday, with the GBP/USD pair showing little interest in budging from a consistent US$1.11 price point.

GBP/USD remains at the US$1.11 price point – Source: currency.com

GBP/USD remains at the US$1.11 price point – Source: currency.com

Inflation and CPI data is scheduled for later today, though only a dramatic shift from expected figures will result in a pivot from the Federal Reserve’s pending rate hike in three weeks’ time.

In the meantime, the greenback could maintain its dominance against the Euro, where the EUR/USD pair currently sits under parity at US$0.97.

USD is also sitting at parity with the Swiss franc.

While a few pips were shed against the Japanese yen, the USD/JPY pair remains scarily strong for the Bank of Japan.

Changing hands at 88p, the Euro has gained 0.2% in the EUR/GBP pair in today’s trading session so far, a negligible rise given yesterday’s 1.2% drop.

The pound has also fallen against the yen, franc and Canadian dollar.

7.00: FTSE 100 see slightly lower ahead of US CPI

FTSE 100 set to open lower on Thursday with investors nervously awaiting US CPI figures due out later today which will give a further indication to the likely path of US interest rates.

Spread betting companies are calling the lead index down by around 9 points.

US stocks ended Wednesday lower as investors digested the latest hawkish outlook from the Federal Reserve following the release of the FOMC minutes.

At the close, the S&P 500 was down 0.3% at 3,577, the Dow was 0.1% lower at 29,211, and the Nasdaq lost 0.1% to close at 10,417.

Commenting on the October meeting minutes, George Lagarias, chief economist at Mazars said: “Markets are moving much faster than policy makers can react. Rapidly widening bond market dislocations, evident also in fresh Gilt volatility, probably render the Fed’s September Minutes immaterial. »

In London, trading updates are from Hays PLC (LSE:HAS) , Entain PLC (LSE:ENT) and Easyjet PLC amongst others.



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