FTSE 100 closes 1.23% lower
Reckitt Benckiser wanted after it walks away from Pfizer consumer healthcare purchase
BoE keeps key interest rate unchanged but two committee members vote for a quarter-point rise
FTSE 100 tanked 1.23% on the day to close at 6,952, below the 7,000 level.
The mid-cap FTSE 250 index lost even more, plunging 1.39%, or 274 points at 19,393 as the markets digested a strengthening pound, the fall-out from the latest BoE interest rate decision and President Donald Trump.
"The FTSE fell steadily on the back of the stronger pound, then losses were exasperated as the US opened, pulling the UK index to a 15 month low and firmly below the key psychological level of 7000," said Fiona Cincotta, senior market analyst at City Index, summing up the day's trade.
In the currency markets, the pound is up 0.13% against the Euro, but down 0.20% against the US dollar.
In the US, the benchmark Dow Jones is down over 310 points at the time of writing, along with main banchmarks, as it emerged the White House plans to unveil new trade restraints against China, sparking yet more fears on a trade war and dented global investor appetite.
As widely expected the BoE monetary policy committee elected to keep rates on hold but were hawkish in tone looking ahead, prompting talk of a hike in May.
In London, top riser on Footsie was consumer goods titan Reckitt Benckiser Group (LON:RB), up 4.78% to 5,895p after it chose not to get involved in a bidding war for Pfizer’s consumer healthcare business.
FTSE 100 down 122 pts..
Heading into the final half-hour of trading the FTSE 100 was down 122 at 6,917.
3.30pm: Half-hearted rally soon fizzles out
Having reached a nadir at just before 3.00pm the FTSE 100 was staging a very half-hearted rally.
The top-shares index was down 105 at 6,932, some 10 points above its intra-day low.
“At current levels, the FTSE100 is just a few points from being down 10% in the year to date, knocking on the door of what is often described as correction territory,” observed Richard Hunter, head of markets at interactive investor.
“UK equities on the whole have fallen out of favour with international investors with the spectre of Brexit looming, whilst the recent relative strength of sterling has meant additional pressure on the premier index, where the majority of earnings come from overseas. Meanwhile, the possibility of trade disputes particularly between China and the US is denting sentiment, and the move towards tighter monetary policy is another brick in the wall of worry which investors are currently climbing.
“This is despite the global, synchronised economic recovery where corporate earnings have so far continued to justify some slightly rich valuations, especially in the US. The UK economy has remained resilient despite any impending Brexit fallout, with the result that some of the top quality FTSE100 companies are moving towards bargain territory – and could even, as a consequence of this index weakness, find foreign groups running the slide rule over some of them as potential bid targets,” he opined.
French banking group SocGen responded by upgrading the stock to ‘buy’ from ‘hold’ with a 6,500p pricing target.
Reckitt’s withdrawal leaves the field clear for GlaxoSmithKline plc (LON:GSK); Glaxo’s rating was upgraded today to ‘equal weight’ from ‘underweight’, with the share price target moving up a quid to 1,400p.
The rating on the former moved to ‘neutral’ from ‘underweight’ while on the latter it moved to ‘overweight’ from ‘’neutral’.
3.00pm: The Footsie's declne gathers pace
What started as a gentle, slow decline this morning has turned into a pell-mell retreat for the Footsie.
Having fallen below the 7,000 level the blue-chips share index kept on going, plunging to 6,924, down 115 points on the day.
The market has been thrown off balance by the Bank of England’s Monetary Policy Committee proving to be a bit keener on a rate rise than the market had been expecting.
“Following an evident shift in the MPC’s mood music in February towards a markedly more hawkish tone, March’s meeting continued that theme. Although the MPC’s vote delivered a majority in favour of no change in Bank Rate, two members known for their past hawkishness dissented supporting an immediate 25 basis points rise,” noted Howard Archer, the chief economic advisor to the EY ITEM Club.
“The question is whether three of their colleagues will jump ship and join the ‘tightening two’ to form a majority for pushing through a rate rise when the Committee meets next in May. The wording of the minutes suggest that’s a strong possibility,” Dr Archer commented.
“Granted, the MPC conceded that signs of a pick-up in domestically-generated inflation remained scant, with profit margins and wages rising at rates below those consistent with the 2% inflation target and the signalling towards a near-term rate rise was somewhat weaker than we saw in MPC meetings running up to last November’s rise in bank rate,” he added.
The drug developer has signed an option and licence agreement with Deinove of France that effectively outsources its novel bacterial topoisomerase inhibitor (NBTI) programme.
2.00pm: US markets plummet while UK's decline gains momentum
US markets tanked at the outset after the Fed’s economic commentary last night while in the UK investors were more worried about the strength of sterling.
After half an hour of trading, the Dow Jones average was down 243 at 24,439 and the S&P 500 was down 23 at 2,689.
The FTSE 100 briefly racked up a triple-digit fall before recovering a tad to show a 95 point loss at 6,945.
On the foreign exchange market, sterling was trading above €1.15 for the first time since June of last year while against the dollar it was at its highest level in about seven weeks after the Bank of England’s policy-making committee, the Monetary Policy Committee (MPC), turned out not to be unanimous in its decision to hold interest rates unchanged.
Two MPC members, Ian McCafferty and Michael Saunders, were all for following the Fed’s lead and sanctioning a quarter point rate hike; the market still expects the next rate rise to be in May.
Bank of England (@bankofengland) March 22, 2018
“The Monetary Policy Committee equivalent of chomping at the bit to tighten was evident from two unexpected votes to raise rates following Thursday’s meeting. The dissenters had been amongst the least notable MPC members in recent months though their decision to put their heads above the parapet on Thursday was not a complete surprise,” suggested Ken Odeluga at City Index.
“Crucially, whilst doing nothing to alter signals of a fresh 25 basis point at its next meeting, the committee flagged a lack of urgency in telegraphing moves beyond that. Future increases ‘would be gradual and limited’ the MPC’s statement said. Nor was much there concern on the committee over the newly contentious issue of international trade. Imminent US tariff announcements were likely to have a limited impact, according to the statement, even if any eventual rise in protectionism would have a ‘significant negative impact’,” the City Index analyst noted.
1.00pm: Stocks slide ahead of expected weak start on Wall Street
With US markets set to open lower, the Footsie continued its slide in the early afternoon.
According to spread betting sources, the Dow Jones average was due to open around 250 points lower in the wake of yesterday’s interest rate hike by the US central bank.
In the UK, the FTSE 100 was closing in fast on a triple-digit fall, down 93 at 6,944.
The Bank of England has made its own interest rate announcement today but, as was widely expected, it maintained the status quo.
The smart money now seems to be on a May rate hike.
“In line with what we had expected, the Bank of England Monetary Policy Committee (MPC) voted to maintain the Bank rate at 0.50% and the stock of purchased assets at £435 billion. The Bank of England will most certainly increase the Bank rate at its monetary policy meeting on 10 May,” predicted Richard Falkenhäll, the senior foreign exchange strategist at Nordic corporate bank, SEB.
“We have a different view on the outlook for growth and inflation this year and next, with inflation falling back much faster than expected by the Bank of England, and slower growth. Although this scenario will not have time to materialise until after the next Bank of England hike in May, we still believe it will stop additional rate hikes later this year,” he added.
Dutch finance house ING noted that the Bank of England has not commented on this week’s Brexit deal, opting instead to continue with its stance that the whole negotiation process will engender uncertainty.
“However, the lack of commentary may be explained by the fact that a formal vote on the transition deal hasn’t happened yet. That’s not to say this week's deal isn’t good news for the Bank. Governor Carney has been particularly vocal in the past about a need for a post-Brexit transition,” ING commented.
“Hypothetically, if the transition period had already been officially voted on by the EU commission, we may have seen the BoE echo its comments from December when they cited progress in negotiations as ‘likely to support household and corporate confidence’,” ING added.
“By alluding to the need for ‘ongoing tightening’, policy-makers have kept the door open to a second rate hike in 2018. We certainly wouldn’t rule it out, and markets are increasingly coming around to this view – there’s now not far off two hikes priced in for this year.
But if Brexit talks – which are due to be wrapped up in October – get particularly noisy, then this could get in the way of a second rate rise in the autumn,” ING concluded.
Moving from the macroeconomic stage to corporate news flow, Sabre insurance Group (LON:SBRE) lost about a sixth of its value after releasing maiden full-year results.
The motor insurance underwriter’s earnings per share dipped to 14.5p from 17.0p the year before.
“The impact of the Ogden rate uncertainty and industry-wide reductions in personal injury frequency resulted in competitive pricing pressure in the last few weeks in 2017 and this continued into the first two months of this year, resulting in a modest reduction in premium income relative to the equivalent period last year,” the company said.
Noon: The Footsie dives below 7,000
After flirting with a dive below the 7,000 level for much of the morning the Footsie has taken the plunge, falling to 6,971.
The top-share index’s fall was 68 points, with this week’s problem stocks, Micro Focus and Kingfisher PLC (LON:KGF) prominent among the big losers as they add to heavy losses suffered earlier in the week.
IG Group #IGG shares lively, up near 4% on record 3Q revenue of £153m. Only concern is that 11% of that was cryptocurrency trading which has dropped off since January. Still should be a boost to FY results.— Adam Clark (@AdamDowJones) March 22, 2018
On the macro front, as expected, the Bank of England left its key lending rate unchanged today.
10.30am: Ex-div stocks add to Footsie's woes
The FTSE 100 was just about keeping its head above the 7,000 level despite the strength of sterling weighing on blue-chips.
The FTSE 100 was down 33 at 7,006, with some of that fall due to the likes of Segro PLC (LON:SGRO), Schroders PLC (LON:SDR) and Randgold Resources PLC (LON:RRS) falling 2-3% as a result of trading ex-div today.
On the forex markets, sterling was up 0.27 cents at US$1.4026, proving to be a bit of a drag on the Footsie’s big dollar earners.
One of those companies affected by forex movements is engineer Halma PLC (LON:HLMA), which, aside from basket case Micro Focus PLC (LON:MCRO) – down 5.4% and still suffering from this week’s warning on revenues –was the biggest blue-chip faller after its trading statement.
Halma's 3.3% fall this morning continues slide since January but trading update is reassuring apart from currency impact now turning against Halma, effect will be neutral for full year. Shareholders have no cause to panic at this stage.— Rodney Hobson (@RodneyHobson) March 22, 2018
The firm said order intake has remained ahead of revenue since October but the positive currency translation impact in the first half of the financial year has reversed and the full-year currency impact is now expected to be neutral.
While much of the attention today has been on Reckitt’s decision to walk away from the Pfizer deal, Stobart Group Limited’s (LON:STOB) decision not to bid for Flybe Group PLC (LON:FLYB) prompted a collapse in the regional airline’s share price.
Flybe’s shares were down 23% at 35.9p.
10.00am: The Footsie briefly drops below 7,000 level
Barely more than a dozen of the FTSE 100 constituents were in positive territory as the market’s slide continued.
Despite Reckitt’s strong showing, the FTSE 100 was down 37 at 7,002.
The market’s response to the press conference by new Federal Reserve chairman Jerome Powell has been underwhelming.
“The Fed failed to lift the future path of hiking for 2018, something, keeping the outlook at three rises across the year, rather than the four some traders had been optimistically hoping for,” said Fiona Cincotta at City Index.
Sterling is trading higher this morning, which is generally regarded as a bad thing for the blue-chips in the FTSE 100.
Throw in the prospect of president Trump kicking off a trade war with China, “it is hardly surprising that the FTSE is struggling in morning trade,” Cincotta said, noting the market benchmark had slipped at one point below the supposedly key psychological level of 7,000.
UK retail sales volumes in February rose by 0.8% in February from January’s level, which was comfortably above the 0.4% economists had been predicting.
Year-on-year growth held steady at 1.5%, slightly above the consensus forecast of 1.4%.
“Retail sales recovered in February, although the level of sales merely matched Q4’s average,” noted Pantheon Microeconomics.
UK retail sales recovered in February, but only matched their Q4 average. Crucially, data collected between Jan 28 and Feb 24, BEFORE the snow hit from Feb 27. March data will be awful & retail sales will fall q/q%in Q1, dragging on GDP growth. pic.twitter.com/HkBvikWRfe— Samuel Tombs (@samueltombs) March 22, 2018
“Food sales volumes jumped by 1.1% month-to-month, reversing most of the 1.6% decline recorded over the previous two months. Non-store and fuel sales leapt by 4.6% and 2.5% month-to-month, respectively, also reversing weakness in prior months but non-food sales fell by 0.8%, driven by falling department store, flooring and garden store sales,” Pantheon added.
“Crucially, February’s data cover the four weeks from January 28 to February 24, before the heavy snowfall commenced on February 27. As a result, all of the disruption caused by the bad weather will be concentrated in March’s data,” the forecasting unit observed.
“Based on past bad weather episodes, we expect retail sales volumes to fall by about 1% month-to-month in March,” it added.
9.35am: UK retail sales volumes rose more than expected in February
UK retail sales increased by 0.8% in February, the Office for National Statistics (ONS) said.
Increases were seen across all the main sectors except non-food stores.
"Retail sales did grow in February, with increases seen in food, non-store and fuel, but this followed two months of declines in these sectors,” observed Rhian Murphy, a senior statistician at the ONS.
"However, the underlying three-month picture is one of falling sales, mainly due to strong declines across all sectors in December.
"Store prices continue to rise across all store types, but at a lower rate than the previous month due to a slowdown in price growth, though clothing and household goods stores continued to see stronger price rises."
The FTSE 100 dipped a bit more on the release to 6,993, down 45 points.
9.15am: Blue-chips resume yesterday's downward stroll
Blue-chips have opened modestly lower, as attention moves from the Federal Reserve to the Bank of England.
The FTSE 100 was down 17 at 7,022 as investors reacted with a shrug of the shoulders to the Federal Reserve’s quarter-point hike in interest rates.
“The Fed’s resolve to normalize interest rates clearly trumped any concerns about disappointing first-quarter economic data. The opening paragraph of the FOMC policy statement readily acknowledges economic activity has been rising at a moderate rate (as opposed to solid) and ‘household spending and business fixed investment had moderated from their strong fourth quarter readings.’ The slight downgrade to recent economic conditions was offset by an upgrade to its assessment of the labor market, where ‘job gains have been strong’ and the “unemployment rate has remained low,” commented Wells Fargo Securities.
“The significance of the Fed’s move in the face of this softer data is that the Fed has more confidence in the economy’s underlying momentum and appears to be more determined to normalize interest rates,” Wells Fargo opined.
ING Research noted that growth forecasts were revised upwards again, to 2.7% in 2018 and 2.4% in 2019 (from 2.5% and 2.1% respectively).
“The projection for inflation also strengthened slightly, to 2.1% in 2020 on both the headline and core inflation measures (from 2.0% previously). This is a small change but significant because it means the Fed is now projecting inflation a touch above target, strengthening the case for more rate hikes,” ING said.
In the UK, the Bank of England is widely expected to leave its key interest rate unchanged today. Possibly of more interest are the retail sales figures for February, where the market is expecting a month-on-month increase of 0.4% after January’s 0.1% advance.
“As with many other retailers (and indeed corporates) of late, however, it has fallen foul of its outlook statement, with management anticipating trading conditions will remain challenging across many of its global markets,” said Mike van Dulken, the head of research at Accendo Markets.
“More cautious investors are clearly not prepared to look through this observation, for fear of it actually sugar-coating what could be a worsening in recent trading conditions. After all, the message from the high street this week was hardly one of optimism,” he added.
8.45am: Rudderless Footsie after Fed chairman Jerome Powell's first post-rate setting press conference
The FTSE 100 could best be described as rudderless on minimal early traded volume as the market digested the flagged US interest rate hike and assessed the comments of new Fed chair Jerome Powell for significance.
Lee Wild, an equity strategy guru at Interactive Investor, said the tone was more hawkish than Powell's predecessor.
“That’s backed up by [his] comments around US economic growth and inflation, and of fellow policymakers’ concerns about tariffs and trade policy that potentially threaten growth.
“It’s possible that we could even see President Trump pull the trigger on a further $50bn of tariffs against China today, not steel this time but for intellectual-property violations.
“Trump’s actions could easily escalate and derail not just the US economy, but others too. This is all food for the stock market bears both on Wall Street and in London.”
There was relief all round as Reckitt Benckiser (LON:RB.) pulled out of the US$20bn auction for Pfizer’s consumer division leaving GlaxoSmithKline (LON:GSK) in poll position. RB shares rose 7% on the news.
Proactive news headlines:
Stobart Group Limited (LON:STOB) will not be proceeding with a bid for regional airline, Flybe Group PLC (LON:FLYB). Stobart Group and Flybe enjoy a range of shared interests as well as a growing franchise arrangement between the two groups' airlines and it is Stobart Group's intention to continue the collaborative working relationship between both companies, Stobart’s statement said.
Aerial reconnaissance specialist Strat Aero PLC (LON:AERO) said it has made considerable and rapid progress in its cost reduction programme. At the same time, management has been enhancing the performance and prospects of its main operating business, Geocurve.
Sound Energy PLC (LON:SOU), in its financial results statement, reaffirmed its belief that its assets onshore Morocco have the potential to become a material hydrocarbon province. “We remain hugely excited about our future and look forward to success together,” said chairman Richard Liddell.
Range Resources Ltd (LON:RRL) has detailed plans for a new work programme for the Perlak field, in Indonesia, where the company is targeting first production in mid-2018. The field programme, targeting early production, is due to start in the second quarter and it said that the planned work programme is expected to add up to 200 barrels of oil production per day.
Coinsilium Group Ltd (NEX:COIN) announced that it has exercised an option to acquire a further 3.5% of the share capital of Indorse Pte. Ltd. via its wholly owned subsidiary Seedcoin Limited, taking its total holding to 10%.
A good performance by its healthcare division kept profits moving higher in 2017 at Cello Group plc (LON:CLL) . The marketer intends to underline healthcare's growing importance, especially in the US, by a name change to Cello Health Group.
In line with its strategy to focus in on its cancer and fibrosis pipeline, Redx Pharma Plc (AIM:REDX) has found a prospective partner for its next-generation anti-biotics. For the drug developer has signed an option and licence agreement with Deinove of France that effectively outsources its novel bacterial topoisomerase inhibitor (NBTI) programme.
Bezant Resources plc (LON:BZT) is to switch its focus back to copper in the Philippines and Argentina after failing to get the finance to develop the Choco alluvial gold deposit in Colombia. Laurence Read, chief executive, said the decision stemmed from a strategic review of the junior’s activities following the halt to mining at Choco at the end of 2017.
Cadence Minerals Plc (LON:KDNC) says it has begun an initial exploration programme on the six ‘high-quality’ lithium assets in the San Luis province of Argentina it agreed to acquire in December. The AIM-listed mineral sector investment firm said the exploration programme, targeted to complete in 4-6 months, will aim to provide the company with an understanding of the pegmatite geology and the extent of lithium mineralisation.
Alba Mineral Resources PLC (LON:ALBA), the diversified mineral exploration and development company, announced that its Mineral Exploration Licence (MEL) 2013/06, comprising the Amitsoq Graphite Project in southern Greenland, has been renewed for a further five years commencing from 2018. Furthermore, it added, the government of Greenland has confirmed that the exploration expenditure commitment for the Project has been reduced to zero for 2018.
Base Resources Limited (LON:ASX) (ASX:BSE) advised that the latest company presentation, which was presented today at the Australian Mineral Sands Conference in Perth, Western Australia, has been released to the Australian Securities Exchange and is available on the company’s website.
6.45am: Back foot start predicted
London’s FTSE 100 is expected to start Thursday on the back foot after US interest rates were raised by the Federal Reserve.
The Fed’s fourth rate rise in a year was widely anticipated by the market, few will have been surprised by the move, whereas many more eyeballs were on the outlook for any further action by the central bank in the coming months.
On Wall Street, the Dow Jones closed Wednesday some 44 points or 0.18% lower at 24,682 similarly the S&P 500 also dipped 0.18% to 2,711 and the Nasdaq was off 0.26% to finish the session at 7,345.
“There had been an expectation that the central bank would signal its intent for a higher pace for rate rises in 2018; however, this always seemed optimistic, with policymakers keeping the prospect of three rate rises intact for this year, while upgrading the prospects for 2019 from two to three increases,” said Michael Hewson, analyst at CMC Markets.
“The Fed also upgraded the growth outlook for this year and next.
He added: “At this press conference the new Fed chief cut an optimistic figure about the US economy; however, the statement did suggest that the Fed did have some concerns with a slight tweak to the language which downgraded the description of economic activity from solid to moderate.”
In Asia, stock markets were mixed.
Japan’s Nikkei rose 211 points or 0.99% to 21,591 whereas Hong Kong’s Hang Seng was 201 points or 0.64% worse off at 31,214 and the Shanghai Composite gave up 0.62% trading at 3,259.
Australia’s ASX 200, meanwhile, traded 0.22% lower at 5,937.
In the UK, attentions are also pointed at central bankers as the Bank of England makes its next decision on rates at midday – the consensus is that policy-makers won’t yet follow their American counterparts to raise rates.
Jasper Lawler, an analyst at London Capital Group, in a note, said: “Whilst the central bank is not expected to raise rates today, bets are increasing that there could be a late spring/ early summer hike.
“Traders will be watching carefully for any hints of hawkishness which point towards a spring/ summer hike, particularly given that certain head-winds have evaporated; for example, a Brexit transition deal is agreed and wages are set to overtake inflation.”
IG Markets sees the FTSE 100 starting lower. The CFD and spreadbetting group is anticipating the benchmark will be down about 15 points, calling it at 7,015 to 7,019 with just over an hour to go until the open.
Around the markets:
- Sterling: US$1.4149, up 0.06%
- Gold: US$1,330 an ounce, up 0.7%
- Brent crude: US$69.42 a barrel, down 0.07%
- Bitcoin: US$9,017, up 1.38%
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