- FTSE 100 loses 31 points
- UK GDP rose 0.5% in October but rebound seen as short-lived
- Oil price gains on closure of Keystone pipeline
4.40pm: FTSE 100 heads lower at the close
The UK's blue chip index lost ground at the close, losing 31 points to finish at 7,446 for a loss of 0.4% on the day.
IG's Joshua Mahoney said that Chinese covid concerns came back into the fray as markets weigh up the repercussions of the recent reopening efforts.
“European markets have suffered the same fate as their Asian counterparts today, with Friday’s US sell-off finally catching up with markets elsewhere around the world. Improved sentiment around Chinese efforts to reopen appear to swiftly faltering, with concerns over a dramatic surge in Covid cases bringing the potential for further restrictions and protests," Mahoney wrote.
The recent volatility in crude oil highlights the ongoing questions over whether the Chinese economy is truly ready to return or on the cusp of yet another series of restrictions, he added.
Meanwhile, the big freeze in the UK has brought sharp upside for natural gas.
"For markets, the recent optimism seen over recent months does come off the back of deteriorating inflation data. With that in mind, any surge in energy prices does provide a significant risk of a second surge in prices that could undermine equity markets," Mahoney added.
3.45pm: FTSE in downbeat mood
Heading to the close and the FTSE 100 has failed to take much heart from the positive moves in the US, trading down 31 points, at 7,444, while the FTSE 250 is languishing 133 points at 18,783.
Better than expected GDP figures for October were shrugged aside with analysts still expecting the UK economy to slide into recession in quarter four.
Investors are also eyeing a busy week of central bank announcements with the Bank of England’s rate call due on Thursday when an increase of 50 basis points is widely expected.
Simon Harvey, head of FX analysis at Monex Europe agreed with this “as the data since November’s meeting have largely fallen in line with the expected path.”
While a 75bps rise is possible Harvey suggested it would need another “strong core print to tip the balance amongst the MPC and make 75bps a reality.”
“The market impact on Thursday will likely be dictated by the vote split and its implications for future policy decisions” he said noting differing comments by member of the Monetary Policy Committee over the past month.
He suggested this could result in a vote split of 2-4-3 in favour of 25-50-75 basis points.
Back to today and London Stock Exchange Group PLC (LSE:LSEG) remained top of the FTSE 100 risers after its partnership deal with Microsoft Corp. while another on the up was RELX PLC (LSE:REL) which rose after being tipped by JP Morgan.
Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) benefited from the rise in the oil price following the closure of the Keystone pipeline but housebuilders slumped after downbeat surveys on house prices from Rightmove and mortgage lending by UK Finance.
Persimmon PLC (LSE:PSN), Taylor Wimpey PLC (LSE:TW.) and Barratt Developments PLC (LSE:BDEV) were all prominent names on the downside.
In the FTSE 250, Wood Group (John) Plc benefited from an upgrade by Jefferies to buy from hold but ASOS PLC (LSE:ASC) weakened as reports it was seeking a restructuring specialist to beef up its finance team concerns as to how deep its financial issues are.
Russ Mould, investment director at AJ Bell said the reports hinted “at the level of stress the ASOS balance sheet could be under.”
3.10pm: Oil prices advances after oil spill closes Keystone pipeline
The oil price has recovered its poise today, after falling by more than 10% last week, following the closure of the Keystone pipeline from Canada to the US gulf coast remains shut after an oil spill in Kansas Creek.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown said: “While investigators try to work out what caused the serious leak, repair the damage and assess safety criteria, the pipeline will remain shut, which is set to keep upwards pressure on the oil price.”
“The gradual easing of Chinese Covid restrictions is also expected to lead to a further upswing in demand with more relaxed transport rules for truckers expected to ease port snarl-ups, leading to better supply chains and potentially higher orders” she suggested,
Brent crude prices are trading 1.5% higher at $77.26/barrel while WTI prices are up 2.57% at $72.79/barrel.
2.41pm: US markets make a bright start
US stocks opened in the green on Monday ahead of a big week for the markets, including key inflation data and the outcome of the Fed’s final rate-setting meeting for 2022.
Just after the market opened, the Dow Jones Industrial Average had added 125 points or 0.4% at 33,601 points, the S&P 500 was up 8 points or 0.2% at 3,942 points, and the Nasdaq Composite had gained 21 points or 0.2% at 11,025 points.
Forex.com market analyst Fiona Cincotta said stronger-than-expected data released last week has raised concerns over the Fed’s ability to slow down the pace of their aggressive rate hikes, as guided by Fed chair Jerome Powell in a speech at the end of November.
“The market is currently pricing in a 75% probability of a 50 basis point rate hike and a 25% chance of a 75 basis point rate hike,” she said.
“[Tuesday’s] inflation data is unlikely to deter the Fed from a 50 basis point hike this month. However, cooling inflation could raise the chances of a 25 basis point rate hike in January.”
2.11pm: Wood Group advances as Jefferies upgrades to buy
Shares in Wood Group (John) Plc spiked 3% as Jefferies put the stock on its buy list for te first time in five years.
The broker raised the stock to 'buy' from 'hold' and hiked the price target to 190p from 150p.
"Improved medium-term cashflow outlook sees our discount cash flow valuation almost double, and we view the weak market reaction and analyst downgrades since the capital markets day as an opportunity," the bank said.
Jefferies said it finally has confidence that the years of cash exceptionals since the Amec Foster Wheeler deal are under control and recommended that investors "see the positive Wood through the Trees."
Jefferies said it continues to see headcount as a limiting factor in revenue growth for a reimbursable business which is why inorganic bolt-on M&A is important.
However, in the absence of M&A, it sees revenue growth targets given at the CMD as achievable and therefore overall sees the stock trading at an attractive discount to peers.
1.07pm: National Grid stands down coal-fired power stations
The UK's electricity system operator has stood down two coal-fired power stations that were put on emergency standby as a spell of cold weather sparked a spike in demand.
Earlier today, National Grid’s electricity system operator (ESO) said the two “winter contingency coal units” would be available if required on Monday as temperatures plunged and demand surged. It said the public should continue to use energy as normal.
But it is understood the units will not now be needed, with energy needs met by other sources, including an anticipated pickup in wind power.
The UK has cancelled the order to prepare two of the coal-fired power units it keeps in reserve for emergencies. The electricity market has eased a bit, and looks like gas will be enough to cover the evening demand peak period (the morning peak went also without problem)
— Javier Blas (@JavierBlas) December 12, 2022
12.40pm: Mortgage lending to plunge in 2023 - UK Finance
British banks and building societies expect to lend 23% less to home-buyers next year, taking mortgage volumes back to their level before the COVID pandemic after a two-year boom that lifted house prices by more than a quarter.
Trade body UK Finance forecast on Monday that gross mortgage lending for house purchase would fall to £131bn in 2023 from £171bn this year and a peak of £189bn in 2021, when pandemic-related tax incentives were in force.
Lending to buy-to-let landlords was forecast to fall by 27%, and overall residential property sales were likely to drop to 1.01mln next year from 1.27mln in 2022, it added.
"Amid challenging times for the UK economy, we expect cost of living pressures and rising interest rates to reduce demand for house purchases," it said.
In another downbeat survey of the UK housing market today Rightmove PLC (LSE:RMV) said the average asking price of homes being put on the UK market has fallen by 2.1% in the last month in the biggest pre-Christmas dip in the last four years.
The UK’s biggest property website said the average asking price was £359,137 in early December, down £7,862 from November.
Last week Halifax said prices in the UK fell by 2.3% in November, the largest monthly drop on its index since the start of the 2008 financial crisis, while at the start of the month, Nationwide said UK house prices were falling at the fastest pace in almost two and a half years.
12.15pm: Small gains seen in the US
Wall Street is expected to start the new week marginally higher as traders hold back on placing any big bets ahead of a key inflation report due tomorrow ahead of the Federal Reserve’s last move on interest rates for 2022.
Futures for the Dow Jones Industrial Average rose 0.2% in Monday pre-market trading, while those for the broader S&P 500 index gained 0.3% and for the Nasdaq-100 added 0.4%.
Stocks closed lower on Friday after high-than-expected producer inflation data raised concerns that the Fed will stick to its path after hiking rates by 75 basis points at each of its last four meetings.
November’s producer price index (PPI) showed wholesale prices increased 0.3% last month, coming in higher than the consensus analyst expectation of 0.2%.
The Dow lost 305 points to 33,476, while the S&P 500 eased 29 points at 3,934 and the tech-heavy Nasdaq fell 77 points to 11,005.
The headline rate of consumer inflation for November is expected to show a slight month-on-month deceleration to 0.3% from 0.4% in October.
“The fragility of recent rebounds was highlighted as fresh risk-off sentiment emerged ahead of an inflation print this week, followed by the latest Federal Reserve decision on interest rates,” commented Richard Hunter, head of markets at interactive investor.
“The two announcements are intertwined, with any prolonged heat on the inflation number providing the Fed with more ammunition to maintain its hawkish view," he added.
While the market is pricing in a 50 basis point rise in rates, Hunter said the accompanying comments on the Fed’s outlook will be of equal interest as it could encompass not only the likely terminal rate but also indicate how long rates may need to remain elevated.
"In the meantime, overtightening which could lead to a recession remains the key market concern,” Hunter continued.
“The inflation number due this week will drive sentiment, and data released on Friday which showed producer prices rising added to concerns that the inflationary beast may not yet have been tamed.”
11.37am: RELX favoured by JP Morgan
Plenty of City scribes are looking ahead to next year and JP Morgan has included two FTSE 100 companies in its key picks for the European media sector for 2023.
The broker said RELX PLC (LSE:REL) and Pearson PLC (LSE:PSON) “are quality names with attractive equity stories regardless of the macro environment.”
The bank added RELX to its analyst focus list, kept an overweight rating and lifted its price target to 2.730p from 2,710p.
It “is a defensive megacap trading at a 30% discount to its US peers.” JPM said.
“Accelerating organic growth, improving quality and the potential sale of Exhibitions can close the value gap” it suggested.
The broker also raised its price target for Pearson to 1,200p from 1,060p and reiterated an overweight rating.
“Pearson delivered for investors in 2022” and “we see further upside from Workforce Skills, enrollments & secondary market recapture” analysts wrote.
WPP PLC (LSE:WPP) was also favoured by the bank with an overweight rating and an increased price target of 1,260p (from 1,210p).
11.10am: BoE to " decelerate" to 50bps rate rise this week - Citi
The Bank of England (BoE) will increase UK interest rates on Thursday but at a slower pace than last month’s 75 basis points rise according to Citi.
The bank forecast the BoE’s Monetary Policy Committee will “decelerate” to a 50 basis points increase this week although it cautioned “75bps remains more likely than 25bps, with the recent data highlighting the ongoing risk of downward real rigidities.”
But it pointed out November’s acceleration primarily reflected credibility issues that have since dissipated in its view.
“With recent data indicating 1) rates already in restrictive territory and 2) slack beginning to emerge, we think there is little in the underlying data compared to September that would now warrant an acceleration” the broker said.
As a result Citi forecast the median voters in the MPC to once again back a 50bps hike, but suggested this could be in the context of a broader four-way vote split.
“From here, we see the risks as increasingly skewed towards smaller increments as the MPC moves from urgent tightening to a more cautious period of close monitoring – especially with respect to the wage data.”
“For the MPC, this effectively means playing for time” it concluded.
The Bank of England will announce its interest rate call on Thursday.
10.44am: ASOS seeking to bolster finance department with restructuring specialist
FTSE 100 has recovered most of its early falls to trade just seven points lower now at 7,469.
One weak feature is ASOS PLC (LSE:ASC) which fell following reports the ailing retailer was holding talks with lenders about adding a restructuring expert to its finance department following the departure of interim CFO Katy Mecklenburgh.
Russ Mould, investment director at AJ Bell said the reports hinted “at the level of stress the ASOS balance sheet could be under.”
“The online fashion lender should not be in the mess it is now. Yes, times are tough, but ASOS is coming off the back of favourable trading conditions during the pandemic” he added.
“By ignoring the adage that you should fix the roof when the sun is shining, ASOS has left itself vulnerable to the effects of people returning to shops in person, a greater number of costly product returns to process, rising costs across the rest of the business and a downturn in demand thanks to the weak economic backdrop.”
10.14am: Government to hold Cobra meeting as strikes mount
The government is to discuss contingency plans for upcoming strikes, including using the military and civil servants to cover Border Force staff, at an emergency Cobra meeting later.
The armed forces will also be deployed to hospital trusts ahead of an ambulance strike, the government said.
But industrial action is still expected to cause major disruption.
Cobra is an emergency response committee made up of ministers, civil servants and others.
It comes amid a wave of strikes over pay this month from nurses, paramedics, rail workers, and Border Force staff.
Cabinet Office minister Oliver Dowden, who will chair the meeting on Monday, has urged unions to call off the "damaging" strikes.
10.00am: Trade deficit narrows in three months to October
Some more economic news. The UK’s trade deficit narrowed in the three months to October by £5.1bn to £9.8bn, according to the Office for National Statistics, after adjusting for the effect of inflation.
However, in nominal terms, it grew to £23.9bn, reflecting a huge jump in energy costs in the past year in the wake of Russia's invasion of Ukraine.
The value of goods imports decreased by £1.4bn (2.6%) in October, however when removing the effect of inflation, imports of goods increased by £0.9bn (2.3%).
The underlying total trade deficit widened slightly by £0.1bn to £23.9bn in the three months to October.
However, after removing the effect of inflation the deficit narrowed by £5.1bn to £9.8bn.
— Office for National Statistics (ONS) (@ONS) December 12, 2022
Goods imports from non-EU countries fell by £3.4bn (11.6%), primarily because of falling gas prices in October 2022 after peaking in September, while goods imports from the EU rose by £2.0bn (8.3%) following a subdued September.
The value of goods exports decreased by £0.7bn (2.2%) in October, with exports to both EU and non-EU countries falling; after removing the effect of inflation, exports of goods decreased by £1.3bn (4.7%).
9.25am: National Grid fires up coal plants as temperatures plunge
National Grid PLC (LSE:NG.) has given notice to two of its reserve coal-fired power stations to fire up as the network faces a surge in demand as temperatures plunge and much of the country is covered in snow.
The National Grid Electricity System Operator said the emergency plan "should give the public confidence in Monday's energy supply" as millions are expected to work from home and turn up the heating.
We've issued a notification to warm two winter contingency coal units. This measure should give the public confidence in Monday’s energy supply.
(1/3)
— National Grid ESO (@NationalGridESO) December 12, 2022
The notice does not mean the coal-fired power stations will be used but means they will be ready to produce energy if called on by the Grid.
Soaring demand sent day ahead UK power prices to an all-time high and National Grid data suggested that power consumption is set to peak at almost 46,700 megawatts at 5pm on Monday, up from Sunday's high of just under 43,000.
9.00am: FTSE lower, bounce in GDP to be short-lived
Footsie has extended its losses, down around 27 points now.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown said: ‘’Caution is in the air in financial markets ahead of a series of crunch central bank meetings around the world this week, with yet more interest rate hikes set to be unwrapped as inflation remains stubborn.”
There was slightly better than expected news on the UK economy which grew 0.5% in October, rebounding after September’s fall but analysts still expect this to be a temporary respite while the chancellor Jeremy Hunt said the UK’s economy was “likely to get worse before it gets better.”
Streeter commented: “The monthly rise of gross domestic product of 0.5% in October is likely to have been more of a temporary upswing rather than the start of a more positive chapter for the economy.“
Danni Hewson, AJ Bell financial analyst said: "the story is unchanged, the economy is still shrinking and recession feels inevitable."
The EY ITEM Club forecast that GDP is likely to be – at best – flat in quarter four, “with a good chance of seeing a second successive quarter-over-quarter fall.”
Housebuilders were a weak feature following the weak survey from Rightmove which pointed to UK home-sellers cutting their asking prices at the quickest pace in four years.
Shares in Bellway PLC (LSE:BWY), Persimmon PLC (LSE:PSN), Redrow PLC (LSE:RDW) and Vistry Group PLC (LSE:VTY) were all marked lower.
8.24am: London Stock Exchange rises on Microsoft tie-up
London Stock Exchange Group PLC (LSE:LSEG) is in the news after announcing a 10-year partnership with Microsoft Corp. which has taken a stake of around 4% in the UK bourse operator.
The partnership involves next-generation data and analytics, as well as cloud infrastructure solutions, according to a statement by the LSEG.
It involves a new data infrastructure for the London exchange and analytics and modelling solutions with Microsoft Azure, AI, and Microsoft Teams.
“This strategic partnership is a significant milestone on LSEG’s journey towards becoming the leading global financial markets infrastructure and data business, and will transform the experience for our customers,” David Schwimmer, CEO of LSEG, said in the statement.
The move is forecast to increase LSEG's revenue growth meaningfully over time as new products come on-stream although total incremental cash costs over 2023-2025 of £250mln to £300mln will see a 50 to 100 basis points hit to EBITDA margin over the same period.
There is a contractual commitment by LSEG for a minimum cloud-related spend with Microsoft of £2.3bn over the term of the partnership, reflecting minimum cloud consumption expectations and consistent with existing long-term opex and capex plans, the company said.
8.11am: FTSE lower, London Stock Exchange jumps
FTSE 100 opened lower ahead of a busy week of central bank announcements and economic data despite a stronger-than-expected rebound in UK GDP figures in October.
London’s blue chip index is down by 23 points at 7,454 and the FTSE 250 is 81 points lower at 18,835.
The UK economy grew by 0.5% in October, ahead of City expectations of 0.4% growth, but this is unlikely to stop the economy heading into recession in quarter four according to economists.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics said: “We think that GDP will fall by about 0.3% month-to-month in both November and December, leaving it down 0.2% on a quarter-on-quarter basis.”
“Activity indicators from S&P Global, Lloyds and the CBI, as well as the extremely low level of GfK’s consumer confidence index, all are consistent on past form with falling GDP.”
London Stock Exchange Group PLC (LSE:LSEG) jumped 4% in early trading as US tech giant Microsoft Corp. has announced a 10-year partnership and took a stake of around 4% in the UK bourse operator.
The partnership involves next-generation data and analytics, as well as cloud infrastructure solutions, according to a statement by the LSEG.
It involves a new data infrastructure for the London exchange and analytics and modelling solutions with Microsoft Azure, AI, and Microsoft Teams.
7.50am: Further signs housing market is slowing
The average asking price of homes being put on the UK market has fallen by 2.1% over the last month, according to Rightmove, which said it had seen the largest pre-Christmas dip of the last four years.
The UK’s biggest property website said the average asking price was £359,137 in early December, down £7,862 from November, and will be seen as further evidence that the property market is on a downward slope.
Last week Halifax said prices in the UK fell by 2.3% in November, the largest monthly drop on its index since the start of the 2008 financial crisis, while at the start of the month, Nationwide said UK house prices were falling at the fastest pace in almost two and a half years.
Despite this, Rightmove said that at the end of 2022, average asking prices were 5.6% higher than at this time a year ago, only slightly below the 6.3% growth recorded in 2021.
However, it predicted a 2% fall in prices next year as a multispeed, hyperlocal market emerges, with “some locations, property types and sectors faring much better than others”.
“After two and a half years of frenetic activity it’s easy to forget that having multiple bidders immediately lining up to buy your home was the exception rather than the norm in pre-pandemic years, and there will be a period of readjustment for home-movers as properties take longer to find the right buyer,” said Rightmove’s Tim Bannister.
“We’re heading towards a more even balance between supply and demand next year, but we don’t expect a surge in forced sales, which would cause a glut of properties for sale and contribute to more significant price falls in 2023,” he added.
7.36am: RyanAir to pay compensation after dropping appeal
RyanAir Holdings PLC will pay out compensation to consumers hit by strike action in 2018 after deciding not to appeal a court ruling made earlier this year according to the UK’s Civil Aviation Authority (CAA).
In January, following action by the CAA against Ryanair, the Court of Appeal decided that strike action by airline staff was not an 'extraordinary circumstance'.
Ryanair had secured permission to appeal the decision to the Supreme Court but has decided not to pursue this.
Paul Smith, consumer director at the UK Civil Aviation Authority said: "The Civil Aviation Authority undertook enforcement action against Ryanair due to the belief that strike action by airline staff does not constitute an 'extraordinary circumstance' and, as such, affected passengers should be entitled to compensation where this results in the delay or short notice cancellation of their flight.”
“The judgment by the Court of Appeal supported this view.”
“Ryanair's decision to discontinue the Supreme Court appeal of the Court of Appeal judgment means that affected passengers will now be able to make a claim for compensation from Ryanair if they were impacted by strike action taken by Ryanair pilots in 2018 and we would encourage all passengers on flights that were affected to claim the compensation they are entitled to” he said.
At the time of the disruption, passengers whose short-haul flights to or from UK airports were cancelled within 14 days of the departure date were entitled to up to €250 of compensation based on the timings of alternative flights offered.
7.11am: UK GDP rebounds in October
The UK economy grew in October by 0.5% rebounding from a fall of 0.6% in in September 2022, which was affected by the additional bank holiday for the State Funeral of HM Queen Elizabeth II.
The figure was slightly better than City forecasts for a rise of 0.4%.
Looking at the broader picture, GDP fell by 0.3% in the three months to October compared with the three months to July.
GDP grew 0.5% in October, following a fall of 0.6% in September.
However, over the last three months as a whole, the economy fell 0.3%.
— Office for National Statistics (ONS) (@ONS) December 12, 2022
The services sector grew by 0.6% in October, after falling by 0.8% in September; the largest contribution to the growth came from wholesale and retail trade; repair of motor vehicles and motorcycles, which rose by 1.9% in the month.
Output in consumer-facing services grew by 1.2% in October, after falls of 1.7% in September and 1.6% in August.
Production remained broadly flat in October, after growth of 0.2% in September; manufacturing was the only sub-sector to contribute positively to production in October, offset by negative contributions from electricity, gas, steam and air conditioning supply, and water supply, sewerage, waste management and remediation activities.
The construction sector grew by 0.8% in October; this is its fourth consecutive increase after growths of 0.4% in September, 0.6% in August and 0.2% in July.
7.00am: Footsie seen lower eyeing central bank moves
FTSE 100 expected to open lower on Monday ahead of a busy week of central bank announcements from the ECB, the Bank of England and the Federal Reserve.
Spread betting companies are calling the lead index down by around 21 points.
US stocks finished the trading week lower on Friday after hotter-than-expected producer price index data for November sparked further Federal Reserve interest rate hike fears.
At the close, the Dow lost 305 points to 33,476, while the S&P 500 eased 29 points at 3,934 and the tech-heavy Nasdaq fell 77 points to 11,005.
“This late Friday slide in the US looks set to weigh on today’s European open” said Michael Hewson chief market analyst at CMC Markets UK.
“We have an absolute avalanche of data announcements this week not only from the US, but also the UK, starting today with the latest monthly GDP numbers for October, as well as industrial and manufacturing production numbers, which are expected to show that the UK economy is in a poor state of health, despite low levels of unemployment” noted Hewson.