- FTSE 100 closes higher
- Ofwat calls for improvement from water companies
- Wall Street shares higher
4.45pm: FTSE closes ahead
FTSE 100 closed in the green on Tuesday, while Wall Street headed north too, as traders welcomed the latest US inflation data ahead of Wednesday's key Fed meeting.
Britain's blue-chip benchmark finished ahead by almost 57 points, or 0.76%, at 7,502.
On Wall Street, the Dow Jones Industrial Average added 0.71%, the S&P 500 gained 1.42% and the tech-heavy Nasdaq advanced 1.53%.
"Global markets have received a welcome boost today, as the latest US inflation survey brought downside in both headline and core CPI readings in November," noted Joshua Mahony, senior market analyst at online trading firm IG.
"The fact that we have seen a relatively widespread decline in inflation that is not solely reliant on volatile energy prices does provide greater confidence for the bulls, with house rents providing the one aspect which is yet to reverse.
"Markets can now look forward to tomorrows FOMC meeting with optimism, although it seems unlikely that the Fed with shift from the 50-basis point hike expected by markets."
3.50pm: US inflation figures give markets a boost
Leading shares are heading higher into the close, lifted by news of better than expected US inflation which raised hopes that interest rates may not need to be raised by as much as previously expected.
The FTSE 100 is currently up 62.86 points or 0.84% at 7508.83, albeit it off its best level of 7553 as a strong start on Wall Street in the immediate wake of the inflation numbers eased back slightly.
Michael Hewson, chief market analyst at CMC Markets UK, said: "After being in hibernation since the US November payrolls and services ISM reports, the peak inflation narrative got another lift this afternoon when US CPI rose by its lowest annual number this year, sending European markets sharply higher, and the Stoxx 600 and DAX to their highest levels in 6 months, although we are pulling off those peaks heading into the close.
"A number of 7.1% was below expectations of 7.3% and offered a boost to those who think that the Federal Reserve may not have to go as hard, or as far on rate hikes as we head into 2023.
"Whether or not that particular narrative survives first contact with Fed chair Jay Powell tomorrow, and the post meeting press conference remains to be seen, but it’s now getting to the point that Fed officials can no longer dismiss the direction of travel for headline CPI as one particular data point. A trend appears to be forming as far as inflation is concerned, with the only question now being whether we will start to see that same trend start to play out here in the UK and Europe.
"Today’s gains have been wide ranging with online retail companies helping to lead the gains, with Ocado rising to 4-week highs, and Zalando in Germany rising to 6-month highs."
The aforementioned Ocado Group PLC (LSE:OCDO) has added 7.29%, while elsewhere Intermediate Capital Group (LSE:ICP) is up 6.59% and Ashtead Group PLC (LSE:AHT) 5.83% better.
Insurer Prudential PLC (LSE:PRU) put on 4.48% on hopes it would benefit from China easing its COVID-19 restrictions.
Among the fallers, Rolls-Royce Holdings PLC (LSE:RR.) is down 1.61% after an underweight recommendation from JP Morgan.
The tobacco sector was also weaker as the US Supreme Court denied attempts to postpone a ban on selling all flavoured tobacco products in California.
Meanwhile New Zealand has prohibited anyone born on or after January 1, 2009, from ever buying smoked tobacco products.
So British American Tobacco PLC (LSE:BATS) is down 1.5% and Imperial Brands PLC (LSE:IMB) has lost 1.26%.
3.26pm: Turning point in the inflation battle?
The better than expected US inflation figures may be a turning point in the battle against higher prices.
That is the view of Danni Hewson, AJ Bell financial analyst, who said: “The direction of travel will be a welcome one for members of the Federal Reserve, due to make their decision about how far to raise interest rates in just over twenty-four hours’ time. Investors have pretty much priced in a slowing of those rate hikes after four consecutive 75 basis point rises, and any change of plan at this point would likely send a pretty big shock wave through global markets."
She said that despite the positive numbers there were some warning signs, not least rising food and housing costs.
But she added: "Rate hikes have begun to do what they were designed to do and cool the economy, but it is only the beginning. Nevertheless, today’s numbers have fallen like soft rain on parched fields and global markets have blossomed accordingly.
“The prospect of slower rate hikes has strengthened both the pound and the euro against the dollar and that in turn should help cool both UK and Eurozone inflation.
"It feels like a turning point has been reached and while not every country is in the same place, at least there is scope for optimism.”
2.45pm: US markets head higher at the open
US stocks jumped at the open after the latest data that showed inflation cooled in November.
Just after the market opened, the Dow Jones Industrial Average had added 519 points or 1.5% at 34,524 points, the S&P 500 was up 88 points or 2.2% at 4,079 points, and the Nasdaq Composite had gained 359 points or 3.2% at 11,503 points.
Bitcoin also rallied on the news, up 5.2% at US$17,884.
ADSS global head of strategy and trading services Srijan Katyal said the CPI slowing to 7.1% showed that inflation may be nearing its peak.
“Lower oil prices and the significant improvements in supply chain issues may not have yet had an impact, however, once these come into play, they would back US Treasury Secretary Janet Yellen’s comments that inflation will be substantially reduced in 2023,” Katyal said.
Katyal added that this further supported the general consensus that the Fed will maintain its prescription of rate hikes tomorrow, with a 50 basis point raise already firmly priced into the markets.
“A 75-point raise isn’t off the table, but the lower target will be the likely outcome of the FOMC meeting as the Fed calibrates its monetary policies,” Katyal said.
Meanwhile the FTSE 100 continues to benefit from the Wall Street bounce, up 93.41 points or 1.25% at 7539.38.
1.58pm: Dow Jones futures jump after inflation news
The market has reacted to the better than expected US inflation figures by pushing shares higher and hitting the dollar.
The futures for the Dow Jones Industrial Average are now indicating a 2.1% rise, while the S&P 500 is called up 2.7% and Nasdaq up 3.77%.
In the UK the FTSE 100 has jumped 58.4 points or 0.78% to 7504.37.
Meanwhile with the dollar weaker and ahead of this week's anticipated Bank of England rate rise, the pound is now up 1.24% to a six month high of US$1.2421.
The pound has soared past $1.24 to its highest level since mid-June after US CPI data
Get more reaction with City Latest: https://t.co/v2CEBXbW9v pic.twitter.com/CHBFHzk9eq
— Bloomberg UK (@BloombergUK) December 13, 2022
Joshua Raymond, director at online investment platform XTB.com , said: "We saw investors move quickly to buy stocks and sell dollars in the immediate reaction to the US inflation data, which showed prices slowed faster than expected in November to 7.1%. Equally good news was the fact inflation excluding food and energy prices also slowed faster than expected to 6% from 6.3%. That shows you the slowdown in inflation is broad
"The quicker than expected slowdown raises hopes that the US Federal Reserve may not need to hike interest rates as strongly as they currently are doing and forecast to do early next year. That is supportive for stocks and troubling for the US Dollar."
1.53pm: US inflation better than forecast
US inflation has fallen by more than expected, raising hopes that pricing pressures are easing and relieving some of the pressure on the Federal Reserve to adopt a more hawkish tone regarding interest rates.
The consumer price index rose by 7.1% year on year in November, a sharp decline on the 7.7% recorded in October and lower than the expected figure of 7.3%.
Annual core CPI, which excludes volatile food and energy prices, declined to 6% from 6.3% in October. The monthly core CPI came in at 0.2%, lower than the forecast 0.3%.
12.40pm: Pound higher ahead of rate decisions
The pound is moving higher ahead of this week's rate rise decisions from three major central banks, the US Federal Reserve, the Bank of England and the European Central Bank.
With the Bank of England widely expected to raise UK rates by 50 basis points and today's wage figures doing nothing to dissuade from that view, sterling is up 0.219% against the dollar to US$1.2295 and 0.22% better against the euro at €1.1662.
12.20pm: Wage growth gap between public and private sectors one of the largest ever
As various sectors of the UK start or continue strikes, the latest jobs and wages data shows why workers in the public sector in particular are feeling the need for action.
Average earnings excluding bonuses for all sectors in the three months to October rose by 6.1% year-on-year, but this disguises one of the largest differences between the private sector and public sector growth rates ever seen.
Hailey Low, associate economist at NIESR, said: "The private sector saw a 6.9 % increase while public sector wages just grew by 2.7%. This asymmetry between the private sector and public sector will potentially fuel a Winter of Discontent on top of the 417,000 days lost due to industrial disputes in October and the wave of industrial action set to happen in the run-up to Christmas.”
11.43am: US markets forecast to rise ahead of inflation numbers
Wall Street is expected to open higher ahead of November’s consumer inflation reading, which may sway the Federal Reserve's decision as the Federal Open Market Committee gets down to business for its last policy meeting of 2022.
Futures for the Dow Jones Industrial Average rose 0.4% in Tuesday pre-market trading, while those for the broader S&P 500 index gained 0.4% and Nasdaq-100 futures added 0.5%.
Annual CPI for November is expected to show a deceleration to 7.3%, from 7.7% in October, after peaking above 9% in June. Headline prices are expected to have risen by 0.3% month-on-month, from 0.4% a month earlier.
Additionally, the Federal Reserve Bank of New York’s Center for Microeconomic Data yesterday released the November 2022 Survey of Consumer Expectations, which shows that inflation expectations decreased in November in the short, medium, and longer terms.
Together with M&A activity, that supported US stocks, pushing the Dow Jones 1.6% higher by the close to 34,004.81. The S&P 500 rose 1.4% to 3,991 and the Nasdaq Composite advanced 1.3% to 11,144.
“Markets will have to wait until tomorrow for the (Fed's) verdict ... but with yesterday’s consumer inflation expectations painting a more tempered outlook, hopes are evidently building that the series of 75 basis point hikes is now behind us. Wall Street certainly bought into a more dovish policy outlook on Monday with major indices making strong gains,” commented James Hughes, chief market analyst at Scope Markets.
While the Fed is widely expected to increase interest rates by 50 basis points, Hughes said traders “may now be wanting to sit on the sidelines until the Fed has shown its hand tomorrow.”
“Make no mistake, any grinch-like overtures will leave plenty of room for profit-taking,” he added.
Helped by the forecast rise on Wall Street, the FTSE 100 is now up 33.67 points or 0.45% at 7479.64.
10.59am: Worsening outlook to weigh on debt affordability - Bank
Britain's households face significant pressure on their finances, the Bank of England has warned, but they are in better shape than before the global financial crisis.
Ahead of the Bank's latest meeting this week, when it is widely expected to increase interest rates again by at least 50 basis points, it said in its latest half yearly financial stability report that higher inflation and borrowing costs continued to cause problems.
It said: "Falling real incomes, increases in mortgage costs and higher unemployment will place significant pressure on household finances."
It said the average mortgage payment would rise by £250 a month to £1000, or to 17% of the average pre-tax income from the current 12%.
But it said only around 2.4% of the 4mln households facing higher mortgage payments in 2023 would find them hard to afford.
This was a smaller proportion than during the 2008 global financial crisis and the recession in the early 1990s, partly because more households had fixed-rate mortgages and lending regulations were stricter than before.
The Bank also warned of an increasing risk of futher global financial problems.
It said: "Sharp increases in prices, including of energy, tighter financial conditions and the worsening outlook for growth and unemployment will continue to weigh on debt affordability for households, businesses and governments globally."
Meanwhile despite the report, leading shares have increased their gains, with the FTSE 100 up 19.39 points or 0.16% at 7465.36.
10.40am: Begbies sees increasing economic headwinds boosting its business
Corporate restructuring specialist Begbies Traynor (AIM:BEG) has seen half year profits double to £5mln and is upbeat about its prospects.
But that is a downbeat signal for the prospects of UK PLC in general.
Ric Traynor, Begbies executive chairman said: "We expect continued growth from business recovery and financial advisory, given its increased order book, higher level of enquiries and increasing economic headwinds.”
But AJ Bell investment director Russ Mould points out: “Good news for insolvency practitioner Begbies Traynor (AIM:BEG) tends to be bad news for almost everyone else.
“The company is seeing momentum build across its business – most notably in the insolvency part as UK businesses struggle with weak consumer sentiment, surging costs and rising interest rates.
“Soberingly, Begbies expects to continue to do well moving forward which suggests it can see that there are a large number of firms which are close to the brink.”
10.00am: Rolls heading south
Heading in the other direction is Rolls-Royce Holdings PLC (LSE:RR.), leading the FTSE 100 fallers.
Its shares are down 3.15% at 89.92p after analysts at JPMorgan put the aero engine maker on 'negative catalyst watch'.
It has an underweight rating on the firm although it raised its price target from 60p to 70p.
Richard Hunter, head of markets at interactive investor, said: "[Rolls] slipped on the possibility of losing more flying hours [due to the current cold snap] on which it is largely rewarded alongside a broker downgrade.”
9.44am: Pru boosted by China reopening hopes
Insurer Prudential PLC (LSE:PRU) is leading the risers on hopes it will benefit from China's reopening following the relaxation of its zero-COVID-19 policy even though case numbers continue to rise.
Its shares are up 3.16% to 1094.5p as analysts at UBS issued a buy note albeit with a price target reduced from 1580p to 1490p.
They said: "China has continued to move away from its strict zero-Covid policy over the last two weeks, however, this has led to a surge in Covid cases in the country. We do not see a reversion back to zero-Covid as likely, with a reopening of China leading to an eventual reopening of the border between HK and China.
"Prudential PLC (LSE:PRU) is most exposed to the border reopening within our coverage, and despite the recent re-rating (+c.15% over the last 2 weeks), we continue to see more than 40% potential upside to Pru's current share price. Any incremental positive news on China reopening will result in further re-rating, which should outweigh the impact of any near-term pressure on 2H22 consensus expectations."
They also believe a purchase of another 20% of its Chinese joint venture could happen at a cost of US$5.8bn, funded by "a US$2bn (or greater) equity raise in the HK listing and US$3.8bn of internal resources."
It added: "Such a transaction would alleviate two overhangs for the stock: 1) concern that Pru does not fully own its business in China; and 2) lack of liquidity in Pru's HK listing."
But it believes any deal would not be imminent "given Pru's shares are currently undervalued, and the company is without a permanent chief executive."
9.11am: Oil price gains support Footsie
Oil prices are heading higher again.
Brent crude is up 1.59% at US$79.23 a barrel while West Texas Intermediate, the US benchmark, has added 1.34% to US$74.15.
Craig Erlam at Oanda said: "Oil prices are advancing again on Tuesday, with Brent approaching US$80 a barrel and WTI nearing US$75. This comes amid further relaxations of Covid curbs in China, the threat of lower Russian output in response to the G7 price cap, an outage on the keystone pipeline in the US, and the promise of US purchases around US$70.
"That's a lot of supportive factors for the price even in what appears to be an environment tilted towards oversupply."
The rise in crude has lifted BP PLC (LSE:BP.) by 1.61% and Shell PLC (LSE:SHEL, NYSE:SHEL) by 1.24%.
The latter has also sold two offshore production sharing contracts in Malaysia for US$475mln, with additional payments of up to US$50mln between 2023 and 2024, depending on commodity prices.
The two oil giants have helped push leading shares into positive territory - just - after a sluggish start.
The FTSE 100 is now 7.61 points or 0.1% higher at 7453.58.
8.33am: Oftwat says water companies need to substantially improve performance
Water companies have slipped back after regulator Ofwat said the sector needed to substantially improve its performance.
Publishing a report ahead of the latest price review (PR24), Ofwat said the firms would have to meet new environmental commitments and improve service to customers.
The review comes as many companies were found to be pumping raw sewage into the sea, and Ofwat said they needed to act now to deliver improvements ahead of the review taking effect.
Ofwat chief executive David Black said: "Companies have fallen short of the expectations of customers and communities - they need to seize the opportunity to transform their performance at PR24. Turning around performance on the environment and improving resilience will require innovation, new approaches to managing water and investment.
"The sector needs to act now - in advance of PR24. Significant improvements are needed to drive down water demand, improve customer service and reduce pollution incidents. We are looking to companies respond to urgent need for change and set out ambitious plans to improve outcomes for customers and the environment".
In the market United Utilities Group PLC (LSE:UU.) is down 1.38%, Severn Trent PLC (LSE:SVT) has lost 1.29% and South West Water owner Pennon Group PLC (LSE:PNN, OTC:PEGRY) is off 0.71%.
8.13am: Investors cautious after UK jobs data as they await US inflation
Leading shares have edged lower ahead of the key US inflation data, which will give another pointer to how hawkish the US Federal Reserve needs to be when it makes its latest interest rate decision tomorrow.
Craig Erlam, senior market analyst at Oanda, said: "For so many weeks now, the December Fed decision has dominated the minds of traders, while sentiment in the markets has been dictated by how small changes in various data points influence the outcome of the meeting.
"When a meeting or event generates this much hype, it can often disappoint and be something of an anticlimax but I'm not sure that will be the case this time. It's not so much the decision itself but what accompanies it that will set the stage for next year.
"For so long the question has been will the Fed hike into a recession. In that time it's remained convinced that a soft landing can be achieved and the resilience of the economic data has supported that but unfortunately, the same resilience has also supported the case for more hikes and a higher terminal rate.
"Last month's CPI release gave investors real hope that in much the same way that inflation's acceleration higher this year blew expectations out of the water, the path lower may also not be as gradual as feared. Unfortunately, some of the data since then hasn't been so favourable - most notably the wages component of the jobs report - so a lot is now hanging on today's release. Another number below forecasts of around 7.3%, year on year, could get the excitement flowing once more."
Ahead of all that, the FTSE 100 is down 8.76 points or 0.12% at 7437.21 as the UK employment data showed a fall in vacancies while wages edged higher.
The rise in UK wages is something the Bank of England will be nervous about as it makes its own rate decision on Thursday.
Erlam said: "The wages number - despite falling well short of inflation - will be of concern to the BoE and ensure its foot remains firmly on the brake in the short term."
There was some support, however,from news that Hong Kong is further easing its COVID-19 restrictions.
Jim Reid at Deutsche Bank said: "It was confirmed that the ban on international arrivals going to bars or restaurants would end, and people would no longer require to scan a QR code to enter venues."
7.54am: Signs of slowdown ahead for UK employment market
The employment data shows signs the labour market may be slowing down, according to Tony Wilson, Director at the Institute for Employment Studies
He said: "Today’s figures are broadly flat overall. Employment remains around three hundred thousand below where it was before the pandemic, while economic inactivity is more than half a million higher. However there are also growing signs today that the labour market may be starting to slow down. Vacancies are now down by nearly ten per cent from their peak in the summer, short term unemployment is now at its highest since summer 2021 and redundancies are creeping up again, rising to their highest in a year.
"It should be stressed that by historic standards vacancies remain very high and both unemployment and redundancies are very low, but it’s also clear that we’ll be entering this downturn in far worse shape than we entered the last, both fiscally and economically."
7.39am: Unemployment and wages edge higher
UK wages rose in the three months to October but continue to fall in real terms, while unemployment edged up slightly more than expected, according to the latest government figures.
Growth in average total pay (including bonuses) and regular pay (excluding bonuses) among employees was the same at 6.1% in August to October 2022, said the Office for National Statistics.
Analysts had been expecting a rise from 6% to 6.1% for pay including bonuses and from 5.7% to 5.9% without.
For regular pay, this is the strongest growth rate seen outside of the coronavirus pandemic period.
Average regular pay growth for the private sector was 6.9% in August to October 2022, and 2.7% for the public sector; outside of the height of the pandemic period, this is the largest growth rate seen for the private sector and is among the largest differences between the private sector and public sector growth rates ever seen.
In real terms (adjusted for inflation) over the year, total and regular pay both fell by 2.7%; this is slightly smaller than the record fall in real regular pay in April to June 2022 (3.0%) but still remains among the largest falls in growth since comparable records began in 2001.
After taking inflation into account, average pay fell by 2.7% in the year to August to October 2022, both including and excluding bonuses.
— Office for National Statistics (ONS) (@ONS) December 13, 2022
Meanwhile the unemployment rate rose by a percentage point to 3.7%. The number of job vacancies from September to November fell by 65,000 to 1.187mln as employers cited continued economic pressures on their business.
The ONS added that the number of working days lost in October rose to the highest monthly total for ten years, as strikes resumed having been suspended for the Queen's funeral.
Headline indicators for the UK labour market for August to October 2022 show that:
▪️ employment was 75.6%
▪️ unemployment was 3.7%
▪️ economic inactivity was 21.5%
— Office for National Statistics (ONS) (@ONS) December 13, 2022
7.00am: Footsie seen higher ahead of US CPI
FTSE 100 expected to open higher on Tuesday following strong gains in the US and as investors look ahead to key US inflation figures later today.
Spread betting companies are calling the lead index up by around 20 points.
“Equities in the US rebounded as investors are hanging on to hope of slower inflation and reasonably hawkish Federal Reserve by their fingernails” commented Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Today and tomorrow will tell whether they are right being optimistic or not.”
“The latest US CPI data will reveal whether inflation in the US eased, and by how much. It’s highly likely that we will see a number below the 7.7% printed a month earlier."
"But a number below 7.7% won’t be enough as analysts expected it to ease all the way down to 7.3%” she added.
At the close on Monday the Dow Jones Industrial Average was 528 points, or 1.58%, higher at 34,004.81, the S&P 500 jumped 56 points, or 1.43%, to 3,991 and the Nasdaq Composite advanced 139 points, or 1.26%, to 11,144.
Renewed M&A activity provided a boost to sentiment with Coupa Software and Horizon Therapeutics among the biggest movers after the companies announced they’ve agreed to be bought.
In London, the latest unemployment and average earnings figures are due while trading updates will come from retailers Ocado Group PLC (LSE:OCDO) and Superdry PLC (LSE:SDRY).
“We could already be starting to see the first evidence of higher unemployment after we edged slightly higher in September to 3.6%, and while it remains close to 48-year lows, we could see it edge higher again in October to 3.7%” said Michael Hewson chief market analyst at CMC Markets UK.
“Wage growth including bonuses is expected to edge higher in October to 6.1%, after coming in unchanged in September at 6%.”
“Without bonuses wages are expected to rise to 5.9%, up from 5.7%, which is only just keeping pace with core prices” he commented.