- FTSE 100 closes 10 points higher
- US stocks mixed awaiting Fed chair's second testimony
- Admiral sinks after insurer cuts dividend
4.45pm: Powell in the hot seat again
Jerome Powell is once again in the limelight, as the Federal Reserve chief tried to limit the losses associated with yesterday’s hawkish comments in Washington.
In the UK, though, the FTSE 100 stayed level at the close, finishing at 7,930 for a slight 0.1% gain.
"The recent stutter in US inflation has undoubtedly raised concern amongst equity bulls, although record highs for the FTSE 100 and CAC signal a recent willingness to overlook that risk in Europe," IG's Joshua Mahoney wrote Wednesday.
"Powell has done a good job of waking up markets to the very real risk that rates end up higher for longer in a bid to drive down inflation. While we have seen stocks stabilise somewhat today, the data-dependant nature of the Fed could mean a 50-basis point hike if inflation fails to head lower next week.”
3.50pm: Gold lustres again
Gold prices moved higher again after taking a hit on Tuesday following Federal Reserve chair Jerome Powell's hawkish comments on US interest rates, though his second Congressional testimony before the House Financial Services Committee today will be anxiously eyed too, as well as Friday's always key US non-farm payrolls report.
Craig Erlam senior market analyst, UK & EMEA at OANDA commented: "This is probably going to be one of the most hotly anticipated job reports in some time and it could have significant consequences across various asset classes. Gold is always very sensitive to developments on this front and that will be especially true after Powell's comments."
Erlam added: "The yellow metal got crushed by his comments on Tuesday and may be sensitive to them again today. But it's also now vulnerable to Friday if things don't go its way, with it now lingering close to $1,800, the upper end of a big support region that, if broken, could signal troubling times ahead."
In afternoon trading in London, the yellow metal was priced at US$1,820.68 an ounce, around US$6 or 0.4% higher.
3.30pm: Mini adventure
BMW is set to invest hundreds of millions of pounds into its Oxford plant, ensuring the Mini will continue to be made in the UK after moves to shift some production to China.
According to Sky News, the German carmaker aims to announce its decision before the end of Spring 2023, with one industry insider stating it was expected to be unveiled in several weeks' time.
The investment package is thought to be worth roughly £500.0mln, with £75.0mln said to be coming from Downing Street's Automotive Transformation Fund, delivering a much-needed boost to Britain's automotive industry.
Sky News reported BMW sources as saying: "With its high degree of flexibility, competitiveness and expertise, the Oxford plant plays an important role in the BMW group's production network.
"For the next MINI generation, Oxford will produce the majority of MINI models, the MINI Cooper three-door and five-door models, as well as the MINI Convertible - one of our most important vehicles and a worldwide bestseller."
3.10pm: Axe taken to Wood Group
John Wood Group PLC got a knockback on Wednesday as analysts at Jefferies International downgraded their rating for the engineering services firm to ‘hold’ from 'buy' following a fourth cash offer for the company from private equity firm Apollo.
The Jefferies analysts said that confirmation of a fourth cash offer proposal, up 3% on previous offers, suggested "serious intent" by the acquirer, and also pointed to a "softening of language" in the board's response - suggesting the parties were closer in terms of value expectation.
The US broker’s analysts increased their price target for Wood Group from 190.0p to the latest 237.0p cash offer from Apollo but reduced their upside price target to 245.0p from 290.0p based on a scenario of a further 3% offer increase and reflecting the view that it sees "little risk" of a counter bid from a new third party, while its downside price target rose to 155.0p based on the last closing price ahead of Wood's confirmation of the initial Apollo proposals.
"With our price target spread risk-reward more skewed to the downside after these updates and a 22 Mar 2023 takeover code deadline on intentions, we downgrade to 'hold',” they added.
2.50pm: Caution the watchword in US
The FTSE 100 index pushed up to session highs, boosted by its dollar earners as the US currency rose and stocks opened essentially flat as investors awaited further commentary from Fed chair Jerome Powell and ahead of Friday’s key non-farm payrolls report.
Around 20 minutes after the market opened, the Dow Jones Industrial Average was up just 1.8 points, or 0.01% at 32,858 points, while the S&P 500 was off 0.03%, and the Nasdaq Composite up 0.03%.
FOREX.com market analyst Fiona Cincotta said investors were licking their wounds after yesterday’s steep selloff, sitting on the sidelines ahead of Fed Powell’s second day of testimony before lawmakers.
“Attention will be on Friday’s non-farm payrolls to see whether the blowout January numbers were a one-off,” she said. “A hot labour market piles pressure on the Fed to keep raising interest rates aggressively."
In London, around 2.50pm, the FTSE 100 index was ahead 17 points, or 0.2% at 7,936, just off the session peak of 7,936.97
2.30pm: Broadband rules, OK
UK telecoms regulator Ofcom has proposed new rules for broadband providers' point-of-sale and contractual information relating to fibre networks in a bid to increase customer awareness over what they are actually paying for.
Under the proposed guidelines, broadband providers would only be able to use the terms ‘fibre’ and ‘full-fibre’ on their websites and in contracts if their network uses fibre-optic cables all the way from the exchange to the home.
Providers will also need to give customers a simple, clear description of the network technology they are signing up for.
The complexities of broadband technology can be confusing for customers, in part due to inconsistent use of the term 'fibre' to refer to both old and new networks.
Ofcom research has found that less than half of all customers who reported to be on full-fibre were actually living in areas where it is available.
Furthermore, over a quarter of broadband customers said they were not confident in understanding the language and terminology used by providers.
2.10pm: US private payrolls increase
With all eyes now on Friday's February US non-farm payrolls report following Federal Reserve chair Jerome Powell's hawkish comments on interest rates in Congressional testimony on Tuesday, the latest US private payrolls report showed continued strength in the labor market across the Atlantic.
ADP has reported a 242,000 increase in US private payrolls in February, above the consensus forecast of 200,000.
However, in reaction, Kieran Clancy, senior US economist at Pantheon Macroeconomics commented: "In one line: ADP is an unreliable guide to payrolls; ignore it."
He added: "ADP has published only six previous payroll numbers using its new methodology, so we don’t yet know whether it will prove to be a reliable indicator. Four of these readings undershot the official private jobs number—including the massive 337K undershoot in January—though this is nothing like enough to prove definitively that the ADP’s number is systematically biased to the downside.
"Our model is based on the hard employment data from Homebase, and ignores the ADP number; that model nailed January, and points to a 200K increase in February payrolls."
1.30pm: London's movers
Risers
Quilter - up 4% to 92.6p Shares rose on Wednesday as the wealth manager posted better-than-expected full-year profits and said investor sentiment is expected to recover this year. For the year to 31 December 2022, Quilter reported adjusted pre-tax profit of £134mln, down from £138mln a year earlier, but comfortably ahead of consensus expectations for £113mln.
Greatland Gold - up 1.3% to 7.35p Managing director Shaun Day has told investors that the company's recent exploration campaign at its Scallywag project has delivered "the most encouraging results to date". The comment came as Greatland announced the results of its 2022 exploration programme at the 100%-owned Scallywag in the Paterson region of Western Australia, which is located adjacent to the company's flagship Havieron gold-copper project discovered in 2018.
Ovoca Bio - up 10% to 6.2p Shares rose on the junior market on Wednesday in response to the disposal of certain Russian assets to Desirix, a private Russian company, for a cash consideration of 84.6 million Russian rubles (£900,000). The sale involves assets related to its clinical development product Orenetide, namely the Russian patents for Orenetide, the results of completed scientific development of Orenetide in Russia, together with the right to own a Russian Marketing Authorization for Orenetide in Russia.
Fallers
MusicMagpie - down 9.9% to 33.7p: Shares failed to hit the right tune on Wednesday after it cautioned that the start of the new financial year had been challenged by the well-publicised postal strikes, in addition to the tough consumer environment and continuing macroeconomic uncertainty.
1.00pm: US stock market pre-open changeable
The Footsie is looking rather undecisive in the run-up to the US open, now paring its losses again.
A boost to European markets was expected not long ago, but now we seem to be poised for Wall Street to open lower, extending losses from yesterday's sell-off, though the FTSE 100 is now minutely in the green at 7,919.52.
Ahead of a second day of testimony from Federal Reserve chief Jerome Powell today, futures for the Dow Jones, S&P 500 and Nasdaq-100 are all pointing to a 0.1% fall.
Yesterday it was the Dow that tumbled most sharply, closing 1.7% lower, versus 1.5% for the S&P 500 and 1.3% for the Nasdaq Composite, while the small-cap Russell 2000 index fell 1%.
“Any prospect that we might see a dovish Powell yesterday was quickly dashed as the Federal Reserve chairman struck quite a different tone to the one he used at the last FOMC press conference,” commented Michael Hewson, chief market analyst at CMC Markets.
“While markets focussed on his comments about disinflation at the beginning of February, there was only one mention of that word in his statement, in his remarks to US lawmakers yesterday, and that was to say there was little sign of it.”
Powell’s comments that the pace of rate hikes may need to be accelerated, and that the likely rate peak could well be higher than expected, were not well received by markets, though as Hewson noted, the strength of recent data did not make this a huge surprise.
Also due today is a ADP payrolls report for February, expected to reveal an improvement to about 200,000 from 106,000 in January.
This provides clues as to Friday’s non-farm payrolls numbers, said TickMill analyst Patrick Munnelly. “Although the two data points are rarely perfectly aligned, markets will certainly have an eye on the release.
Any print at or above 200,000 for private payrolls would suggest the employment landscape remains tight stateside, though a 50-basis-points Fed hike on March 22 is already widely expected after Powell's comments.
However, Marc Ostwald, chief economist and strategist at ADM Investor Services, said it is "quite unlikely that the Fed would revert to 50 bps or 75 bps, above all because it would damage their credibility, having only recently reverted to a more normal 25 bps pace".
"But by dangling the threat of a more aggressive move, the Fed effectively lets markets do some of their work for them, by pricing in a more aggressive move, and at the same time this also unwinds the unwanted easing in financial conditions seen at the turn of the year."
12.39pm: Markets stumble on new predictions of higher US interest rates and later pivot
The FTSE 100 is sliding again, having flattered to deceive with a late morning rise. It's now down 17 points or 0.2% at 7902.46.
Markets are stumbling today as they have started to price in a half-a-percentage point rate rise from the Federal Reserve in two weeks, rather than the quarter-point hike that was overwhelmingly predicted a month ago.
What's more, the peak Fed funds rate is now seen at 5.75%, a full percentage point above the level set at February’s meeting of the Federal Open Market Committee, with some forecasting a peak of 6.25%, with markets on average expecting a delay in the first rate cut until the first quarter 2024.
The broad rally in stocks and bonds since lows in October rested upon a conviction that retreating inflation will allow the global economy to suffer no more than a shallow recession and interest rates will be cut before long, but adding to the recent run of US data strength, including a fresh inflation spike, yesterday's statement from US Federal Reserve chair Jay Powell offered a further challenge to this cosy consensus, says analyst Russ Mould at AJ Bell.
This confirmed a view that has been steadily building on the back of macro data in recent weeks.
“Instead of going for the Goldilocks option so beloved by bond and share prices – namely that the economy will be neither too hot to stoke inflation and force interest rate rises nor so cold as to threaten corporate profits – Mr Powell is saying the US economy is running hot and that interest rates may go higher than expected, faster than expected.
“This is having knock-on effects upon a range of financial markets," he noted, with "share prices wobbling as hopes for that hat-trick of a deceleration in inflation, a soft landing and decline in rates start to ebb.
"Perversely, this currently means that good news for the economy is seen as bad news for markets, as a strong economy means faster growth and higher inflation than expected and thus higher interest rates. And higher interest rates improve returns on cash and bonds and mean investors may not have to take as much risk, in the form of shares, to get a return on their cash (at least in pre-inflation, nominal terms)."
The US two-year Treasury yield now exceeds 5% for the first time since 2007 and the benchmark US ten-year is back at 4% for the first time since 2010.
And the spread between 2- and 10-year Treasury yields - one of the market’s favourite gauges of impending US recessions - fell further, to levels not seen since September 1981.
As for the pound, see below.
12.16pm. Pound climbs off three-month low
In the early hours the pound scraped its lowest levels since November last year, but today is rallying slightly, up 0.1% 1.1839.
TickMill analyst James Harte said the pound has been "among the chief victims of the fresh strength we’ve seen in USD on the back of Powell’s comments yesterday.
"With better UK data out yesterday (housing and retail sales), the reasoning might seem unclear. However, the move can be easily explained by considering traders’ expectations with regard to future Fed and BOE monetary policy."
While the Fed is widely expected to press ahead with more aggressive tightening this year, this contrast with the Bank of England, Harte says.
"It’s fair to say has been reluctant throughout its tightening cycle, has recently signalled that it might be about to pivot on rates."
After the BoE recently hiked rates to 4%, their highest level in 14 years, governor Andrew Bailey acknowledging that disinflation had begun and that further rate increases would be data dependant.
"Traders are now expecting a smaller 0.25% hike from the bank ahead of tightening be paused altogether before summer," Harte says.
"This view is creating downward pressure in GBPUSD and the pair looks set to continue lower while incoming data and commentary support this narrative."
12.10pm: Another Budget leak
More leaks on next week's Spring Budget, with reports that the Chancellor could give companies tax relief on capital investment.
It would be a way for Jeremy Hunt to balance the impact on corporates of the rise in corporation tax from 19% to 25% that is due to start in April, for which the government has received a few brickbats in recent weeks - even though it would still leave the UK with the lowest rate in the G7.
A report from the Guardian says Hunt is going to use the results of a consultation launched by predecessor (and now his boss) Rishi Sunak last year that set out a range of options for replacing the tax break.
One of the measures could be a full expensing of company investment to would allow certain capex spending to be written off in the year it is incurred, though the Treasury has estimated this could cost £11bn a year.
Some giveaways are expected in the Budget but a downgrade to the Office for Budget Responsibility’s (OBR) medium-term GDP growth forecasts will prevent an unwinding of the fiscal consolidation announced last November, says Ruth Gregory at Capital Economics in a preview today: "That will have to wait for later this year, or early next year, ahead of the next general election."
That does not mean the Chancellor will sit on his hands completely, she said, predicting a temporary package of measures worth about £18bn or 0.7% of GDP for 2023/24, reflecting the scrapping of the 20% increase in the Energy Price Guarantee (EPG) from £2,500 to £3,000 on 1st April and the scrapping of the 23% scheduled rise in fuel duty.
"A one-off top up to the defence budget of about £5bn in 2023/24 and a bonus payment for public sector workers may also be a feature of this Budget. The Chancellor is reportedly also eyeing a medley of other measures to boost labour market participation," Gregory said.
The UK's stock market benchmark is hovering just below the waterline as we move into afternoon trading, down just under six points or less than 0.1% at 7913.64.
Four of FTSE's five biggest stocks (Shell, AstraZeneca, HSBC and BP) are all in the green, which is helping, with Unilever oscillating either side of positive.
The more domestically exposed index, the FTSE 250, is down 0.6% at 19,839.
11.34am: FTSE 100 briefly in green
The Footsie momentarily popped back into positive territory, now down less than one point at just over 7918.58.
Miners and other commodity groups are helping the recovery, with Fresnillo PLC, Rio Tinto PLC (LSE:RIO), Antofagasta PLC and Glencore PLC (LSE:GLEN) on the leaderboard.
Commodity prices broadly fell earlier in the week in response to the slower growth estimate emanating from China's National People’s Congress (NPC).
Caroline Bain, chief commodities economist at Capital Economics said her team is "not planning to change our commodities price forecasts in the wake of the NPC", also noting that prices this week have only fallen slightly, "perhaps in acknowledgement that China will still be growing more strongly and commodities demand should be higher than last year".
On the metals front, Bain said "the rally in the early part of 2023 was premature and overdone. After all, industrial activity held up relatively well last year, despite the zero-COVID policy. And we expected the downturn in advanced economies (DMs) to weigh on China’s exports and associated metals demand. Accordingly, we will retain our forecast that prices will tread water for now, before making some gains later in the year. But there are downside risks, including higher interest rates for longer in DMs."
For energy commodities, it is "a different story" she said, with China’s oil consumption down last year owing to travel restrictions and lockdowns.
"A bounce back in China’s oil demand is already underway and is a key reason why the oil market should be in deficit in H2 2023 and why we expect prices to be rising then."
Furthermore, she said it "appears likely that coal consumption will also climb this year" as tje NPC report made it clear that coal will remain the primary fuel, even while the country continues to expand its renewable energy infrastructure.
Financials too, with London Stock Exchange Group PLC (LSE:LSEG), NatWest Group PLC and HSBC Holdings PLC (LSE:HSBA) in the top ten, following the hawkish Fed comments overnight.
11.02am: Regulator steps in on Royal Mail dispute and broadband
UK communications industries regulator Ofcom has been busy, not only proposing new advertising rules for broadband providers but also being asked to resolve a dispute between Royal Mail and privately owned Whistl.
The dispute is about whether the terms offered by Royal Mail in response to a new access service request were fair and reasonable.
While Royal Mail has a countrywide letter delivery network as part of its universal service obligation, the rules allow other postal operators such as Whistl to collect and sort bulk mail such as bank statements and utility bills before handing it over to Royal Mail to complete delivery.
Whistl is accusing Royal Mail of offering terms that were not fair and reasonable for a new tracked large letter service, and commercial negotiations have failed to resolve the issue.
Ofcom has accepted to handle the dispute for resolution.
Royal Mail shares are down 2.4%. Elsewhere the FTSE is only five points off parity for the day.
10.39am: Losses being pared for Footsie
The FTSE's losses are being pared, with the index back up to 7905, down 14 points or just under 0.2%.
Hiscox is topping the leaderboard despite reporting a slump in full-year profit.
Analysts at UBS noted that PBT was much better than expected at US$45mln, beating consensus expectations, which were for a loss of US$88m.
The beat was "split broadly 50/50 between underwriting and investment result" and with solvency and dividend also better than expected, with guidance on investment yields also "very positive" versus consensus.
Second on the table is Rolls Royce Holdings PLC, with UBS the reason here as the Swiss bank upgraded to a 'buy', saying the shares are "abnormally cheap" despite the China re-opening boost already given to the shares in recent weeks.
10.23am: Not let up on UK food inflation
New data is out from the Office for National Statistics on food inflation trends, showing shopping for groceries has taken bigger bite out of budgets over the past year – and there is no let up.
This comes after Bank of England rate setter Catherine Mann warned yesterday that UK firms are continuing to raise prices, driving up UK inflation, despite the price of gas and imported goods falling.
There was a 19.8% increase in the price of inputs into the production of food, drinks (both alcoholic and non-alcoholic), and tobacco in the 12 months to January 2023.
Imported food material input prices rose 25.7% in the period, compared with 18.0% for domestic food material inputs over the same period.
There was the joint-highest annual increase in output food product producer prices at 17.1%.
Around two-thirds (65.1%) of food and drink retail businesses (excluding businesses with fewer than 15 employees) reported their buying prices increased in January compared with December, with a similar 63.7% reporting prices sold increased over the same period.
This “pass through” of higher costs to prices is reflected in the consumer price index including owner occupiers’ housing costs (CPIH), with food and non-alcoholic drink inflation at 16.8% in January 2023.
Personal finance analyst Myron Jobson at Interactive Investor said: “The pace at which the price of food has risen has been difficult to stomach over the past year. While headline inflation is cooling, the improvements needed in order for Britons to feel good about where inflation is heading are yet to be seen. Most of us are feeling the force of inflation on our finances most through our spending on groceries and energy bills."
The jumps in everyday larder products, such as milk, pasta, bread and eggs are a "sticky" type of food inflation, he sais, because they form part of essential expenditure for many, while there's also been a more recent uptick in the price of tomatoes and other salad items due to Brexit effects and the heightened cost of energy and fertiliser.
For consumers and retailers, he noted: “Rising prices are changing the way we shop. Baskets are getting smaller and more of us are ditching premium brands for cheaper alternatives, while many are reducing spend on nice-to-have’ items."
9.55am: BoE rate setter suggests she will not be voting for more hikes
Bank of England monetary policy committee external member Swati Dhingra said this morning, "given little evidence of further cost-push inflation, further tightening is a bigger risk to output and the medium-term inflation target".
Last month Dhingra, an associate professor of economics at the London School of Economics, voted to leave interest rates unchanged.
Her speech – 'A cost-of-living crisis: Inflation during an unprecedented terms-of-trade shock' – was given at the Resolution Foundation this morning, explaining how "trade shock" has affected inflation.
She said the sharp rise in the price of imports relative to the price of UK exports and the inflationary pressure arising from this shock are "unprecedented in the history of the MPC".
There is an "absence of similar episodes to learn from", she added, noting that while the oil shocks of the 1970s created larger deterioration in terms of trade, shocks are "likely to transmit differently" now due to the evolution of the global and domestic economy, and shifts in bargaining power between economic agents and the emergence of global value chains.
"In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution," she said.
"This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term."
BOE's Dhingra says overtightening would risk UK missing CPI target
Sees external price pressures easing
Prudent strategy would be to hold policy
UK economy is weak at the moment #GBP
— Michael Hewson ???????? (@mhewson_CMC) March 8, 2023
"Given little evidence of further cost-push inflation, further tightening is a bigger risk to output and the medium-term inflation target."
Bank of England's Swati Dhingra pretty clear that she won't be voting for more rate hikes, in a speech at @resfoundation
— David Milliken (@david_milliken) March 8, 2023
9.26am: FTSE remains on back foot, UK and US jobs in focus
UK jobs data was published overnight, with the REC/KPMG monthly permanent job placements index falling to 46.3 last month from 46.8 in January, falling for a fifth consecutive month.
There were elements that might be concerning to the Bank of England, ahead of the policy meeting the week after next.
The fall was at a slightly quicker pace than that seen in January, with many recruiters mentioning that clients adopted a more cautious approach to staff hires due to ongoing economic uncertainty. At the same time, billings for temporary workers continued to expand, albeit modestly.
The survey sent mixed messages, said Chris Scicluna, head of research at Daiwa Capital Markets, with strong wage pressures despite the further moderating in jobs growth.
"Given the BoE’s concerns about notable recent strength in wage growth, today’s REC/KPMG report on jobs offered mixed messages about labour market conditions in February.
"Overall, recruitment consultancies suggested a further loosening in the jobs market, reporting a fifth consecutive drop in new permanent hires last month, with only modest growth in temporary staff too, as firms remained cautious amid ongoing economic uncertainty. And while there was a pickup in the number of permanent vacancies, this remained softer than the historical average.
"Admittedly, staff availability for permanent roles again improved slightly last month, with some recruiters attributing this to a recent increase in redundancies. However, candidate shortages persisted. And the survey indicator for growth in starting salaries for new permanent staff edged slightly higher."
Beyond the economic data, a speech is expected this morning from Bank of England monetary policy committee external member Swati Dhingra, who in February voted to leave interest rates unchanged.
With London's equity benchmark firmly in the red this morning, let's see what else the market commentariat are saying.
Victoria Scholar, head of investment at Interactive Investor says European markets are “taking their cues from last night’s Fed-driven sell-off on Wall Street... after Fed chair Powell indicated that there could be further and faster rate hikes to come.
“Risk-off sentiment is dragging oil prices lower with Brent crude inching closer to breaking below $83 a barrel. Brent and WTI suffered their biggest one-day drop since January while the dollar gained strength.”
Neil Wilson said this Friday's US jobs report is now "huge" after the comments from Powell.
"Today is the ADP nonfarm payroll data, hardly a great indicator but it will be watched closely. Also check the JOLTS job openings, which a month ago surged to 11m from 10.46m, cementing the Jan NFP report strength."
He plucked out a quote from Ernest Hemmingway (“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly.”)
Wilson said many traders will understand Hemingway "and so too it is with rates and recession, at least in the US. Gradually we have seen rates and bond yields rise and then barely a month after Fed chair Jay Powell was talking about disinflation, he suddenly comes out with a renewed hawkishness that pushed bonds and stocks lower and put a fire under the US dollar.
"It could also see the Fed slam the economy hard just as rate hikes start to take effect. Powell opened the door to a 50bps move this month and raised the prospect of further outsize hikes just as markets had assumed we were on a 25bps course. The pilot cut the engines coming into the harbour but has had to fire them up again – the risk is slamming into the mole at full tilt.
"Fed hikes are about to catch up just as it reaccelerates."
The FTSE is down 22 points at 7896 but coming back from a recent intraday low of 7892.
9.05am: Airlines drag but light at end of tunnel in rail strikes
British Airways owner IAG and other airlines have fallen this morning amid confirmation that Heathrow Airport has been told by the UK air regulator that it must charge slightly more per passenger under a new temporary price cap.
The Civil Aviation Authority today published its final decision for the annual charges Heathrow levies on airlines using the airport until the end of 2026.
The average maximum price per passenger will remain fixed at £31.57 per passenger in nominal prices, which it set out in its interim decision issued earlier this year, up from £30.19 last summer.
Then it will then fall around 20% to £25.43 per passenger in 2024 and will remain broadly flat at that level until the end of 2026.
IAG shares are down 1.3% on the FTSE 100, while mid-cap rivals easyJet and Wizz Air are also in the red despite not having a presence at Heathrow, suggesting there could be other reasons weighing on the sector.
Elsewhere in travel news, some rail strikes for later this month have been averted, at least temporarily, with some light at the end of the tunnel as Network Rail made a new pay offer.
The RMT union last night called off the walkouts, due to be part of wider action by rail staff, on Tuesday, providing hope that pay and condition disputes, which have seemingly become deadlocked, will be resolved.
A vote will be held among Network Rail workers at the union, it added.
However, trains operated by 14 companies are unlikely to run on 16, 18 and 30 March due to strikes planned by train drivers, with a further walkout on April 1, adding to 27 days of walkouts in the past year.
8.47am: FTSE edges lower
Losses for the FTSE 100 index have worsened slightly to around 20 points, down 0.25% to 7899.
Wider European markets are mixed, with France’s CAC also in the red, but benchmarks for Germany and Spain in the green.
London’s FTSE 250 index has also started lower, led by financials and travel and leisure stocks.
Following the blue-chip results today, read-across seems to be hitting Investec PLC (LSE:INVP) and Direct Line Insurance Group PLC (LSE:DLG), which both report next week, along with Jupiter Fund Management PLC (LSE:JUP) – all of which are down around 2%.
In travel and leisure, JD Wetherspoon, Wizz Air and Carnival are all down more than 2%.
Topping the mid-cap fallers is Tullow Oil PLC (LSE:TLW), despite full-year revenues of US$1.78bn beating estimates of US$1.7bn.
Top of the FTSE 250 leaderboard is Quilter PLC (LSE:QLT) despite reporting lower profit and slowing its profit margin improvement plans by two years.
Darktrace PLC (LSE:DARK) is also on the up after reiterating its earnings and revenue guidance for the year to June, having been under heavy scrutiny after a short-selling attack by a US hedge fund in January.
8.26am: FTSE starts in the red
The FTSE 100 has started where it left off yesterday, on the back foot, sliding 17 points or 0.2% to 7902 in the morning's ice-and-snow conditions.
Leading the blue-chip decline is motor and home insurer Admiral Group Plc (LSE:ADM), down 7%, after it slashed its dividend.
The full-year dividend was cut 40% as full-year results showed pre-tax profits dropped 39% to £469mln as UK insurance profits plunged, with a particularly weak showing from its motor division.
Life company Legal & General has not risen as expected (see below), falling 1.4% so far.
Market analyst Richard Hunter at Interactive Investors pointed out "a couple of notes of caution to an otherwise healthy picture".
Last year was tough for asset managers and LGIM was "no exception", he said, with operating profit falling 19%, while the cost/income ratio rose to 65% from a previous 58%. More positively, he said, flows increased from £34.6bn to £49.6bn.
"The impending retirement of the CEO has also dampened some of the enthusiasm for company prospects. During his tenure, there has been a total shareholder return in excess of 600% and, while the replacement process and handover are likely to take around a year, there is always the risk of the loss of some momentum," said Hunter.
He noted that the share price, which has risen by 11% over the last year as compared to a gain of 13.7% for the wider FTSE 100, has also comfortably kept its head above water over a three year period in which others have struggled.
"The recent downgrade of the market consensus to a hold, albeit a strong one, could be subject to more positive revisions given the general direction of travel which the group is displaying, and with mixed results coming from other parts of the sector.”
On the plus side for the blue-chip insurers, underwriter Hiscox Ltd (LSE:HSX) is one of the risers, up 1.8%, after its results have been better received so far.
7.52am: Insurers out in force
The FTSE 100 should get a boost from Legal & General Group PLC (LSE:LGEN), which has reported stronger-than-expected growth in profit in 2022, raised its dividend by 5% and said it remained on track to deliver its five-year strategic ambitions.
"We have delivered another strong result in 2022, ahead of market expectations,” said chief executive Nigel Wilson.
The life insurer posted an operating profit of £2.5bn for the calendar year, up 12% from £2.262bn in 2021 and a bit higher than the £4.45bn that analysts had forecast. The dividend was increased 5% to 19.37p.
Return on equity improved slightly to 20.7% (2021: 20.5%) and the solvency II coverage ratio soared to 236% from 187% in 2021. L&G estimated that as at 3 March 2023, the coverage ratio had improved further to 240%.
Insurance sector peer Admiral is expected to start lower by analysts as it reported a 39% decline in pre-tax profit to £469mln. A special dividend of 45p was unveiled.
Another peer, Hiscox reported pre-tax profit of US$44.7mln and said it saw favourable conditions in 2023.
Elsewhere, Vodafone announced the completion of the sale of 50% of its German fibre-to-the-home company to Altice, for which European Commission approval was received last month.
7.00am: London blue chips to start lower
The FTSE 100 is expected to open lower on Wednesday after US Federal Reserve Chair Jerome Powell’s hawkish testimony yesterday sent traders running for cover.
Spread betting companies are calling London's blue-chip index down by around 18 points.
Powell told the Senate that US interest rates will likely peak at a higher level than previously anticipated due to economic data coming in stronger than recent trends suggested.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell commented.
"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," he said.
Danni Hewson, head of financial analysis at AJ Bell, said: "He didn't say anything surprising or anything we didn't know already, but there was a steely quality to his testimony today and no sign of the dove some investors had been hoping to see fly. It's made markets nervous, with that new year optimism now thin on the ground and today's comments pretty much obliterating it for now."
Ipek Ozkardeskaya at Swissquote Bank said: “Investors got a double shot of hawkishness from Federal Reserve (Fed) Chair Jerome Powell’s semi-annual testimony before the US Senate yesterday.”
“This time, Powell left no place for doubt. He clearly said that nothing about the data suggests to him that they have tightened too much, and that ‘if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes’.”
The testimony, which continues today but moves from the Senate Banking Committee to the House Financial Services Committee, sent US markets sharply lower.
The Dow closed Tuesday down 575 points, 1.7%, to 32,857, the Nasdaq Composite tumbled 145 points, 1,3%, to 11,530 and the S&P 500 lost 62 points, 1.5%, to 3,986. The small-cap Russell 2000 index dropped 20 points, 1%, to 1,880.
In Asia, the Nikkei 225 index was up 0.5%. In China, the Shanghai Composite was down 0.3%, while the Hang Seng index in Hong Kong was down 2.2%.
Back in London and results from insurers Legal & General and Admiral will be the early focus.