- FTSE 100 closes 54 points lower
- Pound up on UK rate rise expectation
- US markets closed for Juneteenth holiday
4.50pm: FTSE loses ground
At the close, London's key index has lost 54 points, or 0.7%, to end the day at 7,588.
Craig Erlam, senior market analyst at OANDA, noted that all eyes were on the Bank of England this week as US markets were closed on Monday.
"It feels like last week may have left us with more questions than answers in that the US inflation data was ok, not great, the Fed paused while forecasting multiple more hikes, and the ECB hiked while insisting more is to come," Erlam wrote.
"Now it's up to the BoE to continue its firefighting mission; one that is at risk of getting out of control despite the MPC's efforts to contain it. Of all the major economies desperately trying to get a grip on inflation while delivering a soft landing, the UK looks least likely to achieve it."
3.55pm: Subdued performance
With around half an hour of trading to go in London, the FTSE 100 index was languishing near session lows just below the 7,600 level, lacking any lead from Wall Street which is closed for the US Juneteenth holiday.
Michael Hewson chief Market Analyst at CMC Markets UK commented: “It’s been a weak and subdued session for markets in Europe, with today’s losses predominantly on the back of the late Friday sell-off in the US which saw markets there close off their highs of the week”.
He noted: “Mining stocks are weaker on the back of disappointment that Chinese authorities haven’t weighed in on any new stimulus measures yet, with the likes of Rio Tinto and Glencore slightly lower.
“Higher rates are also weighing on commercial real estate and house builders, as UK 2-year gilt yields rise above 5% for the first time since 2008, pushing up borrowing costs across the board, and prompting concern over possible defaults on the back of declines in asset and property values. Taylor Wimpey, Segro, Land Securities and Persimmon are all lower”
Meanwhile, he pointed out that pharma giant AstraZeneca was the biggest drag on the FTSE 100 on reports it is mulling a separate listing in Hong Kong as it looks to spin off its China business.
But, on the plus side, clothing retailer Next got a boost after announcing that it expects to see full year pre-tax profit come in at £835mln, up from its previous estimate of £795mln.
Hewson said: “This upgrade has also helped to give a lift to the likes of Primark owner Associated British Foods, Frasers Group and JD Sports.”
3.35pm: Brent squeezed up
UK oil prices edged higher after earlier falls on Monday as recent OPEC+ output cuts just offset worries over China's economy
UK Brent crude was 0.1% higher at $75.84 a barrel. Meanwhile, US West Texas Intermediate (WTI) eased 0.1%, to $71.75 a barrel with US markets closed for a holiday on Monday. Both contracts ended last week with gains of more than 2%.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia this month agreed on a new oil output deal and the group's biggest producer, Saudi Arabia, also pledged to make a deep cut to its output in July.
A number of large banks have cut their forecasts on China's 2023 growth in gross domestic product after May data last week showed the post-COVID-19 recovery in the world's second-largest economy was faltering.
China is widely expected to cut its benchmark loan rates on Tuesday after a similar reduction in medium-term policy loans last week to shore up a shaky economic recovery.
3.15pm: Food inflation to abate
Marks & Spencer has became the latest supermarket to cut food prices, adding to signs that a jump in inflation is set to abate, Reuters has reported.
M&S said it has cut the price of 70 staple products, such as beef mince, Greek-style yoghurt, salmon fillets, chickpeas and tortilla wraps, by between 3% and 25%.
The group is also locking the prices of 150 products until the autumn, including pork sausages, Cheddar cheese and coleslaw, Reuters noted.
Prime Minister Rishi Sunak's key pledge to halve inflation in 2023 has been undermined by persistently high food inflation, which was running at over 19% in April, according to the most recent data, and 17.2% in May, according to industry data.
Any signs that inflation could stall or even reverse in the coming months are being closely watched by the Bank of England, which is widely expected to raise UK interest rates after its latest monetary policy meeting this week.
2.50pm: Nice rise for Next
Next PLC shares were 5% higher at 6,760p on Monday afternoon following an unscheduled lunchtime trading update from the FTSE 100-listed retailer which Richard Hunter, Head of Markets at interactive investor, called “a pleasant surprise”.
Hunter commented: “Much as Next underwhelmed the market with its first quarter trading update in May, it has pleasantly surprised investors with a further unscheduled release which notes that trading in the last seven weeks has been materially better than previously anticipated.
“Whereas the group had guided that second-quarter sales would likely decline by 5%, the revised guidance is now for an increase of 9.3%, with the material swing improving the likely year-to-date sales figure from a drop of 2.4% to growth of 3%. Equally importantly, these are full price sales figures, without the need for discounting which Next has been eschewing of late, which should go some way to protecting margins. The company attributes the outperformance to improved weather and the relative impact of annual salary increases. In turn, the additional revenues have resulted in Next raising its estimated pre-tax profit for the year by £40 million to £835 million.”
He added: “By the same token, a Next update would not be complete without a note of caution, and the group added that if its current reading of the improvement in sales is correct, then the effect will diminish over time as ongoing inflation continues to bite. Even so, the update saw the shares spike by up to 5%, building on a hike of 15% over the last six months. The performance over the last year has been more in line with the wider market, with a rise of 7% comparing with a jump of 8% for the FTSE100.
“The more recent bounce has partly followed optimism over the group’s refreshed strategy as announced at its full-year results in March, although it is unlikely that any upgrades to the general view will be forthcoming until the company reports its half-year numbers in August. In the meantime, the market consensus of the shares as a strong hold should remain in place for now, until such time as the seemingly improving momentum can be proved to have held firm.”
2.35pm: MPC expected to hike
Subject to no major downside surprise in May’s inflation numbers, due on Wednesday, the EY ITEM Club thinks the Bank Of England Monetary Policy Committee’s (MPC) concerns about inflation persistence will prompt it to raise Bank Rate by 25 basis points (bps) to 4.75% later this week.
However, the ingredients for an improvement in the inflation outlook means current market expectations of rates peaking at close to 6%, and all the economic effects that would entail, look too pessimistic.
As a result, the EY ITEM Club thinks current market expectations for five additional rate rises beyond June would represent too much monetary tightening and that the MPC may push back against predictions of such significant measures in its next policy statement. However, much will depend on May’s inflation data, which is published the day before the MPC’s policy announcement.
Martin Beck, chief economic advisor to the EY ITEM Club, said: “The fact that the MPC was clear in May’s meeting on the criteria it would use to judge whether further rate rises were necessary makes predicting the outcome of this week’s meeting less of a challenge than normal. Evidence of more persistent pressures in services inflation and pay growth was set out as being key.
"With growth in both of those measures coming in above the Bank of England’s expectations in the latest data, it’s highly likely that a majority of the committee will support another 25bps increase in Bank Rate in June’s meeting. This would take the policy rate to 4.75%, the highest since September 2008."
He added: “However, the fact that May’s inflation data will be published the day before the MPC’s decision is announced adds an element of complication. There’s no obvious reason to expect inflation to have surprised to the downside in May. However, inflation in the eurozone undershooting consensus expectations last month suggests there's nothing inevitable about the current bout of strong price pressures proving sticky. Furthermore, not all developments since the MPC’s last meeting suggest that the UK will remain slow compared to other markets in terms of inflation falling back."
2.15pm: Manufacturing pressures
Make UK, the country’s leading manufacturing trade body and formerly called the EEF, has upped its forecast for 2023, but still expects production to drop year-on-year.
Factory output was predicted to drop by 3.3% annually at the start of the year but now a fall of 0.3% is more likely.
Forecasts remain unchanged at a rise of 0.8%.
A recovering travel industry has helped lift orders in the aerospace industry and labour shortages have resulted in a rise in the production of electrical goods.
1.30pm: Some of the top risers and fallers on the junior market
Evgen Pharma PLC (AIM:EVG) rose after announcing its collaborator at the Erasmus University Medical Centre in the Netherlands had received a successful notice of a grant from the KWF Dutch Cancer Society for investigator-sponsored pre-clinical and clinical studies of SFX-01 in glioblastoma.
Baron Oil PLC (AIM:BOIL) was higher after the AIM-quoted oil and gas exploration and appraisal company announced the proposed appointment of Dr Andrew (Andy) Butler to the board of the company as director for Asia Pacific.
Cellular Goods PLC (LSE:CBX) shares jumped after the UK-based wellness company announced a deal to bring Klarna’s 'buy now pay later' service to its website, but has since corrected back to 0.81p.
Litigation Capital Management Ltd (AIM:LIT) surged over 18% after earning a bumper return from a major client win.
Ocean Harvest Technology Group PLC (AIM:OHT) leapt 15% to 16.38 pence each following the company's positive announcement of four recently completed feed trials.
UniVision (AIM:UVEL) Engineering Limited fell 29% to 0.18p when its AIM trading suspension was lifted after publishing its delayed interim results for 2022.
12.50pm: Decline in interest-only mortgages
UK Finance said the stock of outstanding interest-only free mortgages fell by 8% in 2022 compared to the end of 2021, as customers continued to repay their loans on or ahead of schedule.
As a result, this has helped shrink the overall risk of interest-only borrowers being unable to repay deals.
There were 924,000 interest-only mortgages outstanding last year, compared with 3.2mln in 2012 when UK Finance first started collecting the data.
Within the latest total, there were 702,000 “pure” interest-only home-owner mortgages and 222,000 partial interest-only mortgages.
Interest-free mortgages were popular in the 90s, allowing homeowners to make monthly interest repayments only on their loans.
However, borrowers would need to figure out how to pay the original amount when the mortgage eventually ends.
Inflation figures for May will be released on Wednesday this week, with it expected that the Bank of England will raise interest rates once again by 25bps to 4.75% on Thursday.
12.19pm: No US markets
Just a quick reminder, no US markets today, which are closed for Juneteenth, a federal holiday in the US which commemorates the independence of enslaved African Americans.
12.08pm: Ocado slips
More on Ocado, which is down 2.5% to 450p.
Shares tumbled after a report over the weekend said Karakuri, a robotics start-up backed by the firm, is on the brink of filing a notice of intention to appoint administrators.
RSM is expected to be appointed as administrator for the firm which develops robots to make ready meals.
Karakuri has attempted to secure additional funding and has been discussing a rescue with Henny Penny, a US-based food-service equipment manufacturer, but these talks came to nothing said the report.
Founded in 2018, Ocado bought a near-20% stake in Karakuri in 2019 for £4.75mln and was hailed by the delivery business as a potential star of the future.
FTSE 100 hit intra-day lows, down 40 points to 7,602.
11.38am: Pound climbs
The British pound surged above US$1.28, touching its highest level since April 2022, while recording its biggest weekly gain since early December, with investors anticipating the BoE’s upcoming monetary policy meeting.
Recent data revealing a faster-than-expected increase in British wages and continued economic expansion in April heightened investors' expectations of the Bank of England resorting to further interest rate hikes in response to persistent inflationary pressures.
Additionally, investors are eagerly awaiting the release of May's inflation data scheduled for Wednesday.
In April, the headline inflation rate moderated to 8.7%, the lowest level in over a year, but still significantly above the bank's target of 2%.
Presently, investors are speculating that the UK policy interest rate will peak at 5.75% by the beginning of the next year.
11.23am: Starmer promises more wind farms
Labour leader Sir Keir Starmer has promised to scrap the ban on new onshore wind farms if his party wins the next election in two years, although any claims need to be taken with a pinch of salt following recent 'flip-flopping.'
Starmer promised to “throw everything” at net zero agenda by firing the starting gun to build more turbines across the country.
During a speech in Scotland, the opposition leader is expected to tell voters they will save hundreds of pounds on their energy bills each year through clean energy.
Plans involve tearing up laws and halving the length of time it takes for projects to be approved.
However, the plans will likely face scrutiny as Starmer faces accusations of flip-flopping after watering down plans to end new North Sea oil and gas projects.
Shares in National Grid were flat at 1,048p, while the broader FTSE 100 market was down 0.4% to 7,612.
11.04am: Another John Lewis exec steps down
More drama at John Lewis, with the property chief Chris Harris announcing he will be leaving the company in November.
Harris’ departure also signifies another blow to the under-pressure Sharon White and her plans to push into housing.
He is credited with striking a £500mln deal with Abrdn last year to build 1,000 ‘build-to-rent’ homes in Reading, Bromley and West Ealing.
Build to rent was part of White’s plans to diversify John Lewis, putting an end to several years of losses.
Harris had been overseeing the operation, and his departure will be seen as a setback to those plans.
He also becomes the third senior executive to leave the John Lewis Partnership, which includes Waitrose, this year.
Pippa Wickes, head of department stores, stepped down in February less than three years in her role, while chief operating officers Andrew Murphy will also leave this summer.
White herself is also under intense pressure following job and bonus cuts and heavy losses.
The chairman recently lost a de-facto vote of confidence among the partnership council, which represents staff members, with many unhappy with her strategy but ultimately backing her to continue in her role.
FTSE 100 was down 25 points to 7,617.
10.43am: Asos' target price slashed
Asos had its target price slashed by Deutsche Bank to 485p from 725p although the broker noted the online retailer is firmly in the “special situations bucket.”
The firm has recently had to raise cash, paying 11% interest to specialising lending from Bantry Bay for that privilege, and turned to the market to raise £80mln of cash.
Frasers has also quietly been stakebuilding in the retailer, upping its share to above 10%, which is leading to intense takeover talks among some factions of The City.
10.05am: European markets weaker
European markets are all in the red as investors tread carefully on the back of a weaker outlook for China, the world’s second-largest economy.
London’s FTSE 100 shed around 0.4% to 7,610 points, although the best-performing market at the start of the week was the IBEX 35 in Spain, down 0.26% to 9,470.
Elsewhere on the continent, DAX in Germany shed 0.6% to 16,258 while the CAC 40 lost 0.63% to 7,341.
9.54am: AstraZeneca mulls spin off
AstraZeneca, the UK-listed drug manufacturer, is planning to spin off its Chinese business, according to reports.
The Financial Times broke the story on Sunday night and said that a separate listing in Hong Kong is also viewed as an option.
A separation might not happen either, the report said, with people familiar with the matter noting a listing in Shanghai was also a possibility.
China accounted for 13% of AstraZeneca sales last year, and the drug-maker Chinese president said the company would need to be one that “loves the Communist Party.”
Any potential spin-off could protect the company from tensions between itself and other global powers, with tensions between China and Taiwan escalating.
Shares in AstraZeneca were down 0.9% to 11,682p.
9.33am: Gold higher but still close to three-month lows
Gold gained 1.05%, albeit it continued to hold at US$1,958 per ounce, close to its weakest levels in three months, under pressure from hawkish statements from the Fed.
Last week, the Fed decided to keep interest rates unchanged but hinted at further tightening this year, saying in its latest report to Congress that inflation in key parts of the US services industry “remains elevated and has not shown signs of easing.”
FTSE 100 was down 35 points to 7,607.
9.17am: Bond yields rise
The yield on the 10-year UK gilt continued its upward trajectory, surpassing the 4.4% mark and reaching its highest level since October 2022.
The two-year gilt yield also exceeded 4.95%, a level not seen since the 2008 financial crisis. British policymakers will raise interest rates for 13 consecutive times, pushing them to their highest point in 15 years.
Bonds moved higher in response to persistent inflationary pressures and recent data indicating a faster-than-expected rise in wages and sustained economic growth in April.
Investors are also keeping a close eye on May's inflation data, set to be released on Wednesday. Speculation among investors suggests that the UK policy interest rate may reach its peak at 5.75% by the beginning of next year.
9.05am: FTSE 100 seen lower
The FTSE 100 was 26 points lower to hover near the 7,610 mark on Monday, trimming grains from the prior week and in line with declines for other European equity benchmarks as markets continue to assess the impact of tighter monetary policy by major central banks.
The Bank of England is widely expected to raise its Bank rate by 25bps to 4.75% on Thursday, prolonging its aggressive tightening campaign as inflation remains stubbornly high and growth has held up better than previously expected.
The hawkish outlook extended its downward impact on bullion prices while poor base metal demand in China lowered base metal benchmarks, pressuring London’s heavyweight mining sector with Anglo American, Rio Tinto, and Glencore all dropping between 2.4% and 1%.
In the meantime, British American Tobacco hovered flat after announcing its new leadership structure.
‘’Investors are lacking Monday motivation today as caution returns amid worries about global growth, ahead of the Bank of England decision on interest rates and testimony from the world’s most influential central banker, the Fed’s Jerome Powell. European indices have opened lower with the FTSE 100 on the back foot as investors mull what’s ahead for the path of interest rates, given the stubbornness of inflation, while concerns persist about China’s recovery losing steam,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“The weaker-than-expected outlook for the world’s second-largest economy has knocked commodity stocks, with miners falling back in early trade. Energy giants BP and Shell also retreated, as recent gains in oil prices receded, amid the lower expectations in demand,” Streeter added.
08.52am: Oil prices slip
Global oil prices fell by more than 1% as questions over China’s economic recovery outweigh OPEC+ output cuts and a drop in oil and gas rigs operating in the US.
Brent crude was down US$0.78, or 1%, to trade at $75.83 a barrel, after falling as much as $1.27 to $75.34.
Shell was seen lower on the FTSE 100, down 0.47% to 2,325p, while BP also lost slipped slightly, losing 0.01% to 459.2p.
8.21am: FTSE 100 in the red
FTSE 100 opened in the red, losing 34 points to 7,607 this Monday.
London’s blue-chip index was being weighed down by Ocado, which is down 2.4% to 240p, with a robotics start-up backed by the firm on the brink of collapse.
Coca-Cola HBC is also down 2.2% to 2,279, with investors seemingly not impressed with its latest acquisition.
At the other end of the market, Entain was up nearly 2% to 1,245p.
Analysts at Shore Capital reiterated its buy rating on the stock on the back of its purchase of Polish bettering operator STS last week, along with other “sensible” strategic moves.
8.01am: Coca-Cola buys and BAT reshuffles
Coca-Cola HBC, the drinks bottle manufacturer, completed the purchase of Brown-Froman Finland Oy, the owner of Finlandia vodka.
A statement said the FTSE 100 company agreed to pay US$220mln and is expected to complete in the second half of this year.
The purchase will be completed by Coca-Cola HBC’s subsidiary, CC Beverages Holdings.
Coco-Cola HBC said the transaction represents a “unique opportunity” to enhance its journey towards becoming a 24/7 beverage partner.
“We view this as an attractive investment and a natural evolution of our role as one of Finlandia's distribution partners, further attesting to the strength of our time-tested and wide-ranging partnership with Brown-Forman (NYSE:BF.B),” said Zoran Bogdanovic, CEO of Coca-Cola HBC.
Elsewhere among the blue chips, vape and cigarette manufacturer British American Tobacco (BAT) announced several board room changes, following on from Tadeu Marraco’s appointment as CEO, confirmed last month.
Included in the plethora of changes are Johan Vandermeulen appointed as chief operating officer and Kinglsey Wheaton named chief strategy and growth officer.
7.45am: Average asking price falls for the first time this year
Average new seller asking prices on homes fell for the first time this year, suggesting buyer affordability constraints and pricing realism is now in play.
Prices fell by £82 on average according to Rightmove’s house price index.
This is below the ten-year average for June, where prices have generally risen by 0.6%.
“Average new seller asking prices, the first and leading indicator of new trends in the market, have dropped slightly this month, signalling that the belated spring price bounce has quickly turned into an earlier than usual summer slowdown,” said Tim Bannister, director of property science at Rightmove.
Additionally, more than half of properties are taking longer to attract an offer, according to data from the online property market OnTheMarket.
Houses taking longer than 30 days to receive an offer jumped to 58% from 39% last month.
Much of this can be attributed to a significant increase in fixed mortgage interest rates over the last few weeks, leaving buyers in the dark about how much they will be paying.
The average for a two-year fix was today expected to cross 6% after hitting 5.98% on Friday, according to Moneyfacts.
Rates are set to climb even higher, with the Bank of England expected to raise its base rate to 4.75% this week. Financial markets predict it could climb as high as 6%.
7.29am: European equity markets to open lower
European equity markets are headed for a lower open on Monday as investors remained cautious while awaiting fresh market catalysts.
Markets also look forward to fresh guidance from European Central Bank officials this week, after the ECB delivered another 25-basis point rate hike on Thursday and signalled further tightening.
The Bank of England is expected to raise interest rates as well at this week’s policy meeting. DAX and Stoxx 600 futures fell about 0.5% in premarket trade, while FTSE 100 futures lost 0.15%.
7.20am: Eyes on inflation for FTSE 100
The FTSE 100 enjoyed its best week since April last week, but London's blue chips are expected to open 35 points lower to 7,607.
Much of the attention this week in London will be focused on inflation, with average wages up by 7.2% in the three months to April, with the Bank of England allowing it to spiral.
Over the weekend, former governor Mark Carney said that Brexit was partly to blame for the UK’s high inflation rate.
The latest inflation rate will be released on Wednesday and is forecasted to fall to 8.4% from 8.7%, with the BoE’s monetary decision out on Thursday.
On today’s docket, there is a dearth of economic data or corporate news, although the latest FTSE reshuffle takes place today.
British Land has been relegated from the FTSE 100, replaced by engineer IMI.