- FTSE 100 closes up 77 points at 7,716
- Inflation falls to 3.9% in November
- Sterling falls, bond yields drop
4:40pm: FTSE 100 boosted as cooling inflation sees Christmas come early
The FTSE 100 has closed sharply higher boosted by the sharp easing in inflation in November.
At the close, London's lead index was up 77.65 points, 1.0%, at 7,715.68 while the FTSE 250 leapt 313.11 points, 1.6%, at 19,629.09.
Chris Beauchamp at IG said: "The ghost of inflation has been transformed into Father Christmas for UK investors today."
"The drop in UK CPI delivered a timely Christmas present for the FTSE 100, taking it back to 7700 and making it the strong performer of the day."
"While GBP bulls won’t like to see the drop in price inflation, for investors in UK plc there is hope that next year will bring more good news, in the form of rate cuts that can give the FTSE 100 a further boost.”
3:52pm: Oil price rallies on Red Sea safety concerns
The oil price has continued to rebound on concerns about the safety of vessels passing through the Red Sea.
Brent crude is trading 1.1% higher at $80/barrel.
More than 100 container ships have been rerouted around southern Africa to avoid the Suez canal, in a sign of the disruption to global trade caused by Houthi rebels attacking vessels on the western coast of Yemen, according to shipping company Kuehne and Nagel.
It said it had identified 103 ships that had already changed course, with more expected to go around South Africa’s Cape of Good Hope.
3:41pm: US consumer confidence jumps
US consumer confidence has risen to its highest level since July as optimism about the economy grew in December and concerns over a potential recession receded.
The Conference Board’s consumer confidence index was 110.7 this month, up from a downwardly revised 101.0 in November, the organisation said on Wednesday.
Economists expected a level of 104.
Improved confidence stemmed from better perceptions of current business and labour market conditions, and less pessimism over personal finances, jobs, and business conditions over the next six months.
2:49pm: US stocks mixed as FedEx (NYSE:FDX) warning tempers enthusiasm
Stocks in New York opened lower as a warning from industry bellwether FedEx (NYSE:FDX) injected a note of caution to a market buoyed by recent gains.
Shortly after the opening bell, the Dow Jones Industrial Average was down 78.18 points, 0.2%, at 37,479.74, the S&P 500 was down 5.59 points, 0.1%, at 4,762.78 although the Nasdaq Composite rose 13.99 points, 0.1%, at 15,017.22.
Investors will be looking ahead to tomorrow's GDP data and Friday's personal consumption expenditure figures for further insight as the market continues to eye earlyu cuts to interest rates in 2024.
FedEx (NYSE:FDX) fell 12.2% as analysts lowered expectations following disappointing results - Bank of America cut its price target to $313 from $334.
General Mills (NYSE:GIS) (General Mills (NYSE:GIS)) was another early faller, down 2.1% after reporting revenue for its financial second quarter light of expectations as organic net sales fell 2%.
2:14pm: BoE money printing to cost UK as much as HS2
Quite the stat from former Bank of England rate setter, Michael Saunders, reported by Bloomberg.
He has calculated that the Bank of England’s quantitative easing program is on track to cost the UK taxpayer as much as the entire HS2 high-speed rail link that the government has scaled back on value-for-money grounds.
Dynamite stat in Michael Saunders' latest QE analysis. Ex-ratesetter says BOE money printing on track to cost taxpayers as much as entire HS2 rail project, now scaled back due to spiralling costs. Net lifetime cost of £126bn - and that's the OBR's number. https://t.co/cXO6zWgDVr pic.twitter.com/TIsCdERBrU
— Philip Aldrick (@PhilAldrick) December 20, 2023
Michael Saunders, who was on the Monetary Policy Committee between 2016 and 2022, said the £126 billion “lifetime cost” to the taxpayer of central bank money printing, calculated using the government’s own official forecasts, is “similar to the full HS2 scheme adjusted to 2023 prices.”
Saunders, now a senior policy advisor at Oxford Economics, drew the comparison in a paper to highlight the fiscal implications of the £895 billion of emergency QE between 2009 and 2021 to stimulate the economy after interest rates were cut as low as possible.
In October, Prime Minister Rishi Sunak scrapped the rail link’s northern leg as costs spiralled.
1.39pm: Here’s a recap of the top risers on the market today
Petrofac Limited (LSE:PFC) shot up 37% as shorters cashed in their positions after the oil and gas installation specialist announced another big order.
Filtronic PLC (LSE:FTC) jumped 6.5% as it announced its second £4 million-plus contract in the space of two days.
Shares in genedrive PLC soared over 22% on Wednesday morning after the company announced a host of international orders for its antibiotic-induced hearing loss test.
Angus Energy PLC (AIM:ANGS) shares moved upwards by over 25% after the oil and gas firm announced a deal to refinance its £20 million worth of debt.
Chill Brands Group PLC (LSE:CHLL, OTCQB:CHBRF) shares were up 10% at one point on news it had agreed to supply its range of nicotine-free vapour products to a top five UK supermarket.
13:02pm: UK's energy price cap likely to fall 14% in April
The UK’s energy price cap is predicted to fall by 14% in April, lowering household bills further, according to a report today.
A typical duel fuel consumer is expected to pay £1,660 a year, down £268 from January bills of £1,928, according to forecasters Cornwall Insight.
Our latest forecasts for the April 2024 price cap show a fall of 14% in the second quarter of the year.
We are predicting a typical dual fuel consumer will pay £1,660 per annum, a £268 decrease from January.
Read more here: https://t.co/Ttl4PGLGjf
— Cornwall Insight (@CornwallInsight) December 20, 2023
Bills expected to drop further, £1,590 in July before a slight increase to £1,640 from October.
Cornwall Insight said: "Since mid-November, wholesale energy prices have experienced a significant decline, triggering the anticipated drop in the price cap."
"Contrary to initial concerns, the Israel-Hamas conflict and problems such as potential LNG [liquefied natural gas] production strikes in Australia have as yet failed to materially impact energy supplies."
12:37pm: Indivior up after Actavis settlement
Indivior is up 3.6% today after settling a drug patent dispute with rival Actavis.
The company which makes treatments for substance abuse disorders and serious mental illnesses has now granted Actavis with a license to the patent enabling it to launch a generic version of Indivior’s key opioid-dependency treatment Suboxone.
This not only means Actavis promises to not sue the patent owner, but also provides Indivior with a new revenue stream in the form of royalties.
12:07pm: US markets seen lower after FedEx (NYSE:FDX) warning
The FTSE 100 is well off earlier highs now with a warning overnight from FedEx (NYSE:FDX) expected to dampen the mood on Wall Street today.
In pre-market trading, futures for the Dow Jones Industrial Average were down 0.1%, while those for the S&P 500 were 0.2% lower and contracts for the Nasdaq 100 futures declined 0.3%.
FedEx (NYSE:FDX) slumped 15.4% in premarket trading after the company posted a disappointing revenue outlook for the financial year.
Results for its second quarter also fell short of Wall Street’s expectations on the top and bottom lines.
AJ Bell’s Russ Mould said: “Another FedEx (NYSE:FDX) warning suggests bad news for the US and global economy could be in the post.”
“The business is often seen as a barometer of wider economic conditions because it has broad exposure across areas like transportation, logistics and e-commerce.”
Elsewhere, investors will be paying close attention to consumer confidence figures which are expected to have improved so far in December.
Economists expect the Conference Board’s consumer confidence index to rise to a reading of 104 from 102 in November.
11:38am: Frasers confirms £52m deal for Matches
Frasers has confirmed the £52 million purchase of the MATCHES business from MF Intermediate Limited.
The cash deal will be funded from existing cash reserves and facilities.
The Mike Ashley-owned retailer said the acquisition strengthen Frasers' luxury offering.
The assets acquired were valued at £170 million at January 2023, Frasers said, and made an adjusted Ebitda loss of £33.5 million in the last financial year.
Michael Murray, chief executive said: “Whilst the global luxury environment is softer, we are confident that, by leveraging our industry-leading ecosystem, we will unlock synergies and drive profitable growth for MATCHES."
10:52am: Goldman sees first UK rate cut in May
Goldman Sachs (NYSE:GS) has brought forward its forecast for the first cut in UK interest rates following today's inflation figures.
The investment bank noted the November inflation print showed services, core, and headline inflation surprising consensus and BoE expectations meaningfully to the downside.
Taken together with the sharp slowing in sequential wage growth observed last week, it has pulled forward its first BoE cut to May compared to June before.
"We continue to expect the MPC to cut at a 25bp per meeting pace until the policy rate reaches 3.0% in May 2025," it said.
10:24am: House prices fall in October - ONS
UK house prices fell at a steeper pace on an annual basis in October, according to official figures on Wednesday.
The Office for National Statistics (ONS) said average house prices in the UK fell 1.2% in October from a year before.
This was faster than the 0.6% annual fall in September, which was revised downwards from a 0.1% decline.
The average UK house price was £288,000 in October 2023????
This was £3,000 lower than 12 months ago, but above the recent low in March 2023.
— Office for National Statistics (ONS) (@ONS) December 20, 2023
"The North East was the only English region which saw an increase in average house prices in the 12 months to October 2023 (0.2%), while London saw the largest fall (negative 3.6%)," the ONS noted.
The data comes from HM Land Registry records.
The ONS said that available transaction volumes used to calculate the data have been "considerably lower" than historical levels.
This could result in larger-than-usual revisions in the coming months.
10:09am: Chancellor says more to be done to tackle inflation
The UK chancellor, Jeremy Hunt, said there was “still further to go” on tackling inflation, after the surprisingly large fall to 3.9% in November.
He said: “There’s still further to go. Inflation never falls in a straight line.”
He explained: “With inflation more than halved we are starting to remove inflationary pressures from the economy.”
NEWS - Inflation falls to 3.9%
"Once you do the hard work to squeeze inflation out of the system, you can start looking forward to the kind of growth that will see people's wages go up".
Chancellor @Jeremy_Hunt on today's fall in inflation. pic.twitter.com/Sg1VDhLcbW
— HM Treasury (@hmtreasury) December 20, 2023
“Alongside the business tax cuts announced in the autumn statement this means we are back on the path to healthy, sustainable growth.”
“But many families are still struggling with high prices so we will continue to prioritise measures that help with cost of living pressures.”
9:41am: FTSE euphoria eases, DS Smith down amid downgrade
The early euphoria has waned a touch with housebuilders in particular giving back most of their early strong gains.
Indeed, the FTSE 100 is outperforming its European peers with the Cac 40 in Paris down 0.1% and the Dax in Frankfurt down 0.2%.
One faller in the blue-chip index in London today is DS Smith, down 2.2%, after UBS downgraded to ‘neutral’ from ‘buy’.
Analyst Andrew Jones has updated his forecasts to reflect lower containerboard price assumptions and margins in the near term.
He had previously had assumed that by now, with restocking finishing, volumes would have improved faster together with more high-cost capacity closures.
Neither has happened so far, so it is unsurprising that pricing has not yet improved, Jones said.
“With new capacity ramping up in 2024, we see a risk that without an improvement in consumer activity, operating rates could drop further and prices flatline for longer,” he added.
“With margins likely to squeeze further in 2H24, no imminent turnaround in EU testliner prices, some seasonal increases in costs and growth projects longer-dated, we see few catalysts for near-term outperformance and downgrade to neutral,” Jones said.
He has cut his price target by 8% to 332p.
9:21am: Frasers swoop for Matchesfashion expected today - Sky
Frasers could confirm the previously reported deal for Matchesfashion today, according to Sky.
The small £50 million deal for the retailer of luxury brands such as Gucci and Valentino, from Apax Partners will be announced later today, Sky said.
Revealed: Mike Ashley’s Frasers Group will announce today that it is buying Matchesfashion, the retailer of luxury brands such as Gucci and Valentino, from Apax Partners, for about £50m, ending a disastrous period of ownership for the buyout firm. Full story on @SkyNews soon.
— Mark Kleinman (@MarkKleinmanSky) December 20, 2023
Shares in Frasers are up 0.1%.
9:06am: Petrofac squeezed higher after upbeat trading news
Away from the inflation figures for a moment and Petrofac has surged 47% after its trading update and contract award today.
Peel Hunt noted the order intake across both E&C and AS was c.$6.8 billion, with the group backlog expected to be c.$8.0 billion at the end of 2023, ahead of its $6.1 billion and $7.3 billion, respectively.
The broker also noted the second contract award under the six-project $14 billion framework agreement with TenneT has been awarded, with the group's share of it worth c$1.4 billion.
Performance guarantees have been secured for the first Tennet contract and also the first ADNOC Habshan contract, with active discussions ongoing to secure the guarantees required for other new contracts, it added.
8:50am: ING says inflation could hit 2% by May
ING Economics called the fall in the rate of inflation a “huge surprise” although it said markets pricing for a “whopping” 140 bps of rate cuts in 2024 was “maybe pushing it.”
James Smith at ING said what’s more the fall in headline CPI seems to be fairly broad-based at first glance.
“We’re seeing discounting across the board on consumer goods, from clothing to household goods, and cars. Lower fuel and food contributions helped too,” he said.
He felt the Bank of England would be particularly comforted by the further surprise fall in services inflation, which came down to 6.3%, having peaked at 7.4% over the summer.
But despite today’s positive surprise, he thinks services inflation could stay sticky in the 6% region into early next year with the story is likely to begin to change by the Spring.
Smith said if the recent trends continue, then there’s a decent chance that headline inflation gets back to the 2% target as soon as May.
“Put that all together, and we think markets are right to be pricing a number of rate cuts for 2024.”
“Investors now expect 140bp of cuts in 2024 after this latest downside surprise on inflation, starting in May.”
“That’s maybe pushing it, and we still think the Bank will prefer to tread a little more cautiously with 100bp of cuts starting in August.”
8:32am: Larger than expected drop in inflation encouraging
Simon French at Panmure Gordon said those arguing over the summer that the UK was on a sustained & higher inflation path to the rest of the developed world are starting to look a “bit daft.”
How much lower can UK inflation go? Well over the medium term that depends on how much spare capacity there is on supply side (the data is of limited help at present!) but short term the biggest contributor to 3.9% rate is food & beverages - contributing almost a quarter (1/2) pic.twitter.com/fKaxKh4MiU
— Simon French (@shjfrench) December 20, 2023
It was clear in the data that the timing of the energy cost passthrough was central to the UK decoupling, he noted, with outsized disinflation in the second half of the year always a high probability.
He noted real income growth in 2024 is set to be much stronger than consensus.
He described the figures as encouraging and consistent with UK macro data looking less of an outlier to comparable developed economies in the fourth quarter.
8:23am: Stocks up, pound down as rate cut hopes build
Some big movements in asset prices after the inflation figures.
Alongisde the big jump in equities, the pound has fallen back while bond yields have slumped.
Markets are now fully pricing in a quarter-point interest rate cut from the Bank of England in May, with traders also pricing in a roughly 50% chance that the Bank of England cuts rates by the same amount in March.
Blimey
UK CPI inflation rate drops to 3.9% in Nov.
Down from 4.6% in Oct and an even bigger fall than economists had expected (4.3% was the consensus forecast)
— Ed Conway (@EdConwaySky) December 20, 2023
In total, traders now see more than 140 basis points of cuts next year, implying at least five 25 basis point moves.
Sterling is down 0.6% at $1,2654 while the yield on the 10-year bond has slipped around 11 basis points to 3.55%.
8:10am: Stocks soar as drop in inflation fuels rate cut hopes
The FTSE 100 soared and the pound fell following a larger than expected drop in the annual rate of inflation.
At 8:10am, London’s blue-chip index was up 101.93 points, 1.3%, at 7,739.96 while the FTSE 250 jumped 216.11, 1.1%, at 19,532.09.
Data from the Office for National Statistics showed the consumer prices index eased to 3.9% in November down from 4.6% the previous month, the lowest since 2021 and below City expectations of 4.3%.
Figures for core inflation and services inflation – closely watched by the Bank of England - also slowed more than predicted.
Kallum Pickering at Berenberg said although Bank of England policymakers are “at pains to push back against growing rate cut bets for 2024 while inflation is still well above target, the direction of travel for prices now seems clear.”
Samuel Tombs agreed, and said the “surprisingly sharp fall” in inflation reinforces the likelihood that the [Monetary Policy Committee] will begin to reduce Bank Rate in the first half of 2024, far earlier than it has been prepared to signal so far.
Housebuilders celebrated the news with Barratt Developments up 4.5%, Taylor Wimpey up 3.4% and Berkeley Group up 2.2%.
Property stocks were also in vogue with Land Securities up 2.2% and Segro up 2.6%.
Elsewhere, Petrofac was a warm order, up 29%, after announcing a $1.4 billion contract in an upbeat trading statement.
7:56am: Drop in inflation boosts early rate cut hopes
Stocks futures have jumped and the pound has fallem sharply after the inflation figures.
Samuel Tombs at Pantheon Macroeconomics said November’s surprisingly sharp fall in CPI inflation reinforces the likelihood that the [Monetary Policy Committee] will begin to reduce Bank Rate in the first half of 2024, far earlier than it has been prepared to signal so far.
He calculated that the 0.2% month-to-month drop in the all-items CPI in November equates to a seasonally adjusted annualised decline of 2.0%.
Tombs pointed out three-month-on-three-month growth in seasonally adjusted all-items CPI of 1.8% in November demonstrates how dramatically the slowdown in the pace of prices rises has been lately.
Looking ahead, he expects CPI inflation to continue to fall more quickly than the MPC predicted in November.
He noted fuel prices are likely to fall by a further 4.5% month-to-month in December, while Ofgem will reduce its default tariff cap by abut 10% in April.
He thinks the headline rate of CPI inflation will drop to about 3.8% in Q1 and then to 2.0% in Q2, substantially below the MPC’s forecasts of 4.4% and 3.6%, respectively.
“This will support a sooner and swifter reduction in Bank Rate than the MPC has countenanced to date,” he added though he doesn’t expect a cut at the next meeting in February.
7:45am: Petrofac announces further $1.4bn contract
Petrofac described its outlook as robust underpinned by strong orders across both E&C and Asset Solutions.
The company, which fabricates oil and gas installations, said order intake totalled around $6.8 billion in the year-to-date, with group backlog) expected to be around $8.0 billion at the end of the year.
Petrofac said its order pipeline was healthy and announced the second contract award under the six-project, $14 billion, deal with TenneT worth around $1.4 billion.
The company said net debt is expected to be modestly higher than at the interim results, with positive free cash flow generation by the business in the second half offset by an increase in collateral required for guarantees.
It said the near-term focus remains on strengthening the balance sheet with ongoing review of strategic and financial options.
Asset Solutions and IES underlying performance in line with guidance, before a one-off bad debt provision in Asset Solutions of around $12 million and it expects a full year EBIT loss in E&C of around $215 million.
Completion of remaining legacy E&C contracts progressing in line with guidance, it said.
7:08am: FTSE 100 set to jump after big drop in inflation
The FTSE 100 is expected to open sharply higher after a big fall in annual rate of inflation in November.
Spread betting companies are calling London’s blue-chip index up by around 58 points after closing up 23.55 points, 0.3%, at 7,638.03.
The Consumer Prices Index rose by 3.9% in the 12 months to November down from 4.6% in October, well below expectations of 4.3%, figures from the Office for National Statistics showed.
In the year to November 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs rose by 4.2%, down from 4.7% in October
▪️ Consumer Prices Index (CPI) rose by 3.9%, down from 4.6% in October
— Office for National Statistics (ONS) (@ONS) December 20, 2023
On a monthly basis, CPI fell by 0.2% in November, compared with a rise of in November 2022, the ONS said.
The largest downward contributions to the monthly change came from transport, recreation and culture, and food and non-alcoholic beverages.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 5.1% in the 12 months to November, down from 5.7% in October.
The City had expected the core figure to drop to 5.5%.
The CPI goods annual rate slowed from 2.9% to 2.0%, while the CPI services annual rate eased from 6.6% to 6.3%.