FTSE 100 ends lower as rising inflation offsets gains by BP and Royal Dutch Shell

The UK blue chip index closed lower with inflation rate hitting a 19 year high and ongoing concerns about the Delta variant

  • FTSE 100 closes lower 
  • Higher commodity prices support oil stocks
  • UK inflation rate hits 3.2%

5pm: The FTSE 100 index ends a touch lower, US stock mostly higher

The FTSE 100 index ended lower as higher commodity prices supported shares in oil producers while ongoing concerns about the Delta variant, global growth and inflation weighed on the broader market.

At the close, the UK blue-chip index was 18 points, or 0.25% lower at 7,016 after trading in a range of about 30 points.

The more UK plc focused FTSE 250 shed 254 points, or 1.07% to 23,433.

“In focus this afternoon has been a remarkable spike in oil prices, which seem to be entirely unaffected by the growth worries that continue to afflict equity markets,” Chris Beauchamp, chief market analyst at online trading firm IG, said.

“Here too the inflation narrative will come back into play, with many worried that higher energy prices will choke off the recovery just as it looked to be gathering renewed strength.

“Oil prices and other rising commodity prices meant that BP, Shell and mining stocks were able to rise to the top of the FTSE 100 today, keeping that index close to unchanged on the day.”

BP PLC (LSE:BP.) rose 3.08% while Royal Dutch Shell (NYSE:RDS.A) PLC gained 1.81%.

On Wall Street by London’s close, the Dow Jones Industrials Average was 94 points, or 0.27% higher at 34,672, with the broader S&P 500 index 0.27% ahead while the tech-laden Nasdaq Composite lost 0.13%.

3.52pm: Just Eat falls after Deliveroo's deal with Amazon

Leading shares have been drifting for much of the day despite continuing concerns about the Delta variant, supply chain worries and higher than expected UK inflation.

The FTSE 100 has traded in a range of less than 30 points, and is currently down just 0.91 points at 7033.15, almost at the middle of that range.

On Wall Street the Dow Jones Industrial Average is up 0.22%, the S&P 500 is 0.24% higher and the Nasdaq Composite is virtually flat.

US industrial production data missed expectations, but on the other hand that strengthens the Federal Reserve's hand on holding off on tapering its support for the economy.

Back in the UK, and the continuing strength in the crude price has lifted oil company shares.

BP PLC (LSE:BP.) is 3.35% better while Royal Dutch Shell (NYSE:RDS.A) PLC has seen its A shares climb 1.59%.

Defensive stocks are also in demand, with tobacco group Imperial Brands (LSE:IMB) PLC 1.84% higher.

Among the fallers, worries about international travel continue to dog British Airways owner International Consolidated Airlines PLC, down 3.31%.

Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB) has lost 4.33% on competition fears after Deliveroo PLC (LSE:ROO) - off 0.9% - linked up with Amazon Prime.

Burberry PLC continued its recent weakness on concerns about a slowdown in its key Asian markets, down 3.12%.

3.10pm: Bitcoin heads towards US$48,000

The rollercoaster ride that is Bitcoin continues, with the cryptocurrency on the front foot once more, up 1.71% to US$47,776.72.

Craig Erlam, senior market analyst at OANDA, said: "Bitcoin shows incredible resilience at times and it certainly feels like we're seeing that right now, with the cryptocurrency making gains for a second day and approaching US$48,000. This comes despite US$44,000 once again coming under pressure earlier this week before bulls fought back once more.

"A failure at US$48,000 could be another blow though and perhaps a further correction warning. A move above here could spur more optimism and fuel another rally towards US$50,000 where it has repeatedly run into resistance."

2.48pm: US industrial production lower than forecast

Wall Street has defied expectations and opened slightly in the red, as the latest US data came in lower than predicted.

Industrial production increased by 0.4% in August, lower than the forecast figure of 0.5% as the economy felt the impact of Hurricane Ida.

The Federal Reserve said: "Late-month shutdowns related to Hurricane Ida held down the gain in industrial production by an estimated 0.3 percentage point.

"Although the hurricane forced plant closures for petrochemicals, plastic resins, and petroleum refining, overall manufacturing output rose 0.2%t

"Mining production fell 0.6%, reflecting hurricane-induced disruptions to oil and gas extraction in the Gulf of Mexico. The output of utilities increased 3.3%, as unseasonably warm temperatures boosted demand for air conditioning."

So the Dow Jones Industrial Average is down 31.72 points or 0.07% at 34,550.35 while the S&P 500 is 0.06% lower and the Nasdaq Composite has dipped 0.27%.

Back in the UK and the FTSE 100 is down just 4.18 points or 7027.88.

2.03pm: Don't try and time the markets, says UBS

September is not the best month for stock markets.

As strategists at UBS point out in a new report, since 1970 the MSCI World Index - a good guide to global markets - has fallen by an average of 0.6% in September..

In contrast it gained an average of 0.8% in other months.

Worries about the spread of the Delta variant and supply chain issues mean this September is already looking volatile. And UBS says, some investors may think the recent rally has run out of steam and they should get out now and get back in later.

But UBS says: "We advise investors to avoid trying to time the market this way - it can be costly. Instead, they should stay invested, diversify exposure, and seek ways to protect against downside risks."

It says 2020 was a good example of the difficulty of trying to time the market, with the sharpest bear market in US history followed by the fastest ever rebound.

"For investors, selling during or in anticipation of a rout, and trying to buy back within a short time, can be psychologically difficult, particularly if markets have rallied in the meantime. Even professional fund managers find it challenging to get in and out of the markets profitably," say the strategists.

And just because the markets are at record highs, this is no barrier to further gains, they say: "Our analysis shows that since the 1960s, the S&P 500 rose an average of 11.7% in the following 12 months after reaching a fresh high.

"As for the odds of suffering drawdowns after buying at record highs, based on data since 1945, investors would not have suffered any losses 34% of the time, while in 59% of cases they would have lost no more than 5%. Only in 15% of instances would investors have suffered a “bear market” drawdown of more than 20%.

"So, instead of trying to time the market, we think investors should stay invested in cyclical sectors and value laggards that will benefit from the global reopening, such as financials and energy. We believe the global economic recovery is on track as the Federal Reserve will unwind bond purchases very gradually, while rising vaccination rates will pave the way for governments to push ahead with reopening.

"Investors can also consider diversifying across regions and themes with structural trends like sustainability and smart mobility, or defensive elements such as cybersecurity and healthcare. They may also consider ways to protect their portfolios against volatility and downside risks."

Back with the current situation, and the FTSE 100 has now drifted lower again, and is virtually flat, down just 0.8 points at 7033.26.

12.29pm: Micosoft lifted by dividend and buyback news

Wall Street is expected to open a little higher after falling sharply on Tuesday.

Worries about the Delta variant stalling the economic recovery have combined with concerns about when the US Federal Reserve will start tapering its support programme in the light of rising inflation.

Ahead of the latest US industrial production figures, investors seem to feel the fall may have gone far enough for the moment. The Dow Jones Industrial Average is forecast to rise 20 points or 0.03% while the S&P 500 is set to add0.13% and the Nasdaq Composite 0.22%.

In the tech sector, Microsoft shares are up 1.29% in pre-trading after it announced an 11% dividend increase and a US$60bn share buyback programme.

Meanwhile Apple has edged 0.12% after falling in the immediate wake of its latest product unveiling, this time of the iPhone 13 and new iPads and watches.

Michael Hewson at CMC Markets said: "Last night’s event certainly lacked the pizazz we normally get from these product launches, with most people coming away with the feeling of being slightly short-changed, which probably helps explain why Apple’s share price dipped after hours."

Meanwhle back in the UK, the FTSE 100 is now up 10.24 points or 0.15% at 7044.30.

11.46am: Crude rise lifts BP and Shell

Oil companies are giving some support to the market, as crude prices remain strong.

In the wake of Hurricane Ida, tropical storm Nicholas has disrupted recovery in the Gulf of Mexico, while the International Energy Agency said this week that vaccinations for COVID-19 could deliver a major boost for oil demand as concerns about the Delta variant start ease.

So Brent crude is up 1.44% at $74.66 a barrel while West Texas Intermediate, the US benchmark, has added 1.5% to $71.52.

BP PLC (LSE:BP.) has benefited, leading the FTSE 100 risers with a 2.13% gain to 306.4p.

Meanwhile Royal Dutch Shell (NYSE:RDS.A) PLC has seen its A shares rise 1.2% to 1467.6p.

Overall the blue chip index is 6.71 points higher at 7040.77.

10.51am: Slowdown after end of stamp duty holiday 

The UK housing market saw a slowdown in growth in July as the boom fueled by the chancellor's stamp duty holiday began to fade.

But property experts believe this might just be a temporary effect.

According to the latest Land Registry figures, UK average house prices increased by 8.0% over the year to July 2021, down from 13.1% in June 2021.

The average UK house price was £256,000 in July, £19,000 higher than this time last year, but down from the record high of £265,000 in June 2021.

At the end of June the tax break was cut from houses worth £500,000 to £250,000, encouraging buyers to get on with their deals before the deadline.

The registry said: "As the tax breaks were originally due to conclude at the end of March 2021, it is likely that March’s average house prices were slightly inflated as buyers rushed to ensure their house purchases were scheduled to complete ahead of this deadline.

"This effect was then further exaggerated in June 2021, in line with the extension to the holiday on taxes paid on property purchases in England, Wales and Northern Ireland. Average house prices for July returned to similar levels seen earlier in the year."

David Westgate, group chief executive at Andrews Property Group, said: “The big monthly drop in average house prices in July coincided with the end of the full stamp duty holiday. 

“The drop in house prices in July was a minor blip. The market has moved on since then and low mortgage rates, a lack of supply and a need for more space, are the key house price drivers now rather than saving on stamp duty.

“Demand is still strong across many areas of the country. Transaction levels have been healthy since the tapering of the stamp duty holiday, which suggests there’s plenty of steam left in the market."

Rob Gill, managing director  at Altura Mortgage Finance, added: "Having risen spectacularly on the back of the stamp duty holiday, house prices seem to be holding at record high levels with no sign of falling. The main driver is now record low-interest rates with the base rate remaining at an all-time low of 0.1%, and lenders cutting mortgage rates on an ongoing basis. Despite concerns over inflation, these record low interest rates seem unlikely to increase anytime soon. With the government embarking on a well-publicised round of tax hikes, low interest rates will need to continue to help the economy recover."

Of course, a continuing house price boom adds to the concerns about inflation which have be raised again after today's higher than expected consumer price index.

But for the moment these concerns do not appear to be troubling the market, with the FTSE 100 continuing to edge ahead, now up 6.7 points at 7040.76.

9.56am: Defensive stocks help keep leading shares afloat

Leading shares seem to be shrugging off the negative at the moment.

And there is a bit of that about, with higher than expected UK inflation and weak Chinese retail sales adding to concerns about a slowdown in the world's second largest economy.

But the FTSE 100 has recovered from its early dip although the rise is nothing to get too excited about. 

The blue chip index is up just 1.19 points at 7035.25 and could go either way from here.

Among the fallers are British Airways owner International Consolidated Airlines PLC, down 1.99%, and luxury goods group Burberry PLC, 1.28% lower, which have both been under pressure recently.

AJ Bell investment director Russ Mould said: “Surging UK inflation figures and more volatility in Asian shares didn’t upset the apple cart too much on Wednesday morning...

“Weakness among airlines and Burberry, whose fortunes are closely tied to China, reflected a shift in investors’ concerns from the risks of the economy overheating to the recovery being knocked off course.

“This follows some weak Chinese economic data as it, like many countries across the world, wrestles with the more infectious Delta variant of Covid.

“Helping to keep the FTSE 100 afloat were some more stodgy defensive businesses."

These included tobacco company Imperial Brands (LSE:IMB) PLC, up 1.51%, and consumer goods group Reckitt Benckiser PLC, 1.17% better.


9.14am: Dilemma for Bank of England as prices rise

More on inflation, and the prospect of the Bank of England acting to cool down the economy.

Some of the 3.2% rise prices is temporary, notably as mentioned before, the Eat Out to Help Out scheme from last August which accounts for 0.4% percentage points of the increase.

But there are other factors which may be less transitory.

Petrol prices were just 113.1p a litre last year, Hargreaves Lansdown point out, while they had jumped to 134.6p this August, the highest in eight years.

Used car prices have jumped as people shied away from public transport in the wake of the pandemic, and new car availability was hit by component shortages including computer chips.

And with supply chain problems and rising costs, food prices are edging up too.

The latest producer price figures also out today confirm company budgets are under pressure. They rose 5.9% in August, up from 5.1% in July, and it is only so long before these costs will be passed onto the consumer in the form of price rises.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said: "Already prices paid by consumers are rising well above the [Bank of England's 2%] target rate but it’s also the 5.9% increase in the price of goods bought and sold by UK manufacturers which will be unpalatable food for thought for policy makers at the Bank of England.

"For months members of the monetary policy committee have been reading from the same menu, underlining that higher prices should be transitory. But with producer price inflation soaring, shipping costs showing little sign of cooling, commodity prices heating up, and vacancies tipping one million, there is a growing chance that one mess of a hot dinner could be arriving on their plates.

"Producer prices for August show a 1.4% month on month jump in prices of manufactured goods and although for now a lid is still being kept on the prices of food on the shelves, some wholesalers and retailers have already warned they can’t keep absorbing higher costs and they will have to pass them onto their customers. If higher prices linger, more [MPC] members may move quickly to vote for a rate rise sooner than expected next year, but it would be an unpopular course of action with looming tax rises already hard to digest for many consumers.”

8.43am: Tentative start for leading shares

The FTSE 100 made the tentative start predicted by the spread betting firms ahead of the open as the market digested the latest UK inflation data (see below).

The spectre of stagflation (economic stagnation with strong inflation) stopped Asia’s main bourses in their tracks earlier and ensured there would be no early bounce-back from Tuesday’s lacklustre performance here in the UK too.

“Inflation is one part of an economic jigsaw which is suggesting slowing growth,” explained Richard Hunter, head of markets at Interactive Investor.

“Concerns over profit margins given the pressures on raw materials have begun to surface ahead of the upcoming third-quarter reporting season around the beginning of October.

“In addition, possible corporate tax hikes could put further pressure on profits, especially compared to the highly successful recent second-quarter round of results.”

Underlining the old stock market adage that it is better to travel than arrive, investors bailed out of shares in Trustpilot, the consumer reviews group, after it raised its full-year forecasts.

Up 46% from March’s 265p float price, a bout of profit-taking prompted a 6.8% decline in the share price.

Revealing the fickle nature of London’s price makers, Dartktrace, the cybersecurity specialist that listed in April, was rewarded for its better-than-expected performance with an 8.3% rise.

7.51am: Prices show biggest monthly increase on record

UK inflation has come in higher than expected in August, showing the biggest monthly increase on record.

The consumer prices index rose by 3.2% in the 12 months to August, up from 2.0% in July and higher than the 2.9% analysts had been forecasting. It is the highest rate since March 2012.

The Office for National Statistics said: "The increase of 1.2 percentage points is the largest ever recorded increase in the CPI National Statistic 12-month inflation rate series, which began in January 1997; this is likely to be a temporary change."

Temporary or not, the figures will provide food for thought for the Bank of England at its meeting next week.

Dean Tuner, economist at UBS Global Wealth Management, commented: “Over the coming months we expect that inflation will move higher, likely peaking in the early months of next year. Beyond that, as the base effects and impacts of the pandemic start to fade, inflation will trend downwards and may even fall below the Bank of England’s two percent target.

"We don’t expect the Bank of England to react in any way to today’s figures, they will instead be focused on the medium-term outlook for prices and the labour market which, as seen in yesterday’s jobs market report, is holding up better than feared. These, we think, will keep the Bank of England in a hawkish mood, laying the ground for a rate hike in the first half of next year. In light of this, the prospects for the pound remain bright.”

Higher prices for transport, restaurants, hotels, and food and drink made the largest contribution to the rise in inflation.

The figures are somewhat distorted by last August's Eat Out to Help Out scheme which saw many prices in restaurants discounted.

The ONS said: "The largest upward contribution to change is a base effect, because, in part, of discounted restaurant and café prices in August 2020 resulting from the government's Eat Out to Help Out scheme and, to a lesser extent, reductions in Value Added Tax across the same sector."

The news has now sent the FTSE 100 futures slightly into the red, indicating an opening 3 point dip.

7am: Leading shares set to open higher

The FTSE 100 is expected to open slightly higher ahead of UK inflation data.

London’s leading index is forecast to add 8 points to 7,042 at the opening bell.

Despite a dip from 2.5% in June to 2% in July, this is expected to be reversed in the August numbers with both headline and core prices set to surge to 2.9%, and the highest levels since late 2017.  

“Any rise will also give pause for thought for Bank of England policymakers, particularly in light of comments last week from Bank of England governor Andrew Bailey when he said that four policymakers at the August meeting thought conditions had been met for a rate hike,” said Michael Hewson, chief market analyst at CMC Markets UK.

“While that won’t happen in the near future it certainly lowers the bar for a potential reduction in asset purchases, a move that could be signalled as soon as next week’s Bank of England policy meeting. Such a move would also see the Bank of England move before the Federal Reserve on a taper, and who would have had money on that six months ago?”

6.50am: Early Markets - Asia / Australia

Stocks in the Asia-Pacific region were lower on Wednesday after China’s retail sales grew at a much slower pace than expected in August.

The retail sales print for August came in at 2.5%, against a 7% growth forecast by analysts polled by Reuters.

China’s Shanghai Composite slipped 0.22% and Hong Kong’s Hang Seng index fell 1.37%

In Japan, the Nikkei 225 dropped 0.54% while South Korea’s Kospi rose 0.18%.

Australia’s S&P/ASX 200 has made up most of its morning losses to be down about 0.15% during the last hour of trading, after falling as much as 0.8%.


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