- FTSE 100 dips 30 points
- US inflation rises to 6.8%
- US indices higher midday
5:05pm: FTSE 100 ends lower, US stocks higher midday
The FTSE 100 finished the day on a down note, falling 30 points, or 0.4%, to 7,292, as data showed that Britain’s economy grew by a weaker-than-expected 0.1% in October.
“We're seeing a flight to safety with defensive names like British American Tobacco on the front foot,” DailyFX market analyst Justin McQueen said.
“The sort of news around Omicron and the government announcing its plan B and suggestions around plan C does put the final nail in the coffin for a rate rise next week,” McQueen added.
British American Tobacco shares gained more than 2% following a Wall Street Journal report that said the US Senate was dropping a proposal to impose higher taxes on vaping, oral nicotine and other Next Generation Products.
3:20pm:
US markets have opened higher despite US inflation data that some pundits think will put added pressure on the US central bank to hike interest rates.
The S&P 500 was up 21 points (0.5%) at 4,689 and the tech-heavy Nasdaq Composite was 67 points heavier (0.4%) at 15,584.
Nov US CPI index level is same as what a year ago IMF expected to see in early 2024! In fact, exactly a year ago, consensus was forecasting ~2% US inflation in 4Q21????
Very hard to fcst anything in a post covid World
Keep that in mind while u go through myriad year ahead outlooks! pic.twitter.com/IiN0QPfQ5Y
— Ashutosh Bhargava (@ashubhargava123) December 10, 2021
“Although in-line with expectations, today’s CPI figure marks another push higher to new 30-year highs. This is sure to continue grabbing economic and political attention, with increases in prices seen in every category versus last month including services, goods, energy and food,” said Caleb Thibodeau of Validus Risk Management.
“On a long timescale, consumer prices may still only be gyrating about the mean as a reaction to continued supply-side bottlenecks. Regardless, the political pressure on President Biden, and hence the Fed, to acknowledge and act has grown immensely,” he added.
In London, the FTSE 100 hit the snooze button around noon and although it is now showing signs of movement, those are in a southerly direction. The index is down 14 points (0.2%) at 7,308.
2.15pm: US inflation rises to 6.8%
The US inflation rate has risen to 6.8%, its highest level since Ronald Reagan was snoozing his way through presidential meetings.
The inflation rate rose from October’s 6.2% and was in line with forecasts.
“The reading which is the highest level in nearly 40 years comes as little surprise to the market due to the ongoing supply chain issues, robust consumer demand and base effects from last year kicking in. This is likely to add further pressure to the Fed to quicken the withdrawal of quantitative easing and raise interest rates sooner than expected,” predicted Dan Boardman-Weston, the chief investment officer at BRI Wealth Management.
“There could be hesitancy from the Fed due to the potential impact that Omicron may have on the economy in the coming months but it’s unlikely this will significantly alter the growth trajectory of the economy. The US economy is in rude health and doesn’t require crisis levels of quantitative easing or interest rates and so it remains our view that policy will become tighter. It is important to note that whilst inflation is high and getting higher, the supply chain issues, the high levels of demand and base effects are likely to prove transitory and we continue to believe inflation will move lower over the coming year,” he added.
Robert Alster, his counterpart at Close Brothers Asset Management, said inflation has broadened out across the consumer price index basket.
This, Alster expects, will put greater pressure on the US central bank, the Federal Reserve, to address “transitory” factors that are keeping prices high.
US Annual CPI Rate Hits Near 40-Year High https://t.co/B5uaxZoRAL pic.twitter.com/Ao4nHhT4Ei
— LiveSquawk (@LiveSquawk) December 10, 2021
“While the cost of living is going up and up, all support measures have expired and no new ones have been introduced, which will likely dent consumer confidence and rising rental equivalent costs continue to spiral in the background, indicating longer-term inflationary problems,” Alster said.
“In this pressure cooker, the Fed isn’t afraid to be more hawkish. Powell [the chair of the Federal Reserve] has already made it clear that there’s a strong chance of accelerating tightening measures, which could mean quickly tapering purchases to facilitate an interest rate hike down the line. But the global economy is at a serious juncture thanks to the emergence of the Omicron variant this month. Only time will tell what the impact will be, and how far it will upset the Fed’s plans in the new year,” Alster said.
US markets look set to take the news in their stride, with the S&P 500 tipped to claw back yesterday’s losses and open 33 points higher at 4,700.
In London, the standby light is clearly visible on the FTSE 100, which is more or less unchanged.
1.10pm: At lunch; back in three hours ...
It’s (almost) back to square one for the Footsie; either that or traders are taking this return to the seventies vibe a bit too far and are on a three-hour lunch break.
London’s index of leading shares was down a single point at 7,320, with its rally from a weaker start largely down to demand for oil stocks.
The price for Brent crude for February delivery is up 59 cents at US$75.01, prompting rises for Royal Dutch Shell PLC (LSE:RDSB) and BP PLC (LSE:BP.), both of which are up 1.0%.
“Oil prices are on track for their biggest weekly gain since late August, with market sentiment buoyed by easing concerns over the Omicron coronavirus variant's impact on global economic growth and fuel demand,” said SP Angel, the boutique broker focused on resource stocks.
“Reports in South Africa said Omicron cases there had only shown mild symptoms and the infectious disease official, Anthony Fauci, confirmed ‘it does not look like there's a great degree of severity’,” the broker continued, noting that the price of Brent is up 38% this year, “supported by output curbs led by OPEC+”, though it is off its 2021 high of US$86 a barrel.
12.05pm: Praise be! A step into positive territory
Deck the halls! The FTSE is ding-donging back into positive territory, up 3 points to 7324.
Earlier negativity, which had coincided with the introduction of tighter restrictions to curb the coronavirus, had seen stock markets around Europe start the day trading lower, with Germany's DAX and Italy's MIB also down.
Yields are on the up and the Footsie leaderboard is dominated by financials.
London Stock Exchange Group PLC (LSE:LSEG), Phoenix Group Holdings PLC, Barclays PLC (LSE:BARC), Prudential PLC (LSE:PRU), Aviva PLC, M&G PLC (LSE:MNG) , Abrdn PLC (LSE:ABDN) and Schroders PLC (LSE:SDR).
Market analyst Walid Koudmani at XTB says that traders are awaiting today’s key data releases from the US, including preliminary consumer confidence as well as inflation numbers.
"Both these reports could have a noticeable impact on stocks," Koudmani says.
"A better than expected outcome from today’s data could reassure markets that despite growing fears related to the new variant the economy continues to recover which in turn could encourage the FED to change its approach in the near term. On the other hand, worse than expected reports could further incentivize the central bank to take action, something which may be closely followed by its peers around the world."
10.55am: Creeping up slowly
The FTSE 100, like 'inertia' in the 1998 Massive Attack song, keeps creeping up slowly towards the flat line as the session goes on, currently down 6 points at just under 7,315.
British American Tobacco PLC (LSE:BATS) and Berkeley Group Holdings plc are leading the risers.
Meanwhile, Deutsche Bank's research team has shares the results of its special 2022 global financial market sentiment survey conducted earlier in the week with over 750 market professionals across the world.
The biggest risk remains higher than expected inflation, according to the survey, with an aggressive tightening cycle from the US Federal Reserve at number two, followed by vaccine-escaping variants to bring Covid risks back into the top three after its absence in the preceding survey.
"Most respondents expect growth to decrease below consensus economists' expectation in 2022 but still above trend, and for ten-year Treasury and Bund yields to increase but with Bund yields increasing more. The next US recession is expected by 2024 by most, but with only 4% thinking 2022."
The average expected return for the S&P 500 next year is just 4.2%, according to the survey respondents, well below average annual returns over the last decade, while US CPI expectations are for 3.8%, with average expectations for the next five years continuing to drift higher, at 2.7%.
Respondents overwhelmingly think the US Fed taper will finish in the first half of next year, with 54.7bps of hikes expected in 2022, slightly below what the wider market is pricing.
Deutsche also asked about whether bitcoin is likely to go in 2022, and the answers differed markedly depending on whether respondents were older or younger than 35.
Bitcoin is more likely to halve than double, the DB survey found, that was unless you are under 35, where respondents believe the opposite is true.
The financial world's 'favourite Christmas song' was another revalation in the survey, but you will have to get the report to find out, "interestingly there's a different number one in each region", the analysts said.
9.50am: UK economy "was already losing steam"
Disappointing UK gross domestic product (GDP) data does not seem to have done much harm to market sentiment.
The FTSE 100 was down 16 points (0.2%) at 7.305, with fallers outnumbering risers by around two to one.
October’s GDP showed that the economic recovery has continued to lose momentum, according to Samuel Tombs at Pantheon Macroeconomics.
GDP rose by 0.1% in October while the quarter-on-quarter growth rate slowed to 0.9% from 1.3% in September.
“Admittedly, the 0.6% month-to-month decline in industrial production was driven by a 2.9% fall in output in the energy supply sector, which is influenced by changes in average temperatures. In addition, the 1.8% drop in construction output—the biggest since April 2020—reflects shortages of raw materials, which PMI [purchasing managers’ index] data suggest have eased more recently,” Tombs said.
“Nonetheless, the 0.4% rise in services output was driven by another hefty increase in output in the health and social care sector, this time of 2.6%, due to a further surge in the number of people visiting their GP. Private non-distribution services output rose by a more modest 0.2%, its joint-slowest increase since the current expansion began in February. It still is 2.6% below its January 2020 level, primarily reflecting continued large shortfalls in activity in the transport services, admin and support services, and ‘other’ services components, the latter of which includes hairdressers and membership organisations,” Tombs added.
“Looking ahead, we assume that a combination of renewed consumer caution and the rapid rollout of booster jabs will suffice to prevent the NHS from being overwhelmed by Covid-19 cases this winter,” Tombs said.
Maike Currie, the investment director at Fidelity International said the steam has “well and truly been taken out of economic recovery”.
“With the government moving to implement its ‘Plan B’ over concerns on the Omicron variant, there is a creeping sense of déjà vu. Workers are heading back to their kitchen tables and the big festive season that retailers and the hospitality sector had their hopes pinned on - while starting on a high during Black Friday - might not have as much sparkle as hoped,” Currie said.
“As we edge towards 2022, growth forecasts have been downgraded for the year ahead with GDP expected to reach just 4.2%. High levels of inflation and Omicron concerns are likely to limit consumer spending as businesses battle ongoing headwinds. With uncertainty in the air, the path ahead is becoming increasingly difficult to navigate. The Bank of England will be acutely aware that it’s harder to dig an economy out of recession than to cool rising inflation, which makes an interest rate rise next week increasingly unlikely,” Currie opined.
8.30am: Tech stocks sell-off continues to hit SMT
Scottish Mortgage Investment Trust PLC (LSE:SMT) leads the Footsie’s retreat in the wake of yesterday’s tech-stock shake-out.
The FTSE 100 was down 19 points (0.3%) at 7,303, with Scottish Mortgage off 1.6% at 1,400.5p after the Nasdaq Composite index in the US fell 1.7%.
Associated British Foods PLC (LSE:ABF), up 0.4% at 1,942p, is among the risers after its trading statement today issued ahead of its annual general meeting.
The company said its Primark chain has had to increase its famously low prices as it struggles with closures of some European stores, supply chain disruption and higher energy, logistics and commodities costs.
Bad news for shoppers seeking a bargain but good news, judging by the share price reaction, for the group’s shareholders.
UK gross domestic product rose by 0.1% in October following September’s 0.6% rise. The consensus forecast had been for a 0.4% increase.
0.1 pc rise in #UKGDP in October shows output rebound from the pandemic is running out of steam, plateauing below the pre-pandemic level. We’ve yet to see the impact of “Plan B” measures which will hit GDP in December and beyond. Prospects for UK growth in 2022 now look weaker.
— Andrew Sentance (@asentance) December 10, 2021
6.40am: Omicron fears back to haunt the market
UK stocks are set to open moderately lower, with traders waiting on this afternoon’s US inflation report.
Spread betting quotes point to the FTSE 100 index opening 34 points lower at 7,287.
“Last night a combination of data confirming omicron is 4x more contagious than delta, and Fitch declaring Evergrande and Kaisa were in selective default, was enough to see the tail-chasing FOMO [fear of missing out] herd take risk off the table,” said Jeffrey Halley at OANDA.
“A massive debt restructuring exercise now beckons for China’s more highly leveraged property developers, raising fears that China growth will take a dip next year. That will be enough to keep Asian currencies and regional stock markets nervous, although the new ‘risk management’ committee at Evergrande suggests the government is already behind-the-scenes disembowelment process has begun. The main risk point here, for now, will be if the selective default by Fitch triggers cross-defaults on other debt resulting in immediate calls for payment. Bondholders, especially offshore ones, may leave the gun on safety. Although the PBOC [Chinese central bank] has quite clearly said Evergrande will be resolved on commercial terms, the involvement of the government means immediate payment demands and asset seizures within China are off the table through the courts,” he added.
US markets retreated yesterday despite what an unchanged Dow Jones average might indicate. The broader-based S&P 500 gave back 34 points (0.7%) at 4,667 while the tech-laced Nasdaq Composite tumbled 270 points (1.7%) at 15,517.
“Expectations for today’s November CPI [consumer price index] are for prices to rise further to 6.8%; however, some have suggested we could hit 7%, which would further reinforce the argument for an accelerated pace in tapering. Core CPI is expected to rise to 4.9%,” said CMC’s Michael Hewson.
“Before that however we have some UK data including the latest monthly GDP [gross domestic product] numbers for October, which are expected to show the economy rose by 0.4%, slightly down from the 0.6% in September, with the index of services forecast to contribute to all of that expansion.
“Industrial and manufacturing production are expected to pick up after the contractions seen in September. October industrial production is forecast to rise 0.1%, and manufacturing production to rise by 0.2%,” he added.
Despite the global Britain rhetoric, the UK has become a *smaller* international trader since Brexit.
Chart shows trade flows as share of GDP - it's holding up for main EU countries, but has declined sharply for UK in recent years ????https://t.co/51RGZOO2MQ pic.twitter.com/FpT1epRb0b
— Ben Chu (@BenChu_) December 8, 2021
The corporate agenda in London is about as threadbare as it usually is on a Friday.
Primark-owner Associated British Foods PLC (LSE:ABF) is holding its annual general meeting today and that should see the usual trading update delivered.
The group, which as the name suggest also has considerable foods interests (but Primark is the only bit anyone ever seems to be interested in), said last month it was expecting “significant progress” in group adjusted operating profit and adjusted earnings per share as Primark rebounds strongly.
Management previously predicted the group would claw back an estimated £2bn of sales lost due to store closures last financial year if there were no more COVID-19 restrictions introduced.
That was before the UK government's new Covid guidance in the wake of the emergence of the omicron variant, which has muddied the waters somewhat.
6.50am: Early Markets - Asia / Australia
Asian markets were lower on Friday as Chinese property giant Evergrande was officially labelled a defaulter for the first time.
Fitch Ratings cut the developer to restricted default over its failure to meet interest payments after a grace period expired on Monday.
China’s Shanghai Composite slipped 0.36% and Hong Kong’s Hang Seng was 0.79% weaker.
The Nikkei in Japan slumped 1% while South Korea’s Kospi dipped 0.59%.
Australia’s S&P/ASX200 closed 0.42% lower at 7353.5 points, hit by energy and technology stocks, but managed to post its first weekly gain since early-November.