- FTSE 100 closes 12 points lower
- US stocks drop after strong PPI data
- Fed meeting outcome eyed tomorrow
4.50pm: Footsie reverses with Wall Street
The FTSE 100 index ended weaker on Tuesday as US stocks dropped back once more after strong US wholesale inflation PPI data created concern ahead of the outcome on Wednesday of the latest two-day Federal Reserve policy meeting.
At the close, the UK blue-chip index was down 12.80 points, or 0.2% at 7,218.64, the session low, well below the day's peak of 7,284.47.
On Wall Street, around London’s close, the Dow Jones Industrials Average had shed 115 points, or 0.3% at 35,534, while the broader S&P 500 index dropped 1.1%, and the tech-laden Nasdaq Composite fell 1.8%.
Chris Beauchamp, chief market analyst at IG, a global leader in online trading commented: "Buyers are still in short supply across markets as we await the Fed tomorrow. US producer prices have risen sharply, at their fastest pace since 2010, something likely to put the discussion tomorrow into a more hawkish frame. Tech stocks continue to be the big losers, while by comparison the Dow, with its relatively smaller tech weighting than its broader rival the S&P 500, is holding up well, losing only around 0.3%.
"Investors continue to expect higher prices to flow through the economy regardless of what the Fed does, but a shift towards rate hikes next year seems very much nailed on. In sharp contrast, the BoE later in the week is expected to hold fire, but given how the market has piled into short positions against sterling in recent weeks it is proving hard to push GBP/USD much lower ahead of Thursday’s meeting."
3.45pm: FTSE 100 in the green but US markets head south
Leading shares remain in positive territory but have so far failed to make up for Monday's losses.
As investors await the latest central bank verdicts, with the US Federal Reserve tomorrow and Bank of England on Thursday, they are weighing up whether the omicron variant or the latest pricing pressures will be uppermost in policymakers' minds.
The latest US producer prices numbers show further signs of inflation which may have an impact on the Fed's thinking.
So with a downbeat performance on Wall Street - all three major indices are now in the red - the FTSE 100 is positive but off its best levels.
The leading index is up 21.07 points or 0.29% at 7252.51, having earlier climbed as high as 7284.
Ocado Group PLC (LSE:OCDO) remains the day's biggest riser in the blue chip index, up 8.89% as it forecast its best ever Christmas and won an initial victory in a patent case.
Miners benefited from firm commodity prices, with Rio Tinto PLC (LSE:RIO) rising 2.63% and BHP Group PLC (LSE:BHP) 2.33% better.
Lloyds Banking Group PLC (LSE:LLOY) was lifted 2.31% after positive Bank of England stress tests on the sector.
British Airways owner International Consolidated Airlines Group (LSE:IAG) recovered some of its virus-related falls, up 2.69%.
But Rentokil Initial PLC (LSE:RTO) is down 10.19% after it made a major US acquisition in the form of a US$6.7bn cash and share deal for termite and pest control firm Termini.
And BT Group PLC (LSE:BT.A) has fallen 5.38% as French group Altice increased its stake to 18% but ruled out a bid for the UK telecoms firm.
2.59pm: Investors weigh up producer price data
US shares made a mixed start as investors mulled over US producer price inflation, which came in higher than expected.
The Dow Jones Industrial Average recovered from an initial fall to stand 0.2% or 70 points higher.
But the S&P 500 shed 0.41% or 19.19 points while the tech heavy Nasdaq Composite fell 0.93% or 143 points.
In November the producer price index showed a year-over-year increase of 9.6%, the fastest pace on record.
"We expect another hefty increase in the core in December, lifting core PPI inflation to 9.0% from November’s 7.8%. But this should be the peak," said Ian Shepherdson, chief economist at Pantheon Macroeconomics in a note.
"A combination of favorable base effects and smaller month-to-month increases should start to drive down the year-over-year rate, though we expect it to remain above 6% through mid-year."
In the UK, the FTSE 100 - after a slight dip into the red - is now up 22.36 points or 0.31% at 7253.80.
1.56pm: US markets head further into negative territory
Wall Street has gone further into the red after the strong producer prices figures puts more pressure on the Federal Reserve to act to tame inflationary pressures.
The Dow Jones Industrial Average is now showing a 0.3% or 112 point decline, the S&P 500 is forecast to open 0.58% lower while the Nasdaq Composite is indicated down 1.01%.
In the UK, the FTSE 100 is now up just 11.47 points or 0.16% at 7242.91.
1.35pm: US producer prices hit 11-year high
More signs of inflationary pressures in the US economy as the Federal Reserve meets to decide its next actions.
The producer price index rose 9.6% for the 12 months to November, higher than the October figure of 8.6% and the forecast number of 9.2%.
It is the largest advance since 12-monthly figures started to be calculated in November 2010.
U.S Producer Price Inflation
- +0.8% MoM vs +0.5% expected
- +9.6% YoY vs +9.2% expected
- Core PPI MoM +0.7% vs +0.4%, YoY +7.7% vs +7.2% expected
Another brick in the wall for an even more rapid than expected tightening
Chart: True Insights pic.twitter.com/mH4lFYksVo
— Avid Commentator ???????? (@AvidCommentator) December 14, 2021
12.30pm: Investors await latest US producer price figures
US stocks are expected to open weaker Tuesday as concerns about the impact of the Omicron variant of coronavirus (COVID-19) on the global economy increase and with the US Federal Reserve’s latest two-day policy-setting meeting getting underway.
Futures for the Dow Jones Industrial Average eased back 0.05% in pre-market trading, while the broader S&P 500 index shed 0.23%, and those for the tech-heavy Nasdaq 100 declined 0.56%.
After reaching a new record on Friday, the S&P 500 fell 0.91% to 4,669 on Monday, while the Dow retreated 0.89% to 35,651 and the Nasdaq Composite dropped 1.39% to 15,413.
US Fed chair Jerome Powell is expected to announce an acceleration in the winding up of the central bank's quantitative easing (QE) program when the Federal Open Market Committee wraps up its meeting on Wednesday after data released last Friday showed the US consumer price index surged 6.8% year-over-year in November.
The latest signs for the US economy come before Wall Street opens in the shape of producer prices.
These will be widely watched given the strong consumer price figures, and the fact that the producer price index is often a leading indicator.
Michael Hewson at CMC Markets said: "Having seen US CPI for November come in at 6.8% last week, up from 6.2% the month before and its highest levels since 1982, you’d be forgiven for thinking that perhaps yields would have pushed sharply higher. In fact, they did the opposite, falling back sharply. This comes across as a rather odd reaction, at a time when inflation risks show little signs of peaking.
"One reason for the slide in yields was the belief perhaps that the CPI number could have come in higher, which if it had could have prompted a sharper response from the Federal Reserve when they conclude their meeting tomorrow.
"This may well be a touch premature especially with US PPI for November which is due out later today. As a leading indicator for CPI, it has proved to be fairly accurate in the last few months, and is expected to continue to move higher from where it was in October, when it came in at 8.6%. As a reminder US PPI was at 1.7% in January, and today is expected to rise to 9.2%, and up to 7.2% excluding food and energy.
"For those on the FOMC who have been sounding the alarm on inflation in recent months, this afternoon’s readings are only likely to reinforce those inflation concerns, with further upward pressure expected to continue in the weeks and months ahead."
Back in the UK, the FTSE 100 remains positive, up 33.10 points or 0.46% at 7264.54.
A strong PPI number here could well force the FOMC to accelerate tomorrow’s taper beyond the doubling that is currently expected by the markets.
11.25am: Oil demand set to be lower than forecast
Oil prices are fairly flat as the International Energy Agency said demand for oil would be lower than expected next year.
It said the new restrictions on air travel following the omicron variant would slow demand, especially in jet fuel, but would not completely derail the recent recovery.
Brent crude has edged 0.01% lower to US$74.38 a barrel while West Texas Intermediate is off 0.03% at US$71.27.
The IEA has cut its outlook for the both the remainder of this year and 2022 by 100,000 barrels a day.
10.31am: To raise, or not to raise?
The week's central bank meetings are a major focus for investors, as they weigh up how policymakers will react to the spread of the omicron variant at the same time as inflationary pressures are growing.
Craig Erlam, senior market analyst at OANDA, said: "Equity markets are moving cautiously higher on Tuesday, as investors await the plethora of central bank decisions in the coming days that could shape how we end the year...
"The question this week is whether central banks perceive inflation or omicron to be the greater risk. The consensus view still appears to be that price pressures are driven by temporary factors that will largely correct over time but every month of inaction is a risk. This is why we will at least see some warn of impending action...
"The Bank of England is one that was widely expected to raise rates this week and today's jobs report highlights why. The unemployment rate fell to 4.2% in the three months through to October, while wages rose by 4.9% in the same period and companies hired at a record pace last month. Clearly, the impact of the end of the furlough scheme was minimal which would have been the final box ticked for the MPC, had it not been for omicron.
"While a rate hike could still happen this week, markets are not positioned for it and instead expect the central bank to hold out until February. With so much uncertainty over omicron, as it spreads rapidly throughout the UK, and whether more restrictions will be imposed, it makes little sense to act now without a clear picture."
The FTSE 100, while off its best levels, is also off its worst, up 23.87 points or 0.33% at 7255.31.
10.05am: Rentokil goes into reverse after major US deal
An initial burst of enthusiasm on news that Rentokil Initial PLC (LSE:RTO) was paying US$6.7bn in cash and shares for US termite and pest control firm Terminix has disappeared.
Rentokil chief executive Andy Ransom, said: "This is an exciting and transformational combination that will create the global leader in commercial, residential and termite pest control, and a leader in North America, the world's largest pest control market."
But the company's shares are now down 3.04% at 605.4p, having earlier climbed to 662p.
Russ Mould, investment director at AJ Bell, said: "We’ve got so used to UK companies being targets for overseas acquirers we almost forgot they could be predators as well as prey.
“Pest control and cleaning services firm Rentokil has delivered a stunning reminder with its multi-billion-pound takeover of US rival Terminix – a deal which so far seems to be getting a mixed response from the market. The shares were up initially but soon traded lower as investors digested the information.
“The company is paying a fairly chunky premium, though a significant component is accounted for by its own shares.
“Those shares are worth a lot more after a strong run during the pandemic when Rentokil’s hygiene and cleaning expertise has been in strong demand.
“There are clearly big savings to be made around back-office functions and the uplift to earnings will be impressive. The promise of a stronger market position in the US is obviously exciting for shareholders but could also draw the ire of anti-trust regulators across the pond.
“The use of the word ‘transformational’ to describe the deal by Rentokil boss Andy Ransom may also be giving some investors pause for thought. It’s not hard to see the strategic rationale behind the move but so-called transformational deals often transform the purchaser’s prospects for the worse rather than the better.”
Meanwhile the FTSE 100 is also fading a little, as investors look to the major central bank meetings due this week, where monetary policy could well be tightened.
The leading index is now up 18.56 points or 0.26% at 7250.
9.25am: Miners and banks in demand
Mining and banking businesses are providing some support for the market.
Continuing strength in metal prices has helped lift BHP Group PLC (LSE:BHP) 2.35%, with Rio Tinto PLC (LSE:RIO) rising 1.21% and Antofagasta PLC (LSE:ANTO) adding 0.97%.
Meanwhile banks have taken comfort from a positive result from the latest Bank of England stress tests.
Even if unemployment rose to 12% and house prices crashed by 33%, UK banks' capital would still be above dangerous levels said the Bank, even allowing for Omicron outbreak.
So Lloyds Banking Group PLC (LSE:LLOY) is up 1.55% while NatWest Group PLC (LSE:NWG) has climbed 1.21% and Barclays PLC (LSE:BARC) is 1.19% better.
The FTSE 100 remains upbeat, 44.14 points or 0.61% better at 7275.58.
But BT Group PLC (LSE:BT.A) remains the biggest faller, down 4.98% as hopes of an imminent bid from France's Altice were dashed.
Altice owner Patrick Drahi was free to bid from last weekend, but at the same time as announcing an increased stake of 18% today, he ruled out making an offer unless a third party stepped in.
That means that he is ruled out from any move for another six months unless circumstances change dramatically.
Meanwhile the UK government hardly seems keen on the idea. It said it was monitoring the situation and would "not hesitate to act if required to protect our critical national telecoms infrastructure."
8.23am: Leading shares recover some lost ground
After falling back around 60 points on Monday, the FTSE 100 has recovered some of the lost ground in early trading.
The leading index is up 44.7 points or 0.62% at 7276.14.
Ocado Group PLC (LSE:OCDO) has given the index a boost, adding 3.33% after an initial win in a patent infringement case in the US against Norwegian firm AutoStore.
The court news overshadowed a 3.9% drop in sales to £547.8mln in 13 weeks to the end of November, as cost pressures, staff shortages and more customers working back in the office all affected its business. It also faced disruption at its Erith customer fulfilment centre. But it did forecast its "best-ever" Christmas.
Richard Hunter, head of markets at interactive investor, said: "For all the reported progress, the market excitement towards Ocado is found in the Solutions business, where sales progress is not covered in this update. The Ocado Smart Platform is the state of the art system on which much of the company’s future growth is planned, and it is here where the fastest growth is likely to be recorded should the company be able to maintain its record of new third party partnerships both at home and abroad.
"Given the perceived lack of growth as compared to high expectations, Ocado has struggled to shrug off its reputation as a “jam tomorrow” stock, with the shares having declined by 27% over the last year, as compared to a gain of 11% for the wider FTSE100 index."
Meanwhile BT Group PLC (LSE:BT.A) has fallen 4.58% despite France's Altice lifting its stake from 12.1% to 18% at a cost of around £1bn.
Altice had been free to bid for the UK telecoms giant, but investors seem disappointed it has not yet made a move and indeed is not planning one at the moment.
Indeed Patrick Drahi, the billionaire owner of Altice, said his company had been engaging constructively with BT over recent months and looked forward to continuing the dialogue. He said Altice remained fully supportive of its strategy.
For its part BT said: "The board and management of BT Group will continue to operate the business in the interest of all shareholders and remains focussed on the successful execution of its strategy and building on recent performance momentum."
7.56am: UK jobs market improves
The UK unemployment rate has slipped to a 15 month low in the three months to October.
The latest figures from the Office for National Statistics show a drop from 4.3% to 4.2%, in line with expectations.
The employment rate rose by 0.2 percentage pooints to 75.5%
And the number of job vacancies rose to a new record of 1.219mln.
The figures will add more fuel to the argument that the Bank of England should raise interest rates.
But the spread of the omicron variant means any move is more likely in February that at this week's meeting.
Laith Khalaf, head of investment analysis at AJ Bell, said:
"The high level of vacancies isn’t feeding through into higher wages across the economy as a whole. Wage growth continued to moderate, with regular pay growth falling to 4.3%, down from a peak of over 7% earlier this year...
"A strong jobs market clearly makes the case for a rise in interest rates from historic lows. The Bank of England has been quite sensibly waiting for data which is not heavily distorted by the furlough scheme, and that is now beginning to emerge. The Bank will likely want to see a bit more sustained stability in the labour market post furlough, and to assess the damage wrought by the Omicron variant. That makes a Christmas rate hike unlikely, but barring severe social restrictions pegging the economy back, the Bank will probably begin to tighten policy in February.”
And the CBI worries about the damage the new restrictions may cause.
Matthew Percival, CBI Director of Employment, said: “Job creation remained strong this autumn, but continuing difficulty hiring, the emergence of omicron variant and new restrictions will mean a challenging winter for businesses.
“The government is taking necessary action now to protect the public, but the economy should remain as open as is feasibly safe to do so in the coming weeks. More effort must go into promoting actions that can build confidence and protect public health, like daily contact testing and mask wearing.
“With Plan B coming in, the net effect is that demand in some sectors will be suppressed. Those sectors hardest hit must be closely monitored as further targeted support may yet be needed."
6.50am: UK market set to follow Wall Street lead
The FTSE 100 has been tipped to bounce back on Tuesday, putting its head above the parapet after Wall Street slumped lower overnight.
London’s blue-chip equity benchmark should rise around 18 points, according to spread-betters in the City, after dropping just over 60 points or 0.8% to 7,231.44 at the start of the week.
Later, in New York, the Dow Jones slipped 0.9%, while the S&P 500 index fell 0.9% and the tech-laden Nasdaq and small caps of the Russell 2000 both slumped 1.4%.
Investors are wary of placing any bigger bets ahead of the major central banking events this week, said market analyst Naeem Aslam at AvaTrade.
“There is no doubt that there isn’t much clarity in relation to central bank’s monetary policies as Omicron has thrown several obstacles in their way.”
He added that investors should expect stock markets to be volatile in the remaining days of the week.
Today’s focus in London will be on the latest UK unemployment figures for the three months to October, with expectations are for the headline ILO unemployment number to fall further to 4.2%.
A month ago the reading was 4.3%, with the monthly September figure falling to 3.9%, while vacancies rose to a new record of 1.17mln after a rise of 64,000.
Coming on top of the Bank of England's uneasiness about higher inflation, today’s unemployment and tomorrow’s inflation data should be "the cherry on the top, when it comes to a rate rise later this week", said Michael Hewson, market analyst at CMC Markets.
"However recent events around the Omicron variant adding to the uncertainty, there is no guarantee that a decent set of unemployment numbers today, and another rise in headline CPI, will tee us up for a Thursday rate increase."
Bears have taken control of crypto markets overnight, with bitcoin breaching the important $50,000 level as it tumbled as much as 8.40% yesterday to below $46,000.
The Bloomberg Galaxy crypto index also dropped about 7.40% which shows that sentiment in broader crypto markets has taken a hit.
“The drop in Bitcoin prices on Monday pushed the digital coin below its 200 days average which is negative news for crypto enthusiasts,” Aslam said.
“The recent price action of cryptocurrencies disputes the argument that the blockchain space has finally matured because of which extreme volatility in markets will likely decrease moving forward. However, this does not seem to be the case.
“Similarly, some investors consider digital coins to be a hedge against inflation, and rising consumer prices were to some extent able to provide some support to crypto markets last week. However, crypto markets were not able to sustain the rally.”
In UK company news today, Ocado Group PLC (LSE:OCDO) and Marks and Spencer have a trading update, with Ocado walking tall after a big legal win overnight.
In a patent infringement case in the US, an International Trade Commission judge ruled that three patents filed by Ocado rival AutoStore are invalid, with the FTSE 100 company not infringing on a fourth.
The decision remains to be reviewed by the commission before a final verdict is released, which is expected in April.
6.50am: Early Markets - Asia / Australia
Asia-Pacific shares were lower ahead of the US Federal Reserve’s two-day meeting starting Tuesday.
The Fed will release a statement on Wednesday with quarterly projections for the economy, inflation and interest rates.
China’s Shanghai Composite fell 0.36% while Hong Kong’s Hang Seng index slumped 1.14% with shares of recently listed Weibo dropping more than 5%.
The Nikkei in Japan declined 0.62% and South Korea’s Kospi slipped 0.17%.
Australia’s S&P/ASX200 closed marginally lower at 7378.4 points (-0.01%). Mesoblast shares fell 17.4% to a 20-month low of A$1.40 after revealing Novartis was walking away from a planned deal.