- FTSE 100 down 48 points
- DCC boosted by US buy
- Pound picks up on inflation data
4:55pm: FTSE 100 ends lower, US stocks down midday
The FTSE 100 finished the day on a down note, falling 48 points, or 0.7%, to 7,171, as consumer prices increased 5.1% in November, the highest level in a decade, ahead of a Bank of England meeting.
“The market was generally expecting that we were going to see a high inflation number. It just increases the pressure but not sure if it really changes the outcome of Bank of England at this point,” Janus Henderson Investors multi-asset portfolio manager Oliver Blackbourn said.
“It is becoming increasingly difficult to understand the reaction function given the way that they have moved around recently,” Blackbourn added.
Notable movers included shares of Cineworld Group PLC (LSE:CINE), which plunged nearly 40% after a Canadian court ruled that the company is required to pay $957 million in damages for terminating its takeover deal with rival Cineplex (TSX:CGX).
3.25pm: Leading shares close to day's low
Leading shares have been in the red most of the day, and that seems unlikely to change as we head into the close.
With UK inflation hitting a ten year high as the Bank of England meets to decide its policy response, investors are feeling a little nervous.
Add to that the expected tapering by the US Federal Reserve, as well as the prospect of further restrictions as the omicron variant spreads, and it is little surprise the market is under pressure.
The FTSE 100 is currently 47.79 points or 0.66% lower at 770.85, near its low for the day.
Two US acquisitions, two completely different reactions.
DCC PLC (LSE:DCC) is up 8.39% after paying US$610mln (£462mln) for US distribution business Almo Corporation.
But Rentokil Initial PLC (LSE:RTO) is down 5.11% in the wake of this week's purchase of US pest control group Terminix for US$6.7bn in shares and cash.
Commodity companies are out of favour on fears of the effects of omnicron on the global economy, with Antofagasta PLC (LSE:ANTO) falling 3.15%
International Consolidated Airlines Group (LSE:IAG) is down 3.44% as it pulled the plug on the planned acquisition of Air Europa by its Iberia subsidiary.
Retailers are being hit by the prospect of further restrictions hitting their business, with JD Sports Fashion PLC (LSE:JD.) falling 3.03% and Primark owner Associated British Foods PLC (LSE:ABF) down 2.28%.
2.48pm: US investors nervous as they await outcome of central bank meeting
US shares are in the red in early dealings as traders await the key Fed decision on speeding up the end of bond-buying, and as US retail sales last month increased less than had been expected.
In New York, the Dow Jones Industrial Average has shed 136 points or 0.38% at 35,407 while the S&P 500 is down 0.27%.
The technology-laden Nasdaq Composite has lost around 0.55%.
The US Federal Reserve's two day policy meeting ends today and the result is eagerly awaited.
"The FOMC simply cannot justify not tapering QE with consumer inflation at its highest since the early 80s, producer prices racing to an all-time high, GDP already above pre-pandemic levels and the labour market being tight," said Fawad Razaqzada, analyst at ThinkMarkets.
Craig Erlam, senior market analyst at OANDA, said: "The Fed is not likely to hesitate following its meeting today and is widely expected to accelerate the tapering of its asset purchases, allowing for rate hikes to start in the second quarter. It could be argued that it's taken longer than it should have but policymakers are finally coming around to the markets way of thinking and rate hikes are not far away.
"The retail sales data for November won't deter the Fed, with consumer spending more broadly remaining strong and the data perhaps signalling that purchases were brought forward as a result of supply concerns. The consumer remains in a strong position going into the new year and today's report won't be a cause for concern."
Meanwhile the FTSE 100 has, as is becoming par for the course, seen its decline accelerate in the wake of Wall Street's losses.
The leading index is now down 40.03 points or 0.55% at 7178.94, close to its low for the day.
1.54pm: US retail sales rise less than forecast
More food for thought for the US Federal Reserve as it decides its next policy move and whether to increase its tapering programme.
US retail sales rose by less than expected in November, up 0.3% after a 1.8% rise in October (itself revised upwards from 1.7%).
Analysts had been expecting a 0.8% increase last month.
The slower increase could indicate Americans brought forward their spending to October to avoid shortages and price rises.
Despite that, it is the fourth straight month of increases.
12.50pm: Crude price slips
It won't be much of a relief to those worried about inflationary pressures, but the oil price is slipping back.
Brent crude is down 0.98% to US$72.98 a barrel while West Texas Intermediate is 1.12% lower at US$69.94.
The dips come on concerns about falling demand as the omicron variant spreads and restrictions kick in, not to mention the prospect of central bank actions hitting the global economy.
Ipek Ozkardeskaya, senior analyst at Swissquote, said: "The barrel of US crude remains under pressure near the $70 level, as the International Energy Agency now says that the oil market has returned to a supply surplus and faces a bigger overhang in 2022 with the new travel restrictions thanks to an endless pandemic and higher supply with the release of strategic oil reserves from the US and other countries, and higher OPEC output. For now, the ‘risk’ of seeing the Iranian oil hit the market has reduced however, as the talks on the nuclear front don’t progress much.
"But it looks like, even if the impact of omicron is seen limited thanks to vaccination, it makes it harder to get the oil rally going above the $70 mark. As a result, there is a stronger case for a further pullback in oil prices toward the $60 mark, rather than a further rally toward the $80 level."
In the wake of the move in crude prices, BP PLC (LSE:BP.) is down 1.02% and Royal Dutch Shell PLC (A shares) (LSE:RDSA) has fallen 1.07%.
11.54am: US investors await central bank news
US stocks are expected to open mixed as investors await direction from the US Federal Reserve’s last policy-setting meeting of the year following higher than expected producer inflation numbers on Tuesday.
Futures for the Dow Jones Industrial Average rose 0.03% in Wednesday pre-market trading, while the broader S&P 500 index eased back 0.1% and those for the tech-heavy Nasdaq Composite shed 0.34%.
Fed chair Jerome Powell is expected to announce a faster winding down of the US central bank’s program of quantitative easing when the Federal Open Market Committee (FOMC) wraps up its two-day meeting. The producer price index showed a 9.6% year-over-year increase for November, the fastest pace on record and above the 9.2% expected by economists.
Stocks finished Tuesday’s trading session lower following the release of the inflation data, with the Dow losing 0.3% to 35,544, while the S&P 500 fell 0.75% to 4,634 and the Nasdaq Composite declined 1.14% to 15,238.
"The (Fed's) hawkish pivot has already been done in a series of public statements, so there ought not to be too many surprises," commented Neil Wilson, chief market analyst at Markets.com.
"We are expecting the FOMC to announce a swifter pace of taper – up to $30 billion monthly to get it out of the way in the first quarter and provide the optionality to get on with hikes. There is likely going to be coalescence around at least 2 hikes in 2022 – remember the September dot plot showed policymakers evenly split between the first hike in 2022 or 2022.
"I’d expect much more consensus around 2022 for lift-off and for there to be a majority favouring a minimum of two hikes next year – bringing it into line with the broad market consensus," Wilson added.
Back in the UK, the FTSE 100 is off its worst levels but still down 15.44 points or 0.21% at 7203.20.
11.45am: IAG deal to buy Air Europa is off
International Consolidated Airlines Group (LSE:IAG) has come back to earth after pulling the plug on a proposed acquisition.
The company is down 1.92% as it said it was in advanced discussions with Air Europa parent Globalia to terminate an agreement for its Iberia subsidiary to buy the business.
Laura Hoy, equity analyst at Hargreaves Lansdown,said: "The bad news just keeps coming for British Airways Parent IAG. News that the group will abandon plans to acquire Spain’s Air Europa is disappointing, though not completely unexpected. The deal was under scrutiny from EU Regulators who said the combination of IAG Spanish subsidiary Iberia and Air Europa created anti-competition concerns.
"Plus, the pandemic has taken a toll on IAG’s operations. Bringing Air Europa and the significant debt that came with it under its umbrella would have put further strain on the group’s balance sheet. With concerns about new covid variants looming over the travel industry at present, news that the deal is off the table isn’t all bad. IAG had called the acquisition a brave decision but one it was prepared to make to see Madrid to compete against other major European hubs and serve destinations around the world. Right now caution not bravery seems the game plan so the shopping list is being folded up, as the airline battens down the hatches to deal with the Omicron storm.’
"The airline industry is still ripe for consolidation as the pandemic separates weaker players from the herd. But without a clear path toward normalcy in the sector, it could be some time before anyone’s ready to make a bold move. “
10.58am: FTSE 100 underperforms on restriction worries
The rise in inflation and the prospect of further restrictions, despite a rebellion by a substantial number of MPs on the newest proposals, continue to unsettle investors.
Ahead of tomorrow's Bank of England decision on whether or not to raise interest rates, the FTSE 100 remains under pressure and is currently down 22.02 points or 0.31% at 7196.62.
Joshua Mahony, senior market analyst at IG, said: "UK inflation has helped lift the pound, driving FTSE 100 underperformance. ..
"UK stocks are trailing their European peers today, as work from home restrictions and the potential for Christmas group limits dent sentiment for high street retail names."
These include B&Q owner Kingfisher PLC (LSE:KGF), down 2.57%, and J Sainsbury PLC (LSE:SBRY). 1.53% lower.
10.20am: UK house prices dipped in October
UK house prices fell back in October compared to the previous month as the stamp duty holiday finally ended, according to government figures.
Prices fell by 1.1% between September and October to an average £268,349, the Land Registry said.
Year-on-year there was still a double digit gain in prices, albeit smaller than in the previous month. They rose 10.2% in the year to October, down from 12.3% in September.
Lucy Pendleton, property expert at independent estate agents James Pendleton, said: “House prices have tripped over the loss of the stamp duty tax break but it was a stumble rather than a fall. That said, change is in the air and house prices fell in October across 70% of UK regions. That was quite a turnaround in a single month.
“Double-digit annual growth going into the Christmas season is still a phenomenal showing given the challenges that have dogged the economy for nearly two years. However, it now looks like the market is pulling away from dizzying annual growth that has characterised the UK’s COVID-19-era housing market."
Jonathan Hopper, chief executive of Garrington Property Finders, said: “It says a lot about the state of the housing market when the annual rate of price growth can cool sharply and still be in double figures.
“After the blistering pace of inflation seen in the 12 months to the end of September, October’s figure almost feels like a return to normal.
“Of course there’s nothing normal, or sustainable, about average prices rising by over 10% a year. House prices are still rising at double the rate of consumer inflation, which is itself at a 10-year high.
“Still, the market is finally starting to settle after the frequently breakneck price growth recorded during the Stamp Duty holiday.
“On the front line we’re now seeing the froth receding in even some of the hottest regional markets, as sellers are forced to trim their asking prices in the face of buyers’ more sanguine approach."
10.01am: FTSE 100 fall accelerates
Things are not quite so calm now, with the decline in the leading index accelerating.
The FTSE 100 has now fallen 33.09 points or 0.46% to 7185.54, in the wake of the higher than expected UK inflation figures.
With the Bank of England and US Federal Reserve both meeting, the pressure is on for the central banks to act to curb the growing pricing pressures.
But raising rates - or in the case of the Fed, increasing the pace of its tapering programme - could well harm the economy, given the problem of the spreading omicron variant and the resulting restrictions on activity.
So mining shares are among the major fallers, on worries about falling demand for commodities.
Antofagasta PLC (LSE:ANTO) has fallen 2.39%, Rio Tinto PLC (LSE:RIO) is down 2.33%, Glencore PLC (LSE:GLEN) has lost 2.15%, Anglo American PLC (LSE:AAL) is 2.04% lower and BHP Group PLC (LSE:BHP) has dropped 1.5%.
Meanwhile Rentokil Initial PLC (LSE:RTO) is also under pressure, down 6.25% on further consideration of this week's hefty US deal.
9.14am: FTSE 250 edges higher despite Cineworld plunge
The mid-cap index is outperforming the FTSE 100 despite the pricing pressures in the economy, and is just about in positive territory.
The FTSE 250 has edged up 9.43 points to 22,560.12.
The performance is even more remarkable given some big falls in the index.
Cineworld Group PLC (LSE:CINE) has slumped 25.54% after it was ordered by the Ontario Superior Court to pay £725mln compensation for scrapping a US$2.1bn deal to buy Canadian rival Cineplex when the pandemic took hold in 2020.
Currys PLC (LSE:CURY) - the electrical retailer formerly known as Dixons Carphone - has lost 10.16% as it warned sales had softened in recent weeks while worries over Omicron would mean further headwinds.
Rival AO World PLC (LSE:AO.) is down 5.51%,
8.57am: Sterling higher after rise in consumer price index
The pound has edged up following the inflation numbers, with a rate rise from the Bank of England tomorrow back in prospect.
Sterling has added 0.39% against the US dollar to US$1.328.
Neil Wilson at markets.com - who believes the Bank should have already raised rates and cites the IMF to back him up - said: "Even if the BoE does not hike tomorrow – and it still could – there is plenty of hawkish noises it can make about next year to help sterling gather itself off the floor. The pound ticked higher on the inflation report, with GBPUSD advancing to its highest since Friday...there are signs the sellers are cleared out for the time being and we could see a short-term reversal towards the middle of the channel, though the double hit of the Fed and BoE this week makes calling it a tough one."
Meanwhile those inflationary pressures are not going to go away. Danni Hewson, AJ Bell financial analyst, said: “Global supply issues have most certainly played a huge part [in the inflation figures] and not just in the price of petrol. The continued chip shortage has limited the options of drivers looking for a new motor. Second-hand car prices have exploded, up a whopping 31.3% since April and with the number of new registrations way down on last year the demand/supply equation doesn’t bode well for the next 12 months at least.
“So, we know where many of the pressures are coming from. We can look back and consider how the numbers have been skewed by those last year. But it’s what’s coming down the tracks that we really need to pay attention to. The energy price cap will go up. Many of the things we buy will cost more unless manufacturers can swallow the extra they’re paying for raw materials. And wage growth has slowed. Put simply the next six months is going to hurt, a lot.
“Should the Bank of England raise rates tomorrow? Should they have done it twelve months ago because realistically that’s how long the measure takes to make an impact. Think back to December 2020 and imagine the reaction if the Bank had hiked rates then. Now consider where we are. There’s no question that prices are too high. There’s no question that if employers start to raise wages substantially that’s just going to add to the problem. There’s no question December 2021 is beginning to look a lot like December 2020 and there’s no question that whatever decision the Bank makes tomorrow it won’t bring a solution for today.”
Meanwhile the FTSE 100 is down 16.50 points or 0.23% at 7202.14.
8.23am: DCC gains after US deal
The leading riser in the blue chip index in early trading is marketing and support services group DCC PLC (LSE:DCC.
Its shares are up 5.05% to 5784p as it unveiled the US$610mln (£462mln) acquisition of US distribution business Almo Corporation, its largest acquisition to date. The business, which will substantially expand DCC's operations in North America, was acquired rom the Chaiken family, who have owned and managed Almo since its foundation 75 years ago.
In a buy note with a 7700p target, UBS analysts said: "Strategically, we think this is set to give DCC a strong position in attractive markets, while also significantly increasing the scale of DCC Technology to pursue further growth opportunities...DCC is trading on just 13x PE which we see as highly undervalued given we expect the group to deliver around 5% mid-term organic profit compound annual growth rate, even before including the £1.5bn or so of firepower for potential acquisitions."
8.16am: Leading shares slip at open
Well it could have been worse.
Despite UK inflation soaring and putting a rate rise tomorrow back on the agenda - not to mention increased restrictions despite a Tory rebellion in parliament as the omicron variant spreads - the market seems to have taken things in its stride.
The FTSE 100 is down just 10.56 points or 0.15% at 7208.08.
But this relative calm may not last.
Richard Hunter, head of markets at interactive investor, said: “Investor apprehension is growing as rising prices, a fast-spreading Omicron variant and a likely hardening of the Federal Reserve’s attitude to monetary tightening all conspire to undermine sentiment...
"A similar pattern is playing out in the UK, where a significantly higher than expected inflation reading puts the Bank of England on the horns of a dilemma. The figure of 5.1% compares to a previous figure of 4.2% and was expected to come in at 4.7%, which would usually prompt an interest rate spike. However, the recent Omicron variant has thrown the UK’s growth trajectory into doubt, notwithstanding a decent employment number yesterday. On balance, the market is still pricing in no change until the following meeting in February, although this inflation number could make the decision a closer call than had been expected.
"Generally higher prices, supply chain bottlenecks and a tight labour market are themes which will clearly spill over to the New Year, all of which will put further pressure on companies in considering whether to pass on these higher costs to consumers. With the current variant also impacting the hospitality and tourism industries, pressure is likely to remain on share prices for the time being."
8.04am: Inflation set to remain at 5% well into next year - NIESR
High levels of inflation are set to continue, according to the National Institute of Economic and Social Research.
NIESR Economist Janine Boshoff said: “Higher oil prices are becoming more evident in the transport category, which contributed more than a third to the 0.9 percentage point increase in headline inflation in November 2021. Price increases in clothing and footwear, food and non-alcoholic beverages, and alcoholic beverages and tobacco added a further 0.5 percentage points to consumer inflation in the month.
"Our measure of underlying inflation, which excludes extreme price movements, increased to 3.4 per cent in November from 2.1 per cent in October. Underlying inflation increased in all 12 UK regions, with consumers in London and the West Midlands feeling the pinch as the trimmed mean inflation rose to 4.3 and 4 percent, respectively.
"Our analysis suggests annual consumer price inflation will remain around 5 per cent in the first half of 2022, well above the Bank of England’s 2 per cent target.”
7.45am: Pressure on Bank after inflation surge
UK inflation has come in much higher than expected, putting more pressure on the Bank of England to raise rates at its meeting which starts today.
The consumer price index jumped from 4.2% in the twelve months to October to 5.1% last month.
This was a ten year high and compares to forecasts of a figure of 4.8%.
It is also more than double the Bank's inflation target of 2%.
There had been much speculation the Bank would hold off on announcing a rate rise tomorrow, given the emergence of the omicron variant.
But these figures will make any decision much harder.
Susannah Streeter, senior investment and markets analys at Hargreaves Lansdown said: ‘’Faced with such a high inflation reading, and with forecasts that the only way is up, the Bank of England would ordinarily be expected to call time on the cheap money party and raise interest rates.
"But with the recovery far from being in full swing and the omicron variant an unruly guest, set to knock back confidence further for many sectors, policymakers may be hot and bothered but are likely to stay in wait-and-see mode tomorrow
" With a possible Plan C on the cards, and closures of hospitality and retail being considered if hospital admissions soar, as well as a severe income squeeze taking hold, consumer sentiment and spending could take a fresh hit. What is pretty certain is that even if ultra-low rates stay put right now, with prices running so hot, there won’t be an extended lock-in with expectations that February is likely to see rates lift."
Prices jumped across the sectors, with transport, food, energy and clothing all seeing rising costs.
In November alone, the CPI rose by 0.7% from the previous month, compared with a fall of 0.1% this time last year.
6.50am Market expected to extend losses
The FTSE 100 is predicted to extend its losses in midweek, as Wall Street joined in with Europe’s decline overnight.
A 13-point drop has been called by spread betters for London’s blue-chip index, following a fall of 12.8 points the previous day to 7,218.64.
Initially the Footsie and its European cousins had started on the front foot but a record high for US producer price inflation changed the tone.
“This unexpectedly hot number caused markets in Europe to give up early gains, as investors suffered a collective bout of heat stroke,” said Michael Hewson at CMC Markets.
US markets were led lower by the Nasdaq, which fell another 1.1%, with the S&P 500 down 0.75% and the Dow Jones dipped 0.3%.
Short-term yields edging their way back up, along with the US dollar, while gold and oil prices slid back.
The US PPI print has set the scene for today’s Federal Reserve rate decision, which is expected to see the US central bank policy committee accelerate the pace of its tapering program which started last month.
Up until the beginning of this month the expectation had been that we would probably see the amount of the taper double from the current $10bn in US treasuries and $5bn in mortgage-backed securities.
The minimum we can expect from today, says Hewson, is for the taper to end next March rather than in May, but “it would not be a surprise" for the taper to finish in February, given the recent sharp rises that we’ve seen in CPI and PPI in recent days.
There could also be a more aggressive 'dot plot', where policymakers predict when the next interest rate hikes will occur in the coming years, with the potential for a majority of members signalling up to three rate hikes next year.
“The Fed does need to tread carefully however given the sharp declines seen in stock markets over concerns that they might overplay their hawkish hand, however if they really do feel they are behind the curve they may also feel they have no choice to go a little bit faster, especially as core PCE is likely to come in above their highest expectations back in September."
Before the Fed there will be UK inflation figures, with the consumer price index already more than double the Bank of England's 2% inflation target at 4.2%.
Today it is is set to surge even higher to 4.8% for November, with RPI set to increase further as well to levels last seen in 1990 near 7%, which as Hewson says, "[throws] into stark contrast the paralysis of the MPC when it comes to acting on rates".
6.50am: Early Markets - Asia / Australia
Asia-Pacific markets were muted on Wednesday as investors await comments from the Federal Reserve on its transition away from an easy money policy after the US central bank concludes its two-day policy meeting today.
China released its industrial output for November, which was up 3.8% year-on-year, more than the 3.6% expected in a Reuters poll.
The Shanghai Composite slipped 0.21% and Hong Kong’s Hang Seng index dropped 0.95%.
Japan’s Nikkei in rose 0.10% while South Korea’s Kospi gained 0.05%.
Australia’s S&P/ASX200 closed 0.70% lower at 7327.1 points, posting its biggest one-day decline in three weeks.