- FTSE 100 down 21 points
- Banks and oils in favour
- Simigon (AIM:SIM) and Minds + Machines to delist
4:50pm: FTSE 100 ends lower, US stocks mixed midday
The FTSE 100 finished the day on a down note, falling 21 points, or 0.3%, to 7,543, even as data showed that UK GDP improved by 0.9% in November compared with forecast growth of 0.4%.
“The afternoon session saw indices take a swift dive further into the red, but while most markets are still trading lower a small recovery off the lows has been witnessed,” IG chief market analyst Chris Beauchamp said.
“Nonetheless the optimistic view has had a hard time prevailing this week, and it looks like investors continue to sell into strengthen, pointing towards a further negative atmosphere as the second half of January gets underway,” Beauchamp added.
Notable movers included shares of Cineworld Group PLC (LSE:CINE), which gained more than 4% after the cinema chain announced that it had generated positive cash flow in 4Q as revenue in December was lifted by a 'strong' box office performance from Spider-Man: No Way Home.
3:25pm:
The tech sell-off has continued but seeing as London hardly has any tech stocks, it has not affected the FTSE 100 much.
The FTSE 100 was down 3 points (0.0%) at 7,561, with its equilibrium largely down to the strength of banks and oils.
BP PLC (LSE:BP.) and Royal Dutch Shell PLC (LSE:RDSB) are up 1.5% and 1.1% respectively, as the price of Brent Crude headed 1.0% higher today to US$85.33 a barrel.
Among the banks, Asia-focused Standard Chartered PLC (LSE:STAN), up 2.2% at 522.6p, is the Footsie’s top riser while UK-focused Lloyds Banking Group PLC (LSE:LLOY), up 1.3% at 54.66p, is also wanted.
Among the small caps, delisting has been the theme of the day.
Simigon (AIM:SIM) Limited rose 24% to 5.25p after it agreed to merge with Power Breezer Sub Ltd and Maxify Solutions Inc.
The modelling, simulation & training solutions specialist said the deal works out at around 16.5 US cents per share, valuing the company at US$8.5mln.
Assuming shareholders approve the deal, it is proposed that the company will cancel its admission to trading on AIM of its shares, as otherwise, SimiGon's shareholders will end up holding shares in Maxify, which will be a private company with no liquidity in its shares.
Minds + Machines Group Ltd, the internet domain company, plans to wind itself up by returning its remaining capital to shareholders and canceling its listing on the AIM market of the London Stock Exchange.
The company said it will return up to £19mln to shareholders via a tender offer at 10.4p per share, which represents a premium of 26.1% on yesterday’s closing price. Shares today are trading at 9.6p, up 16%.
2.55pm: Mixed start for US equities
Wall Street stocks have got off to a mixed start on Friday, following weak retail sales and industrial output data.
US retail sales in December dropped 1.9% on the month before, the first decline in five months and the largest since February.
Moreover, US industrial production, dropped for the first time in three months, with a 0.1% slide in December compared to the previous month, when it rose 0.7%, according to Federal Reserve data.
Manufacturing production fell 0.3%, which compared to market expectation of a 0.5% rise.
The Dow Jones reaction on opening was a 0.6% decline, while the broader S&P 500 fell 0.1%, though the tech-powered Nasdaq rose 0.1%.
Markets seemed not that bothered by the disappointing US retail sales, said analyst Craig Erlam at Oanda, "perhaps a sign of consumers being more restrained as a result of omicron, not to mention early Christmas prep in anticipation of supply issues".
Markets seeming "a little directionless" he said "could be a sign that investors don't know how to take the data. A strong report would have been positive for the economy but also feed into the argument for faster tightening, which is not being particularly well received at the moment. A few weak reports may, on the other hand, encourage caution from policymakers."
1.31pm: Stocks all heading south
The Footsie has slid lower and the pound has been overpowered by the dollar, with Wall Street futures moving south as US Treasury yields rising.
This comes despite what seemed a strong start to US earnings season, with a trio of big banks beating estimates.
Kicking things off, JPMorgan Chase, the biggest lender in the US, reported US$10.4bn of net income for the fourth quarter of last year, or $3.33 of earnings per share (EPS), beating analysts’ average forecast of US$9.36bn, or US$2.99 per share.
However, with net income down on the preceding quarter and earnings per share (EPS) having now declined for three quarters in a row, pre-market trading saw JPM shares down almost 4%.
Elsewhere, rival Wells Fargo also beat Wall Street’s expectations, with EPS of US$1.38 well ahead of US$0.66 last year and the US$1.11 forecast by analysts, while Citigroup's EPS of US$1.99 were well ahead of the US$1.62 expected.
US futures are now pointing to 0.6% declines for the Dow Jones and S&P 500, with the tech-powered Nasdaq seen dropping 0.75%
The explanation is perhaps that strong banking earnings points to a strong economy, reinforcing the case for three or four interest rate rises this year.
Meanwhile, London's benchmark has fallen 36 points or 0.5% to 7528.
12.30pm: Stock markets sell off continues
The FTSE 100, along with wider European stock market benchmarks, is in the red and Wall Street is expected to continue the sell-off as investors mark down stocks in view of increasing interest rates.
After a torrid day for the tech-heavy Nasdaq yesterday London's blue chip benchmark is demonstrating its relative resilience, said Victoria Scholar, head of investment at Interactive Investor.
"Candid Fed talk from a number of FOMC members about the threat of inflation rattled the rate sensitive tech sector stateside with investors pinning their hopes on US earnings season as the next potential catalyst to reinvigorate risk appetite.”
She added: “This morning’s UK GDP figures have failed to spur gains for UK assets with the pound only modestly higher while the FTSE 250 is under pressure. Although November’s growth figure topped expectations and the previous month’s reading was revised higher, it is clear that this data represents the calm before the storm when Omicron threatens a significant drop in December’s reading.
"Nonetheless it is worth noting that the latest figures saw the UK economy restore pre-pandemic levels thanks to early Christmas shopping with an increase in output across all sectors and with services as the main GDP growth driver.
"The next UK economic data readings are likely to lay bare the pressures from Omicron with rising staff absences and reduced demand for social activities such as restaurants and pubs with the cancellation of many Christmas parties and a shift to working-from-home once again."
Attention is now turning to the new US earnings season which begins today, with JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) and Citigroup Inc. (NYSE:C) reporting before the market opens.
“The S&P 500 financial sector has had a strong start to the year ahead of fourth quarter earnings season," said Scholar.
"Expectations are generally positive for Wall Street’s earnings, however with the recent run up, it could be a case of ‘buy the rumour, sell the fact’ with beats already priced in.
"Overall, the Wall Street giants are seen posting record results with an outperformance for the investment banking focused firms such as Goldman Sachs (NYSE:GS) and JPMorgan after a record-breaking year for IPOs and M&A. There is a lot of optimism towards the sector for the year ahead amid an improving macro backdrop and rising interest rates from the Fed.”
Futures for the Dow Jones, S&P 500 and Nasdaq are all pointing lower, 0.1%, 0.2% and 0.25% respectively.
The FTSE is down 17 points or 0.2% at just under 7547.
11.11am: Pound notches two different highs
The FTSE has trimmed its losses, with retailers, banks, housebuilders and utilities driving the fightback.
JD Sports is top of the leaderboard, up 2%, with Standard Chartered PLC (LSE:STAN) and Barclays PLC (LSE:BARC) representing the banks, National Grid and water companies United Utilities Group PLC and Severn Trent PLC representing the utilities in the top 10.
The pound meanwhile is up slightly to US$1.3732, around its highest level since the end of November.
Sterling's trade-weighted value is also at its highest level against a basket of currencies since David Cameron's EU in-out referendum in 2016, according to the Bank of England.
This rose to 83.28 yesterday, the Bank said in a release this morning, up nearly 4% in over a month to top previous highs in October.
Analyst Marshall Gittler at BDSwiss says the pound strength is “a real puzzle [...] when the Prime Minister is facing such pressure to resign".
“I think it may be for two reasons: 1) as they say in politics, 'you can’t be somebody with nobody', and so far there’s no one who’s emerged as a consensus candidate against Johnson; and 2) maybe the market figures that almost anyone would be better than him anyway."
Also, Gittler says today’s GDP and other short-term indicators were much much better than expected (see below), "so that’s no doubt helping too".
10.10am: US reporting season kicks off today
Something to keep an eye out for later, the US reporting season kicks off in earnest with banking behemoths JPMorgan Chase & Co (NYSE:JPM) (JPMorgan Chase & Co (NYSE:JPM)), Citigroup Inc. (NYSE:C) (Citigroup Inc. (NYSE:C)) and Wells Fargo & Company (NYSE:WFC) (Wells Fargo & Company (NYSE:WFC)) all releasing earnings.
"These figures could set the tone for both the FTSE 100 banks (who report in February) and stock markets more widely,” says analyst Russ Mould at AJ Bell.
“The Big Four US banks are expected to report record earnings for 2021 but analysts then expect a dip in 2022, as a good portion of last year’s forecast uplift came from writing back bad loan provisions taken in 2020 rather than growth in loan books or higher net interest margins."
Stock market investors are expecting an upturn, based on growing expectations for the Federal Reserve to start hiking interest rates.
The banking sector index, Philadelphia KBW Banks, has risen around 10% already this year, while the FTSE All-Share Banks index has gained around 8%.
Analysts expect the big four, including Bank of America (NYSE:BAC) (Bank of America (NYSE:BAC)), which reports next week on Tuesday 18 January, to report an aggregate net profit of US$117bn, almost double the US$60bn from 2020 and some away above 2019’s previous peak of US$100 billion.
Mould noted that after enjoying a record year in 2006, just before the global financial crisis, the big US banks blew past that record with new highs in 2015, 2016, 2018 and 2019 and look destined to beat that peak in 2021.
“This is in marked contrast to the Big Five in the FTSE 100 who, according to analysts’ forecasts – might just have scraped past their 2007 peak profit of £35.8bn in 2021, when they are estimated to have racked pre-tax earnings of £36.4bn."
London's big banks are due to report full-year results next month, with Standard Chartered and NatWest first up on 17 and 18 February, followed by Barclays, HSBC and Lloyds the week after.
9.48am: Best of a bad bunch
London stocks have reverted to their initial decline, though the Footsie is the least affected of the major European stock markets.
The FTSE was trading down 3 points or less than 0.1%, compared to a 0.7% fall for Germany's DAX, 0.8% for the CAC 40 in Paris and a 1% tumble in Milan. The wider Stoxx 50 was down around 0.7%.
“Investors cannot make up their minds whether they’re worried about inflation and rising interest rates, or that they’re comfortable central banks can work their magic and get inflation under control,” says Russ Mould, investment director at AJ Bell.
“Fear has returned, with a miserable showing on Wall Street last night including a 2.5% drop in the tech-heavy Nasdaq index.
With the UK market propped up by gains in energy, healthcare and utilities, the big shocker in Europe was France's EDF which was hit by a cap on power prices to add to delays with its nuclear business, sending its share price down 22%.
Among London's FTSE 250 mid cap index, which is down 0.2% at 22,922, fallers include Currys PLC (LSE:CURY) as it downgraded its profit expectations after sales fell over the peak Christmas trading period, impacted by a drop in demand and supply chain disruption.
Meanwhile, the rollercoaster pandemic ride continues for Cineworld Group PLC, where shares are up as the cinema owner said revenues continued to recover in the second half of the year as filmgoers returned to the cinema, tempted by blockbusters such as ‘Spider-Man: No Way Home’, ‘No Time to Die’, ‘Dune’ and ‘Black Widow’.
8.37am: FTSE recovers from early wobble
The FTSE 100 fell in early trade but got straight back up, no doubt helped by UK economic growth coming in significantly higher than forecasted.
London’s blue chip index dropped over 30 points in the first couple of minutes on Friday but is now back in positive territory, just, at a little over 7563.
While UK GDP was better than estimated in November, a likely drag on activity from the Omicron variant “means that output probably fell back in December,” said Martin Beck, chief economic advisor to the EY ITEM Club.
However, Beck said the impact from Omicron on output is likely to be much smaller than previous COVID-19 waves.
“With Omicron rapidly moving through the population, the economic impact is likely to be short-lived. Activity should rebound strongly as infection numbers fall, with GDP rising convincingly above pre-Omicron levels in early spring.”
Private equity group 3i Group plc (LSE:III) is leading the risers, followed by a band of housebuilders and retailers, including Berkeley Group Holdings plc, Barratt Developments PLC (LSE:BDEV), JD Sports Fashion PLC (LSE:JD.) and Primark owner Associated British Foods PLC (LSE:ABF).
Biggest fallers include Royal Mail PLC (LSE:RMG), down 4%, and tech-focused Scottish Mortgage Investment Trust PLC (LSE:SMT) after the big fall for the Nasdaq last night.
7.25am: GDP beats forecasts
UK GDP came in at 0.9% in November, versus the consensus forecasts of 0.4%, as all areas of the economy expanded to bring the economy 0.7& bigger than its immediate pre-pandemic size.
Services made up just over half of November’s GDP growth, expanding 0.7% month-on-month, while stronger retail activity boosted transport and storage. Industry and construction grew 1% and 3.5% respectively.
6.35am: Following the US shake-out lower
Asian markets followed US markets lower this morning and now UK equities are set to follow Asian equities into the red.
Spread betting quotes point to the FTSE 100 opening 37 points lower at 7,527, which given the size of the shake-out in the US yesterday looks like a case of getting off lightly.
The Dow Jones average tumbled 177 points yesterday to close at 36,114 and the S&P 500 plunged 67 points to 4,659 as investors baled out of technology stocks.
In Asia, Japan’s Nikkei 225 is off 400 points at 28,089 while in Hong Kong the Hang Seng index was 140 points to the bad at 24,290 after some unimpressive Chinese trade figures.
“Exports came in at 20.9%, slightly above expectations, helped in no small part by the massive demand being seen for Covid tests around the world due to the explosion of cases caused by the Omicron variant,” said Michael Hewson at CMC Markets.
“Imports came in at 19.5%, a sharp fall from the big rise of 31.7% seen in November, which was driven by higher demand for coal and copper imports, as industries played catchup after the earlier shutdowns. The weakness in imports would appear to point to continued weak domestic demand in a Chinese economy which is clearly struggling,” Hewson added.
In London, the focus will be on gross domestic product, which is expected to show modest growth of 0.4% month-on-month, compared to a three-month average of 0.3%.
“I don’t think that’s going to cause any fireworks, but nor would it be slow enough to discourage the Bank of England from tightening policy further. In that respect, I imagine it could be positive for the pound,” market analyst Marshall Gittler at BDSwiss.
Updates from the retailers continue to come thick and fast with Currys PLC (LSE:CURY) the next cab to leave the rank.
The company, which recently ditched its archaic sounding name of Dixons Carphone, should have had a bumper Christmas with online sales to the fore.
In the half-year statement on 15 December, Currys boss Alex Baldock highlighted that the market had been “softer over recent weeks”, so investors will be keen to see whether this trend continued into the New year.
Around the markets
- Sterling: US$1.3736, up 0.32 cents
- 10-year gilt: 1.108%, down 3.26 basis points
- Gold: US$1,827.40 an ounce, up US$6.00
- Oil: US$84.54 a barrel, up 7 cents
- Bitcoin: US$42,826, unchanged
- Ethereum: US$3,300, up US$28
6.50am: Early Markets - Asia / Australia
Asian markets declined on Friday as South Korea’s central bank increased its benchmark rate by 25 basis points to 1.25%, the highest since March 2020.
The Nikkei in Japan tumbled 1.28% while South Korea’s Kospi slumped 1.36%.
China’s Shanghai Composite slipped 0.93% and Hong Kong’s Hang Seng index fell 0.50%.
Australia’s S&P/ASX200 closed 1.08% lower at 7393.9 points, capping its worst week since November with tech stocks bearing the brunt of the sell-off.