- FTSE closes 0.6% lower
- BT defies the trend
- Johnson Matthey upgraded to 'hold' by Panmure Gordon
4.52pm: Stocks fall amid cost of living crisis
Stocks in the UK closed lower as UK wage growth lagged inflation in November, with workers facing a looming cost of living crisis.
The FTSE 100 made up of the largest companies listed on the London Stock Exchange, fell 47.68 points, or 0.6% to close at 7,563.55.
According to the latest figures from the Office for National Statistics (ONS), real average weekly earnings fell in November for the first time since July 2020.
This was in sharp contrast to consumer price inflation (CPI) in the UK which soared to 5.1% in November and is forecast to hit as high as 6% this spring when energy bills are set to rise.
According to market watchers, investor confidence in UK economic growth dropped as inflation and a squeeze on incomes unsettled markets.
Mining stocks proved to be the biggest drag on the FTSE, along with technology and consumer-focused firms.
3.52pm: Market falls on concerns about rising bond yields
Suddenly everyone seems to be worried about rising bond yields – except savers, maybe.
The FTSE 100 has fallen 37 points (0.5%) to 7,574 as traders fret about the bond markets.
“A sharp rise in global bond yields has sent European stock markets into retreat today over concern that higher inflationary pressures will trigger a much more aggressive hiking cycle from central banks around the world,” said CMC’s Michael Hewson.
“These concerns have also manifested themselves into European bond markets, helping to push German bund yields to within touching distance of 0%, and their highest levels since the summer of 2019. The move higher also raises the prospect that the European Central Bank won’t be able to hold its line of no rate rises this year.
“New seven-year highs for both Brent and WTI oil prices have merely served to reinforce these concerns, as rising geopolitical risks raise the prospect that oil prices might move up towards $100 a barrel in the coming weeks,” he added.
BT Group PLC (LSE:BT.A), up 3.0% at 186.45p, defied the trend as investors wait for news on the rumoured sale of BT Sports to DAZN.
Platinum refiner Johnson Matthey PLC (LSE:JMAT) was down 0.2% at 1,946p but outperforming the Footsie after Panmure Gordon upgraded the stock to ‘sell’ from ‘hold’; the price target remains at 1,895p, however.
2.32pm: US stocks sharply lower
As expected, US equities have tanked on the resumption of trading after the long weekend.
The Dow Jones industrial average was down 557 points (1.5%) at 35,355, the S&P 500 was 70 points lower (1.5%) at 4,594 while the tech-heavy Nasdaq Composite was 250 points (1.7%) weaker at 14,644.
The January Empire State index slumped to -0.7 from +31.9, confounding economists who had pencilled in a figure of +25.0. The January reading is the lowest since May 2020.
“This report has our attention, as it's the weakest major regional survey for some time but it is not definitive, and might yet prove to be more noise than signal,” suggested Pantheon Macroeconomics.
“Our guess is that other reports will confirm that Omicron has hit activity. As a benchmark, if the Empire State were to remain at the January level, the national ISM manufacturing index would settle at about 53, down from 58.7 in December,” the forecasting unit added.
Meanwhile, in the UK the Treasury has outlined plans to legislate to prohibit misleading crypto-asset promotions. Adverts will be brought into line with other financial advertising, ensuring they are fair and clear, with the new rules designed to increase consumer protection.
“This is the day promoters of crypto-assets have known was coming for a long time,” declared Adam Soilleux at accountancy and business advisory firm BDO.
“Cryptocurrencies had fallen outside the regime for promoting traditional financial investments and given how widely cryptos are now being promoted, it’s important investors have adequate protection from harm.”
“A lot of people have long believed it was vital to tighten up the promotion of cryptocurrencies, particularly on social media. The FCA [Financial Conduct Authority] has been clear this has led to consumer harm for retail investors, who don’t necessarily understand the risks of these investments,” Soilleux noted.
“Retail investors see the rising prices and want to ride the wave, but don’t necessarily understand the risks on the downside.”
“These changes, including other changes being consulted on by the Treasury, will hit providers of crypto-assets with a whole range of new costs as the new requirements seek to ensure the appropriateness of investors investing in these assets.”
“They will need to make significant new investment in upgrading their compliance systems to ensure that financial promotions disseminated to potential investors in respect of crypto-assets comply with the regulatory requirements and are clear, fair and not misleading,” he added.
The FTSE 100 was down 50 points (0.7%) at 7,562.
1.00pm: Tech sell-off to continue
The tech stock sell-off is expected to continue when trading starts in the US in half an hour.
Spread betting quotes point to the S&P 100 index opening at around 15,373, down 238 points.
Technology stocks are said to be especially sensitive to interest rate rises and all of the talk today has been of rising bond yields.
The yield on the 10-year gilt has hit a three-month high while Germany’s counterpart has seen its yield rise to a level last seen in May 2019.
The FTSE 100, meanwhile, is down 40 points (0.5%) at 7,571, with the relatively modest decline perhaps signifying that the index does not have much of a technology focus.
One stock that does have a technology focus is Scottish Mortgage Investment Trust PLC (LSE:SMT), which is down 2.8% at 1,117.5p.
11.45am: US stocks to open lower
US stocks are expected to start trade lower as markets reopen following the Martin Luther King Jr Day holiday to rising bond yields and expectations of higher interest rates come March.
Futures for the Dow Jones Industrial Average fell 0.75% in Tuesday pre-market trading, while the broader S&P 500 index shed 1.15% and those for the tech-heavy Nasdaq 100 sank 1.79%.
Stocks closed mixed on Friday as investors showed their disappointment with fourth-quarter earnings from large US banks and data revealed retail sales fell 1.9% in December, much steeper than the 0.1% drop economists had expected.
The Dow dropped by 202 points, or 0.56%, to 35,912 but the S&P 500 added 0.08% to 4,663 and the Nasdaq gained 0.59% to 14,894.
“The key thing to watch today as US traders return to their desks following the MLK holiday is whether the rout in bonds continues, or moderates,” commented Neil Wilson, chief market analyst at markets.com.
“It’s not been a straight line to here this year and we can expect lurches and retracements as markets adjust to the dynamics of inflation and Fed policy expectations. Comments from the Fed’s Waller around hiking by 50 basis points in March (saying he didn’t favour doing this but suggesting it had been talked about is enough) has got the market thinking the Fed might catch up quicker than expected.”
In London, the FTSE 100 was down 50 points (0.5%) at 7,561.
10.45am: OIl stocks defy the trend
The strength of oil stocks on the back of a surging oil price is giving some support to an ailing FTSE 100 this morning.
London’s index of heavyweight stocks was down 50 points (0.7%) at 7,561, despite Royal Dutch Shell PLC (LSE:RDSB) rising 0.9% and BP PLC (LSE:BP.) advancing 0.7%.
Brent crude for February delivery is trading at US$85.29 a barrel, up US$1.47.
“Benchmark oil prices climbed to their highest level since 2014 in early trading today, as possible supply disruption after attacks in the Mideast Gulf added to an already tight supply outlook,” said SP Angel.
The broker added that supply concerns have risen this week after Yemen's Houthi group attacked the United Arab Emirates, escalating hostilities between the Iran-aligned group and a Saudi Arabian-led coalition.
“After launching drone and missile strikes which set off explosions in fuel trucks and killed three people, the Houthi movement warned it could target more facilities, while the UAE said it reserved the right to ‘respond to these terrorist attacks’,” SP Angel said.
“A rapid increase in oil purchases, driven by supply outages and signs the Omicron variant will not be as disruptive as feared for fuel demand, has pushed some crude grades to multi-year highs, suggesting the rally in Brent futures could be sustained a while longer,” it added.
9.45am: Bond yields rise
London’s blue-chips are taking their lead from Asian markets this morning (US markets were closed yesterday) and heading lower.
The FTSE 100 was down 65 points (0.9%) at 7,546.
“Asian equity markets apparently turned lower on rising bond yields. The yield on US 10yr paper rose above 1.85% on Monday, albeit on thin trade due to the US holiday, whilst the 2yr yield moved beyond 1.05%, a 2-year high. The Bank of Japan revised up its inflation forecast and said risks to prices were ‘generally balanced’, rather than skewed to downside,” said Neil Wilson at markets.com.
“The key thing to watch today as US traders return to their desks following the MLK [Martin Luther King] holiday is whether the rout in bonds continues, or moderates. It’s not been a straight line to here this year and we can expect lurches and retracements as markets adjust to the dynamics of inflation and Fed policy expectations. Comments from the Fed’s Waller around hiking by 50bps [half a percentage point] in March (saying he didn’t favour doing this but suggesting it had been talked about is enough) has got the market thinking the Fed might catch up quicker than expected. Reading the commentary from various Fed officials and Jay Powell’s remarks during his Senate confirmation hearing, the FOMC [US central bank policy-making committee] thinks the biggest risk to the economy – and crucially therefore to the labour market – is inflation,” Wilson added.
There has been little flow from FTSE 100 to get traders’ juices flowing unless fourth-quarter production results from mining giant Rio Tinto PLC (LSE:RIO) float your boat.
Rio shares were off 0.8% at 5,351p, pretty much in line with the market.
Not for the first time, shares in THG PLC (LSE:THG), also known as The Hut Group, are getting the barge-pole treatment in the market.
The stock is off 8.8% at 169.2p – the shares floated at 500p in late 2020 remember – after it said margins have been a bit below expectations.
“Under normal circumstances, a business delivering the level of growth seen in THG’s latest update would be applauded by the market. Sadly, THG has shot itself in the foot thanks to the way it has behaved as a listed company since joining the stock market and that means only something spectacular will lift the share price,” said Russ Mould at AJ Bell.
“Failure to deliver the level of detail about the business desired by investors, questionable corporate governance standards, and comments by chief executive Matt Moulding that he wished he’d never floated THG all amount to bad practice as far as investors are concerned, and they’ve voted with their feet which has left the share price languishing well below its IPO price.
“The fact THG is guiding for revenue growth to slow in 2022 is even more reason for disgruntled investors to keep shaking their heads in disbelief.
“Online companies that pitch their story as rapid growth need to live up to the hype. So far THG is coming across as an ill-trained runner which has brought sprint tactics to a marathon and found it can’t sustain momentum at top pace,” Mould opined.
8.45am: London lurches lower
As predicted, the FTSE 100 took a lurch lower as London’s traders dialled down the recent positivity.
The index lost 49 points to 7,561.99 after the release of as-expected jobs data (see below).
“Investors took a moment to pause for reflection in early exchanges as the FTSE100 dipped on the open,” said Richard Hunter, head of markets at Interactive Investor.
“Nonetheless – and unusually – the index remains in positive territory for the year as compared to its major US counterparts, which have faltered.”
Reflecting jitters around the US technology sector, Scottish Mortgage Trust, one of the UK's biggest investors in Silicon Valley, was down 2.3% in the early exchanges.
8.02 am: UK unemployment rate holds steady
The UK unemployment rate held steady at 4.2% in the three months to November but wage growth slowed, both as expected, according to new data from the Office for National Statistics.
Employment was roughly 60,000 (0.2%) higher in the three months to November than in the three months to August, less than forecast by economists.
Average weekly earnings, including bonuses, fell to 4.2% in November, from 4.9% in October, which was expected.
More timely figures for December showed payroll employee numbers increased by around 184,000 (0.6%) month-on-month, above the consensus forecast of 130,000.
ONS head of statistics Darren Morgan said: “The number of employees on payrolls continued to grow strongly in December, with the total now well above pre-pandemic levels.
“New survey figures show that in the three months to November, the unemployment rate fell back almost to where it was before COVID-19 hit, and those reporting they’d recently been made redundant fell to their lowest since records began more than a quarter of a century ago.
“However, while job vacancies reached a new high in the last quarter of 2021, they are now growing more slowly than they were last summer.
“Following recent rises in inflation, in November real wages fell on the year for the first time since July 2020.”
Samuel Tombs at Pantheon Macroeconomics said: “The burden of the withdrawal of the furlough scheme at the end of September and the Omicron hit to consumer services demand has fallen squarely on the shoulders of employers, not their staff.
“Indeed, it’s remarkable that the three-month average level of employees was 116K higher in November than in August, given that 646K people still were fully furloughed at the end of September, and a further 505K were furloughed for some of their usual hours.
“Few people were fired when the furlough scheme ended, and those that were quickly found new roles. Admittedly, some businesses asked formerly furloughed staff back only on a part-time basis."
Tombs said the further rise in payroll employee numbers in December “provides reassurance that businesses did not immediately fire staff when demand weakened in response to Omicron, though recent provisional estimates have been revised downwards substantially".
6.48am: FTSE to fall
The FTSE 100 is expected to slip lower on Tuesday ahead of unemployment data this morning and Wall Street returning after a long weekend.
Spread betters in the City have called a 12-point fall for the London benchmark, after it rose 68 points to 7611.23 at the start of the week, the highest level since 24 January 2020.
Overnight, the US was on holiday, with Friday seeing the Dow Jones falling 0.6%, the S&P 500 flat and the Nasdaq rising 0.6%.
The Asian session today is mixed, but mostly in the red, with the Shanghai composite the main exception.
A UK jobs report from the Office for National Statistics is due soon, following up from data a month ago that showed unemployment fell to a 15-month low of 4.2% in October.
The number of people on payrolls rose by over 257k in November, and the number of vacancies rose to 1.22mln.
Today, the headline ILO unemployment number for November is expected to come in at 4.2%, with average weekly earnings falling back to 4.3% from 6% in October.
The overall trend looks set to continue, said Michael Hewson at CMC Markets, who sees it as “unlikely” that earnings will fall much further given the number of vacancies available.
READ: Higher living costs spell end to ‘great resignation’ with wage growth set to slow
“We’ve already seen in recent weeks the likes of Next and Sainsbury’s announce wage rises in line with current inflation levels, and they are unlikely to be alone as their rivals look to match them in order to keep staff.”
With the UK labour market having withstood the end of the furlough scheme last September pretty well, economists at ING said, what matters most for the Bank of England are wages.
“The jury’s still out on where [wages] are headed. As various data distortions fade, it looks like wage growth is roughly where it was pre-pandemic, which is a key part of the Bank’s hiking rationale. There’s also some evidence that pay rises have been larger in more short-staffed sectors, like IT and transport. Whether we’re headed for a wage-price spiral though, we’re less convinced.”
6.50am: Early Markets - Asia / Australia
Asia-Pacific shares lost momentum on Tuesday as global interest rates continued to climb on expectations of faster central bank tightening.
Meanwhile, Chinese President Xi Jinping cautioned that a rapid rise in interest rates could derail the global recovery from the coronavirus pandemic.
“If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers,” Xi said at The Davos Agenda virtual event.
The Nikkei in Japan slipped 0.27% and South Korea’s Kospi fell 0.89%.
China’s Shanghai Composite gained 0.73% while Hong Kong’s Hang Seng index fell 0.31%.
Australia’s S&P/ASX200 declined 0.11% to 7408.8 points, as Rio Tinto reported its lowest annual iron ore production last year since 2015, at 321.6 million tonnes, just meeting its guidance for a minimum of 320 million tonnes.