- FTSE 100 falls 198 points
- Interest rate outlook rattles investors
- Housebuilders and miners the big fallers
4.50pm: FTSE loses nearly 200 points at the close
The UK's main index was down 197 points at the finish line, losing 2.6% on the day to close at 7,297 points.
Selling across global markets is threatening to turn into a full-blown rout, says Chris Beauchamp, chief market analyst at online trading platform IG.
“The rush for the exits continues across stock markets, as investors renew their selling of equities. marking one of the most dramatic starts to the year that we have seen since 2018," Beauchamp said Monday.
"What we can expect this week is more volatility, and until the FOMC meeting is out of the way, and the Fed’s current stance becomes clearer, it seems likely that more losses are in store.”
4.10pm: FTSE 100 trying to avoid a 200 point fall as interest rate outlook rattles investors
With less than 30 minutes of trading left, the Footsie is trying to stave off a 200 point fall.
Currently, the index is down 178 points (2.4%) at 7,316, having stooped as low as 7,283 at one point, which the keen mathematicians among you will have worked out represents a 211 point fall at one point.
Housebuilders have been a major drag on the index all day on the perception that the Bank of England now looks certain to hike interest rates again next week while commodities plays are also well off the pace on fears that the Old Lady of Threadneedle Street will not be the only central bank cranking up interest rates sooner rather than later.
Blame the Fed, says Deutsche Bank
“There have been no major new developments to trigger the latest fall. Rather, it is mainly just a continuation of the same worries bugging markets since the start of the year, namely the surge in inflation and the policy tightening now planned to bring it back under control,” commented Rupert Thompson, the chief investment officer at fund manager Kingswood.
“Expectations on this front have changed markedly over the last three months. The market is now pricing in four 0.25% rate hikes this year in the US and also a similar number in the UK, on top of the 0.15% move in December. This would leave interest rates at around 1.2% in both countries by year-end.
“Equity corrections are far from unusual at the start of Fed tightening cycles and have in fact been the norm in the past. Sharp jumps in bond yields, as we have seen in recent weeks, are also prone to trigger market falls. The important point, however, is that these declines have tended to be temporary and followed by renewed gains,” Thompson said.
3.15pm: Pearson tumbles as major shareholders halves stake
Pearson PLC (LSE:PSON) has taken over from Scottish Mortgage as the worst performing blue-chip in London.
The multinational publishing and education company’s shares are down 7.9% at 606.8p after it was revealed that investment firm Lindsell Train had reduced its stake from 10% to 4.86%.
The FTSE 100 was down 175 points (2.3%) at 7,319.
In the US, traders’ screens remain a sea of red. Oil is also in the doghouse, with Brent crude off 2.7% at US$85.51 a barrel while in the crypto-currency world Bitcoin has tanked 5.6% - a cool US$1,980, kiddies – to US$33,408. Ethereum, down 9.8% at US$2,184.75, is faring even worse.
Thank heavens for gold, the investment of choice for investors whose favourite colour is beige. The yellow metal is more or less unchanged.
2.45pm: Nasdaq hit hardest as US indices get battered
As expected, US indices have opened sharply lower with the tech-heavy Nasdaq Composite hit hardest of all.
The Dow Jones industrial average is 370 points (1.1%) weaker at 33,896 while the broader-based S&P is down 68 points (1.5%) at 4,330.
The Nasdaq Composite was 250 points (1.8%) lighter at 13,519.
US Markit Manufacturing Jan P: 55.0 (est 56.7; prev 57.7)
- Services: 50.9 (est 55.4; prev 57.6)
- Composite: 50.8 (prev 57.0)
— LiveSquawk (@LiveSquawk) January 24, 2022
“It is not just stocks that are taking a hammering. Cryptos, commodity dollars and emerging market currencies were also sharply lower,” said Fawad Razaqzada of ThinkMarkets, shorlty before humming “Always look on the bright side of life” out of tune to himself.
“The key question is this: will the sentiment turn positive any time soon? It is impossible to say, but we do have the Fed meeting this week and there is a chance Jay Powell may talk down the prospects of aggressive tightening. What’s more, the upcoming tech earnings could lift the mood after what has so far been a weak start to the reporting season. Additionally, the spread of omicron in Europe appears to be slowing and governments have reduced travel restrictions, while workers in the UK have been encouraged to go back to the office. So, we may see some improvement in the economy in the months ahead,” he added.
Just over one-fifth of the companies in the S&P 500 are set to report results this week, including giants Apple, Microsoft and Tesla.
In London, the list of stocks defying the trend reads like a who’s who of defensive favourites - British American Tobacco PLC (LSE:BATS) and Imperial Brands PLC (LSE:IMB), up 3.2% and 2.3% respectively; J Sainsbury PLC (LSE:SBRY) and Tesco PLC (LSE:TSCO), up 0.7% and 0.2% respectively, from the supermarket sector while BT Group PLC (LSE:BT.A), the plodding warhorse of the telecoms sector, is up 0.2%.
The FTSE 100 is 139 points (1.9%) in the hole at 7,356.
1.55pm: Blue-chips led deep into the red by Scottish Mortgage
Scottish Mortgage Investment Trust PLC (LSE:SMT) is leading the retreat now, as traders bet the tech shake-out will continue.
Down 7.4% at 1,028p, the investment trust is the biggest faller on the FTSE 100, which is 117 points (1.6%) lower at 7,377.
Spirax-Sarco Engineering (LSE:SPX) PLC, an old school technology company focused on thermal energy management, pumps and vales, has entered into a definitive agreement to acquire Cotopaxi Limited, a digitally enabled, global energy consulting and optimisation specialist for £13.3mln.
The shares were down 1.6% - bang in line with the Footsie – at 12,930p.
1.00pm: US markets to open on the back foot
We’ve put it off but can do so no longer. It’s time to come out from behind the settee and check US stock market futures.
US stocks are expected to extend their losses as investors await the outcome of the US Federal Reserve’s two-day meeting on Wednesday and prepare for more earnings reports from large tech companies including Apple, Microsoft and Tesla.
Futures for the Dow Jones Industrial Average sank 1.51% in Monday pre-market trading, while the broader S&P 500 index dropped 2.13% and the Nasdaq 100 slumped by 3.14%.
Stocks closed down sharply on Friday as streaming giant Netflix’s losses dragged the Nasdaq index deeper into correction territory.
Netflix’s stock tumbled 22% after the company’s fourth-quarter earnings report showed a slowdown in subscriber growth.
The Dow dropped by 1.3% to 34,265 and the S&P 500 declined 1.89% to 4,398. The Nasdaq fell 2.72% to 13,769, taking this year’s losses to about 12%.
“Anyone hoping for a measure of calm on the markets after a testing period is likely to be disappointed as we start what could be another turbulent week,” commented AJ Bell investment director Russ Mould
“The Federal Reserve is meeting on Wednesday amid expectations of a first interest rate hike in March and more increases to come this year than had previously been pencilled in. This has been signalled by a rise in bond yields."
Mould noted that the hardening of monetary policy has negative implications for the valuations of tech stocks, already under pressure following big slumps in recent weeks.
“Perhaps Apple, Microsoft and Tesla can come to the rescue with some knockout numbers when they report this week. On the other hand, a series of disappointing updates from these technology titans would only undermine sentiment further,” he added.
In the UK, the FTSE 100 is down 100 points (1.3%) at 7,394.
12..10pm: Gloomy outlook for savings
According to the Office for National Statistics (ONS), the British public is becoming less optimistic about how soon pandemic life will return to normal.
In its survey on the coronavirus, spending habits and socialising plans over Christmas, the ONS reported that the proportion of people who felt it will take more than a year for life to return to normal was higher than at the end of 2020 (35% compared with 20%).
Furthermore, less than half of people (46%) thought they would be able to save money in the next year, and two thirds of people (66%) said their cost of living had increased at the end of 2021.
“The rampant rise in the cost of living has squeezed the life out of budding savings habits. Soaring energy bills, petrol prices and food costs are swallowing an ever-increasing slice of our cash every month. It’s enough of a struggle to make ends meet, let alone have anything left over to save,” said Sarah Coles, Hargreaves Lansdown’s personal finance specialist, in response to the ONS’s report.
“It’s worth highlighting that the big rise in average savings during the pandemic didn’t benefit everyone equally. There was a massive divide between those who were able to cut their costs in lockdown and build up savings buffers, and those who lost work and struggled to pay their bills from the outset. For some people, rising costs will kill off their ability to save, and risks seeing them eat into their pandemic savings. For others, who had already lost all their financial resilience and were running on empty, rising prices are causing real pain,” she noted.
The FTSE 100 was down 91 points (1.2%) at 7,403.
11.25am: Triple-digit fall for the Footsie
The FTSE 100 is now nursing a triple-digit fall, largely as a result of the shake-out in the housebuilding sector.
London’s index of leading shares was down 106 points (1.4%) at 7,388, with Scottish Mortgage Investment Trust PLC (LSE:SMT), down 4.8%, contributing to the malaise as traders prepare for another rocky trading session on the tech-heavy NASDAQ exchange today.
Owners of housebuilder shares seem to have been rattled by this morning’s Purchasing Managers’ Index releases from IHS Markit/CIPS, which rang alarm bells on the inflation front.
“The IHS Markit/CIPS services survey reported the second highest rates of input cost and selling price inflation in the survey’s history,” observed Martin Beck, the chief economic advisor to the EY ITEM Club.
“Some signs of an easing in supply chain pressures were present in January’s manufacturing survey. Input costs rose at the slowest rate since April and vendor delivery times lengthened to the shortest extent in over a year. The latter contributed to a decline in the flash manufacturing PMI, which fell to 56.9 from 57.9 a month earlier but a fall in new orders growth to a 12-month low also played a role.
“That both PMIs remained in growth territory in January mean the EY ITEM Club is still confident that the economic impact from Omicron will be small and short-lived. But a decreasing drag on activity from COVID-19 will soon confront more serious headwinds from a looming rise in energy bills and a rise in taxes in April. Contrary effects on inflation and activity means the MPC faces a difficult and hard-to-call judgement when it meets in February,” Beck said.
ING said the survey results reinforced its view that the Bank of England will hike rates again in February, with the pressure on services costs likely to catch the Bank's eye.
“Input and output costs were rising at near-record rates in the services sector, linked partly to higher wages. Governor Andrew Bailey spoke in detail about the tightness in the jobs market at his recent select committee appearance, and a February rate rise is now our base case,” ING’s James Smith said.
Broker Jefferies has added to the woe of housebuilders, downgrading Barratt Developments PLC (LSE:BDEV) and The Berkeley Group Holdings PLC (LSE:BKG) to ‘hold’ from ‘buy’ following the government’s call on the big players in the sector to pay more to address cladding retrofitting in the wake of the Grenfell Tower fire.
Barratt is off 6.6% at 629.8p and Berkeley is 5.2% weaker 4,143p.
Offsetting the malignant effect of the housebuilders is consumer goods giant Unilever PLC (LSE:ULVR), which is the top riser on the FTSE 100, up 6.1% at 3,899p, clawing back some of its recent heavy losses suffered in the wake of its half-hearted tilt at GlaxoSmithKline’s consumer healthcare division.
“The news that activist investor Nelson Peltz has built up a stake in the firm is leading to expectations that the company will be under even more pressure to give its business model an MOT, before going on any fresh spending spree. It’s also been helped by expectations that well-known household brands with pulling power may be more resilient even as consumers tighten their belts,” said Susannah Streeter at Hargreaves Lansdown.
10.25am: UK business activity slides to an 11-month low
Another slowdown in the service sector held back the UK economy at the start of 2022, according to the latest Purchasing Managers’ Index (PMI) data compiled by IHS Markit and CIPS.
With hospitality, leisure and travel all struggling due to Omicron restrictions, this offset resilient growth in business and financial services. Manufacturers outperformed service providers as a sustained turnaround in materials availability led to the fastest rise
in production volumes for five months; however, all types of private sector businesses commented on capacity constraints and rising backlogs of work as a result of staff absences in January, the report revealed.
The flash UK Composite PMI for January fell to an 11 month low of 53.4 from December’s 53.6. The Business Activity Index also fell to an 11-month low, of 53.3, from 53.6 in December. The Manufacturing Output Index rose to a five-month high of 53.8 from December’s 53.6. The Manufacturing PMI retreated to an 11-month low of 56.9 from the previous month’s reading of 57.9.
A reading above 50.0 indicates an expansion in activity.
???????? January flash data for the UK pointed to a slower expansion with the #PMI at 53.4 (Dec: 53.6). Greater material availability led to a faster rise in the manufacturing sector while rising Omicron cases continued to hit services. Read more: https://t.co/su0dpz6cK6 pic.twitter.com/4I8VYKbY0q
— IHS Markit PMI™ (@IHSMarkitPMI) January 24, 2022
“A resilient rate of economic growth in the UK during January masks wide variations across different sectors. Consumer-facing businesses have been hit hard by Omicron and manufactures have reported a further worrying weakening of order book growth, but other business sectors have remained encouragingly robust,” said Chris Williamson, the chief business economist at market research firm IHS Markit.
"Looking ahead, while the Omicron wave meant the hospitality sector has sunk into a third steep downturn, these restrictions are now easing, meaning this downturn should be brief. Many business and financial services companies have meanwhile been far less affected by Omicron, and saw business growth accelerate at the start of the year.
"Business confidence in the outlook also picked up, driving sustained solid jobs growth. With inflationary pressures remaining elevated at near-record levels, this all adds to the likelihood of the Bank of England hiking interest rates again at its upcoming meeting,” he added.
The prospect of a rate hike has spared selling of housebuilders, with Barratt Developments PLC (LSE:BDEV), down 6.4% at 631.6p, the Footsie’s worst performer.
The FTSE 100 was down 63 points (0.8%) at 7,432.
9.40am: Two-speed recovery for UK economy in December
The IHS Markit/CIPS flash UK Composite Purchasing Managers’ Index (PMI) for January fell to an 11 month low of 53.4 from December’s 53.6.
The Business Activity Index also fell to an 11-month low, of 53.3, from 53.6 in December.
The FTSE 100 was down 56 points (0.8%) at 7,438.
8.35am: Marking time
The FTSE 100 marked time as London’s traders soaked up the implications of the growing tensions in Ukraine and braced for a possible early rise in US interest rates.
Turning to the latter first, it seems highly likely the US Federal Reserve will further reduce the monetary support programme that has allowed America’s stock markets to defy gravity.
A hike to borrowing costs could also come this week against a backdrop of rising inflation – and is likely to be one of four rate increases this year, economists say.
Geopolitical concerns will also likely guide sentiment going forward.
Richard Hunter, head of markets at Interactive Investor, said: “More broadly, the apparently worsening of relations between Russia and Ukraine has put investors on alert, as any possible attacks by Russia will have wider implications which other major powers will be unable to ignore.
“Whether this results in military action or strict sanctions remains to be seen, but in any event, the developments are adding to general investor unease.”
A sniff of potential shareholder activism pushed shares in Unilever 5% higher, while a weekend story that Vodafone Group PLC (LSE:VOD) looked at bidding for rival Three pushed Voda’s stock 4% higher.
Scottish Mortgage Investment Trust PLC (LSE:SMT), one of the UK’s biggest investors in Silicon Valley, fell 3%, reflecting the lack of conviction in the US tech sector.
6.55 am: FTSE 100 set for a back-foot start
The FTSE 100 looks set to open in the red amid worries about conflict in Ukraine and ahead of the US Federal Reserve’s monthly meeting which kicks off on Tuesday.
Dealing with the latter first, economists are expecting the unwinding of monetary support that kept markets airborne to accelerate.
Not just that, jittery markets are starting to price in an imminent hike to interest rates (one of four predicted this year) against a backdrop of sky-high prices.
Turning to the geopolitical backdrop, Russia’s manoeuvring at the border of Ukraine and in negotiations with the US continues to add to the air of uncertainty.
The State Department’s withdrawal of staff from Kyiv provided a sign that the American’s were expecting conflict, while the New York Times reported President Joe Biden is ready to send troops to Europe.
“For several years, the markets have become accustomed to buying the dips no matter the fundamental backdrop, however, recent events appear to be seeing a significant loss of confidence in this mindset, and while European markets haven’t seen the levels of selling pressure, the ability to move higher has been tempered by the weakness being seen in the US, with today’s European session set to see a lower open,” said Michael Hewson, analyst at CMC Markets.
“As we look ahead to this week's Federal Reserve rate meeting there has been plenty of speculation that the FOMC [Federal Open Market Committee] may well have to go faster and harder when it comes to the number of rate hikes this year, as well as how quickly the central bank will act in starting to reduce the size of its balance sheet.
“It is this shift in expectations that has seen bond markets slide sharply this year, helping to push yields sharply higher, and the US 10 year briefly above 1.9% last week, and a two year high, before falling back to close the week lower, and below its 200-week moving average.”
Looking ahead, it is expected to be a big week for the tech sector with updates from US titans Apple, Microsoft and Tesla expected to shape sentiment.
Here at home, we have scheduled news from drinks giant Diageo and boot maker Dr Martens.
Around the market
Pound US$1.342 (flat)
Bitcoin $35,281.10 (-2.75%)
Gold US$1,841.20 (+0.40)
Oil US$88.46 (+0.65%)
6.50am: Early Markets - Asia / Australia
Asia-Pacific shares were mostly lower on Monday as markets traded cautiously ahead of this week’s US Federal Open Market Committee meeting to decide on the next steps for U.S. monetary policy.
China’s Shanghai Composite was trading near the flat line and Hong Kong’s Hang Seng index was down 1.29%.
The Nikkei in Japan rose 0.24% while South Korea’s Kospi tumbled 1.49%.
Australia’s S&P/ASX200 fell 0.51% to 7,139.50 points, its lowest in eight months on concerns that rising inflation could lead the RBA to raise interest rates.