- FTSE falls 11 points, or 0.15%
- Investors shun bargain-hunting
- Unilever PLC (LSE:ULVR) the day’s top performer
4:45pm: FTSE 100 closes lower on inflation threat
The FTSE 100 closed lower Friday as rising inflation and interest rates spooked investors.
The markets are trying to determine the next step for the Federal Reserve amid the highest inflation in decades.
At the close, the UK blue-chip index fell 11 points, or 0.15%, to hit 7,661.
Chris Beauchamp, chief market analyst at online trading group IG, said investors are reluctant to buy beaten-down stocks as inflation and interest rates rise.
“The sight of some small gains for stocks after yesterday’s sharp reversal is normally a welcome sight, but with the Volatility Index rising again it looks like this bounce could be brief,” he said.
“Traders, investors and strategists are falling over themselves to make guesses as to where US interest rates will be by the end of the year and suddenly a multitude of rate increases now looks to be the norm rather than a left-field guess. The afternoon bounce in US stocks has already started to fade, and while the usual Friday jitters cannot be discounted it doesn’t exactly look like a rush to go bargain-hunting is currently in progress.”
The top gainer was Unilever PLC (LSE:ULVR), which increased by 3.7% to 3,981p.
4.00pm: Back to the start
The FTSE is almost flat now, back at its two-year highs and heading for a weekly gain of near 2% and its second positive week in a row as it creeps towards the 7,700 mark that was last seen in the summer of 2018.
Leading London's blue-chip pack is Unilever PLC (LSE:ULVR), up 4% and more than cancelling out the losses on the back of its results yesterday.
Also on that note, Michael Hewson at CMC Markets says wider European markets are clawing back the worst of the day’s losses as investors are "buoyed by the ability of most companies to be able to pass on price rises and maintain their earnings guidance thresholds".
"It is notable that despite the fragility being seen in US markets, that optimism about the outlook for company earnings seems more stable. This could be down to a perception that most European companies carry much cheaper valuations than their more richly valued US counterparts."
Here's some extra analysis of Unilever's numbers and the presence of its new activist investors: Peltz’s influence on Unilever is unclear for now, but his presence seems to be causing a stir.
Elsewhere BP and Shell are higher again, with BP's shares setting another two-year high, after this week’s decent profits numbers.
Vodafone PLC is at a nine-month high after confirming that it had rejected Iliad’s €11bn bid for its Italian business, saying that the bid was too low.
3pm: Wall Street starts higher
No, it turns out a flat start is not what Wall Street is getting, with our new world cousins showing off their natural exuberance.
This has given a bit of a lift to the Footsie and its European peers.
The blue-chip Dow Jones is up 0.4% and the S&P 500 0.2% but the Nasdaq is flat as the biggest of big tech are all lower, led by Amazon.com, Nvidia and ASML.
The FTSE 100 has now pared most of its losses, now down 17 points at 7,655.
Great chart from Bloomberg (via @johnauthers) on how macro events throughout 2022 have shaped Fed hike expectations pic.twitter.com/64oX6wqzsX
— Newsquawk (@Newsquawk) February 11, 2022
2.15pm: Signs of slight improvement?
Losses are being pared and US stock futures are now pointing to a flat start in a few minutes.
The FTSE 100 has trimmed its losses a little, down 44 points now, so still on course for a positive week, with a 1.5% gain since last Friday's close.
Across the Channel, continental indices are doing similar, and way over the Atlantic, the Dow, S&P 500 and Nasdaq are all heading for a flat to moderately positive rises, the futures market is saying.
Meanwhile the Russian ruble has fallen against the dollar and pound as gloomy headlines come from the wires.
Earlier US Secretary of State Antony Blinken said Russia is assembling more troops near the Ukraine border and could mount an invasion at any time.
1.20pm: Oil on the up again
Oil prices have perked up, though it's not done much for the FTSE 100, which remains in the red.
Brent crude and WTI oil futures have jumped 1.3% to US$92.47 and 1.5% to US$91 respectively after the International Energy Agency confirmed tight market conditions.
BP PLC (LSE:BP.), which was down earlier, has moved higher and Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL) has pared its earlier losses.
"Oil prices are rallying once more as the IEA raised forecasts for demand this year and confirmed that OPEC+ missed its output targets again in January and by an even wider margin of 900,000 barrels," said market analyst Craig Erlam at Oanda.
"The group acknowledged that the market is tight right now while highlighting that a nuclear deal between the US and Iran could release 1.3 million barrels of supply. There was also a nod to Saudi Arabia, where available spare capacity is apparently concentrated. Not that the White House is having any luck convincing them to unleash it."
As for crypto, Bitcoin is show resilience in the face of volatile wider financial markets, with the number one digital coin continuing to linger around $45,500.
"Its link with risk assets over the last month or so appears to have weakened over the last week or two and we're seeing that again over the last 24 hours," said Erlam.
"While stocks are coming under heavy pressure, especially the Nasdaq, bitcoin has only slightly pared gains after seeing some profit-taking around key resistance. That could give the crypto crowd plenty of confidence in the coming weeks even if broader risk appetite remains shaky."
Talking of stocks, Fidelity International's Toby Sims says the perennial underperforming FTSE 100 index is "closing in fast" on 8,000
As central banks bring the global money supply "back down to earth", he says this is good news for UK-listed stocks.
"When the going was good, the UK and its boring, unfashionable dividend-payers couldn’t keep up. Insert a dose of realism into the mix, and they look more attractive as investors begin to shy away from the US’ pandemic winners."
He notes that different ‘styles’ of company and investment fund react differently in this new market environment, with January’s selloffs pummelling ‘growth’ stocks, whose long-term earnings projections look less valuable to investors with interest rates rising today, which prompted talk of “regime change” in favour of previously unloved ‘value’ stocks, which have more to offer when growth is harder to come by and are more in evidence in London.
12.29pm: Lots more sellers than buyers
With London's and most other European stock markets in negative territory, it's no big surprise that US stocks are expected to extend their losses when they open shortly.
Following the higher-than-expected inflation data for January, which raised expectations that the Federal Reserve will accelerate interest rate hikes to curb rising prices, futures for the Dow Jones and S&P 500 are pointing to a 0.2% decline at Friday's open.
Pre-market trading is also indicating the Nasdaq 100 will be the bigger faller, with a 0.75% slide.
Nasdaq's weighting towards tech and growth stocks, which are most impacted by rising rates, saw it close 2.3% lower overnight, while the S&P 500 shed 1.8% and the Dow fell 1.5%.
The inflation data led to the market immediately changing its view for the March Federal Reserve policy meeting, with a 50 basis points (bps) hike going from being an outside 24% probability to a near-certain 93%
"The market went from pricing in 125 bps-150 bps of tightening this year to 175bps-200 bps, with a chance of even more," said Marshall Gittler, market analyst at BDSwiss.
As a result, the US dollar soared, and growth-sensitive commodity currencies fell.
“The concern is obvious: people are worried that the Fed will have to tighten so much that the US will go into recession. The market is predicting that the 2yr/10yr yield curve two years from now will be inverted. That’s a sign that they’re concerned a recession is coming," said Gittler.
"We’ve seen some push-back recently from certain central bankers against market pricing of tightening. Bank of England Chief Economist Pill made some remarks along those lines this week, as did European Central Bank President Lagarde and Bank of France Gov. Villeroy. But the market is still pricing in a lot of tightening. We should be watchful for the next response from central bankers and see who’s next to blink."
10.5am: Wallowing
The Footsie is continuing to wallow in the red this morning, down 0.8% points at 7,608.
Shares are being dragged down as sovereign bonds continue to surge after US inflation hits 40-year highs.
US two-year yields notched their biggest daily rise since 2009, noted Neil Wilson at Markets.com.
"The effect is not restricted to the US. UK 2yr gilt yields have surged to their highest level since 2011 this morning around 1.37% as figures out this morning showed the UK economy grew at 7.5% in 2021 as it weathered the Omicron winds," he said.
He noted that there is lots of inflation angst around the markets, "but clearly there are signs now that the market has moved very aggressively and reflects a position that would require the Fed to be about as hawkish as it could be.
"Is that possible? Yes, but we know the tendency is to let the market do some of the tightening and inversion-recession moves may be avoided. This sets up a possible opportunity to lean against the trend if you dare."
After St Louis Federal Reserve president James Bullard said he would "like to see 100 basis points in the bag by July 1", starting with a 50bps hike, analysts at Goldman Sachs (NYSE:GS) are now joining those forecasting seven US rate hikes this year.
Says Wilson, "European stock markets have picked up the weak handover from the US and Asia, where stocks traded broadly lower overnight amid the rate-spike-tech-fright kind of price action that we keep seeing.... Nevertheless, stock markets across Europe, UK and US are holding onto gains for the week despite all the volatility...some rotation magic, some earnings confidence, some technical support but the rate setup is changing the rules of the game."
9.40am: Opening lower, oil flat despite Ukraine talks failing
The FTSE 100 dropped sharply in opening trades on Friday, with travel and technology companies leading the declines.
Down 66 points or 0.9% to 7,606, London's blue chips are under pressure after super-hot US inflation figures triggered a sell-off on Wall Street overnight.
Also, new UK gross domestic product figures showed the economy shrank less than expected in December (see below).
Yesterday the Footsie topped 7,680 for the first time in over two years, 20 January 2020 to be exact, but Russian companies Polymetal International PLC (LSE:POLY) and Evraz PLC (LSE:EVR) are again leading the retreat today amid continuing Ukraine tensions.
The UK’s defence secretary has headed to Moscow after talks in Berlin between Russia and Ukraine failed to reach any breakthrough overnight.
US president Joe Biden warned that American citizens “should leave now,” in a television interview. “This is a very different situation and things could go crazy quickly,” he said.
But oil prices, which have been elevated in part by the Russia-vs-West dynamic, are flat this morning and on track for their first weekly decline of 2022.
Victoria Scholar, head of investment at Interactive Investor, says, “Having enjoyed seven weeks of gains, WTI is down nearly 3%, heading for its first weekly drop since December amid optimism towards the possibility of reviving the Iran nuclear deal.
"Comments from President Biden pledging to act against high energy prices, forecast topping US inflation figures and a strengthening greenback also contributed to the sell-off amid a broader pullback in risk assets. Nonetheless brent remains firmly above support at $90 a barrel with the potential for an extension of the recent uptrend beyond the short-term consolidation.”
British Airways owner IAG is among the big fallers after its main base, Heathrow airport, said air travel demand was weaker than expected in January.
British American Tobacco PLC (LSE:BATS) is on the leaderboard, but only up 0.5%, after reporting soaring revenue growth and narrowing losses for its non-tobacco products and announcing a share buyback.
7.48am: GDP down, Brexit blamed
UK gross domestic product fell 0.2% in December, better than the consensus forecast for a 0.5% drop.
Consumer facing services provided the biggest drag, down 3.0%.
For the whole of 2021, UK GDP was up 7.5%, the fastest growth of the G7 countries, but in the fourth quarter the UK underwhelmed relative to its peers.
UK Q4 GDP was 0.4% below its Q4 2019 level, pointed out Pantheon Macroeconomics. whereas it already was 3.1% above its pre-Covid peak in the US, 0.9% above in France and 0.2% above in Canada. GDP in Italy was a similar 0.5% below its Q4 2019 level, while consensus forecasts imply GDP was 0.4% below its peak in Japan. Germany currently is the laggard, with GDP 1.5% below its Q4 2019 level, but it has generally performed better than the U.K. during the pandemic to date.
"Covid-19 can’t be blamed for the UK’s continued underperformance; Omicron hit all Western European countries simultaneously, and the UK government imposed fewer restrictions in December than those in the rest of Europe," said Pantheon's Sam Tombs.
"Instead, exports continue to stand out as an area of significant weakness. Real exports still were 18% below their 2018 average level in Q4, despite a surge in exports of non-monetary gold, which have a neutral impact on GDP (2018 is the appropriate benchmark for exports, as concerns about a no-deal Brexit boosted them in 2019).
"While the US and France are the only countries to have released expenditure breakdowns of Q4 GDP so far, exports were only 6.1% and 3.7%, respectively, below their 2018 average level. British exports started to underperform in Q1 2021, suggesting that the blame can be laid at Brexit’s door."
6.34am: Nervous start expected
US inflation numbers opened up a trap-door beneath US equities yesterday and have provoked nervousness ahead of the open in London.
Spread betting quotes point to the FTSE 100 shedding 67 points at 7,595, although the release of gross domestic product (GDP) data could change the landscape.
“Looking at the monthly GDP numbers we saw the UK economy expand by 0.2% in October, and then a strong performance in November of 0.9%, driven by rebounds in consumer spending as well as industrial production and construction output. December is expected to see a -0.5% contraction, largely driven by a sharp drop of -0.7% in the index of services,” said CMC’s Michael Hewson.
“The big question is how much of this November rebound in manufacturing and construction carried over into December, and whether it was enough to offset the collapse in retail sales which fell by -3.6%, more than wiping out the collective 2.7% gain seen in October and November.
“Expectations for the UK economy come in slightly below the 1.1% gain seen in Q3, with a rebound in exports and imports also likely to be seen, as consumers here in the UK and across Europe shop early for Christmas. Industrial and manufacturing production is expected to slow from the strong performance seen in November, with forecasts of about 0.1%.
“In light of yesterday’s sharp falls in the US, it's likely that we’ll see markets here in Europe open sharply lower, largely as a result of yesterday’s comments from Bullard about an accelerated path for monetary policy tightening,” he added.
The (James) Bullard referred to is not the former Wigan Athletic midfielder but the president of the Federal Reserve Bank of St Louis, who came out in favour of hiking US interest rates by a full percentage point in the first half of this year.
US markets took a bath yesterday, with the Dow Jones down 526 points (1.5%) at 35,242 and the S&P 500 off 83 points (1.8%) at 4,504.
In Asia this morning, Tokyo has avoided the shake-out through the cunning ruse of a market holiday while in Hong Kong, the Hang Seng index is down 151 points (0.6%) at 24,772.
Around the markets
- Sterling: US$1.3530, down 0.29 cents
- 10-year gilt: 1.531%, up 9.77 basis points
- Gold: US$1,824.70 an ounce, down US$12.70
- Oil: US$90.70 a barrel, down 71 cents
- Bitcoin: US$43,125, down US$626
- Ethereum: US$3,071, down US$43