- FTSE down 5 points
- UK inflation increases to 5.5%
- Bank of England may remain cautious on rates, analysts say
4:50pm: FTSE 100 ends lower, US stocks down midday
The FTSE 100 finished the day on a down note, easing 5 points, or 0.07%, to 7,604, after data showed UK inflation rose at its fastest pace in nearly 30 years in January.
“Markets will be relieved that the pace of inflation increases appears to have moderated, but today's further price rises mean consumer spending will keep getting squeezed, heightening the risk of tipping the economy into reverse,” IG chief market analyst Chris Beauchamp said.
Notable movers included shares of Indivior PLC (LSE:INDV), which jumped 14% after the opioid addiction treatment maker said it was exploring a secondary listing in the US following an increase in its yearly sales.
4.00pm: Risk-off day
Today is definitely a risk-off day for most investors it seems, with swathes of red across UK and most of Europe.
But the falls are not so big, with the FTSE 100 down only 11 points or 0.15% at 7,597, supported by rises for BP and Shell as the oil price rebounds after yesterday’s steep falls.
"Yesterday’s relief rally on reports that Russian troops were returning to their bases has given way to more caution today, after it turns out that Russian claims don’t appear to being matched by deeds," said market analyst Michael Hewson at CMC Markets.
"While the Russians are saying one thing, NATO and the US are reporting that Russian troop numbers are rising near the Ukraine border, and that no de-escalation appears to be happening, making markets increasingly susceptible to headline risk. And so, the phoney war goes on, as the pullback in stock markets prompts a move into government bonds sending yields into retreat."
Hewson added: "Optimism that military conflict can be avoided in Russia served to calm energy markets, at least a little, with crude oil retreating from its test of seven and a half year highs yesterday.
"Both UK and US crude oil contracts saw price action increase as a result, with one-day vol posting 41.6% and 43.8% respectively against one-month readings of 32.9% and 35.8%.
"The idea that fuel prices may now find a degree of stability served to lift equity markets across Europe, helping them reverse some of Monday’s losses. The most notable increase in activity was seen on the smaller Frankfurt bourses with risk-on appetite driving prices. The German Mid 50 saw one-day vol of 47.4% up from a monthly reading of 29.6%."
3pm: Red all over the world
London stocks have sunk lower after Wall Street opened in the red.
Tech stocks are leading the retreat in New York, with the Nasdaq down 1.4%, the S&P 500 declining 0.7% and the blue-chip Dow Jones falling 0.5%.
All the tech giants are in the red, with an extra push coming from Shopify (TSX:SH., NYSE:SHOP), the e-commerce software provider which swung to a loss and warned that the pandemic spending boom is over and inflation is having an effect.
“The Covid-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022,” the Canadian company said. “There is caution around inflation and consumer spend near term, for the full year.”
Shopify (TSX:SH., NYSE:SHOP) shares were down 15%.
With talk of pandemic shopping being over, it was no surprise to see Royal Mail PLC (LSE:RMG) and Ocado shares leading the FTSE fallers in London.
The next biggest faller among big tech was Facebook owner Meta Platforms Inc (NASDAQ:FB) after Google said it plans to follow Apple in putting new privacy restrictions in place to stop sites like Facebook tracking users across other apps on Android phones.
Earlier this month, Meta saw its valuation plunge US$200bn when it reported a decline in user numbers and said the impact of Apple's privacy changes could be around US$10bn this year.
1.19pm: Declines but muted
The pound has edged higher today after inflation in the UK surged to its highest level in 30 years, which is an added pressure on the FTSE 100, which has fallen further.
Although the high inflation is fueling further concerns about the cost of living crisis and interest rates, banks are among the fallers today.
"Ultimately," says market analyst Craig Erlam at Oanda, "the economy will suffer further even if many are better able to absorb higher prices as a result of savings built up over the last couple of years.
"That may encourage the Bank of England to be cautious in raising rates in the second half of the year as inflation falls but markets are clearly not of that view. Another five hikes are heavily priced in this year, on top of the two consecutive increases in December and February, which would take Bank Rate to 1.75%, the highest since the start of 2009."
Fawad Razaqzada at Think Markets said the pound’s muted response to inflation numbers "suggests investors are not sure whether the impact of the Bank of England’s response in terms of policy tightening will outweigh the negative impact falling real wages will have on the economy."
"Still, the upcoming rate hikes should help support the pound, especially against weaker currencies like the Japanese yen."
Currently, London's blue chip index is down 31 points or 0.4% to 7,578 while the mid-cap FTSE 250 has shown more resistance, but is just below the flatline, down less than 0.1% at 21,839.
Looking at crypto, Bitcoin has been weathering the geopolitical storm fairly well, says Erlam, also benefiting from the improvement in risk appetite today.
"Once again it finds itself trading a little shy of $45,500 where it ran into resistance last week after repeatedly seeing support there back in December. A move above here will be a big psychological boost and could propel bitcoin higher," he says.
"Of course, risk appetite remains important, especially that linked to inflation and interest rates, which could continue to be a drag if anxiety remains in the broader markets."
12.34pm: Global stock markets flat
The Footsie is down a bit further, most of Europe's major share indices are flat or in the red now too, with US stocks also expected to open lower as the Russia-Ukraine rumblings continue, with added Fed minutes interest today.
Wall Street will today turn its attention more fully to how the Federal Reserve plans to curb soaring inflation as tensions on the Russia-Ukraine border ease.
Futures for the Dow Jones are pointing to a 0.2% decline in pre-market trading, while the S&P 500 futures are down 0.1% and the tech-heavy Nasdaq is pointing to a flat start.
This comes a day after US stocks broke a three-day losing streak after the Russian Defense Ministry said it had begun pulling back some of its troops after training exercises near the Ukrainian border.
However, today, there are Ukraine president Volodymyr Zelenskiy said he does not yet see any Russian troop withdrawal from positions near the border.
Moscow insisted that troops have started withdrawing from areas near the Ukrainian border and returning to permanent military bases – after loading tanks and other military vehicles onto railway wagons.
Today, 16 February, is where an attack had been anticipated, according to media reports last week.
This led Russian foreign ministry spokeswoman Maria Zakharova to ask US and British media outlets jokingly say: "I’d like to request US and British disinformation, Bloomberg, The New York Times and The Sun media outlets, to publish the schedule for our upcoming invasions for the year. I’d like to plan my vacation."
11.30am: Retreating further
The FTSE has retreated 0.27% to just under 7,589 as more inflationary pressures emerge in the UK, with the official house price index rising by 0.8% month-to-month in December.
In seasonally adjusted terms, prices were up 10.8% on the year before, from 10.7% in November, with a monthly increase of 0.9%.
House prices continued to surge towards the end of last year, despite the threshold for stamp duty returning to £125,000 in October and the beginnings of the squeeze on household incomes.
For the fourth quarter of 2021, house prices were 3.8% higher than the previous quarter, the biggest jump since the official data series began in 2005.
Prices for detached homes increased by 15.3% and flat prices rose by just 5.7%, while a 5.5% price rise in London was well below the national average.
This reflects the greater value people are putting on having a home office, said Pantheon Macroeconomics, as well cladding-related issues hitting flat prices.
"We continue to think, however, that house price growth will slow sharply in 2022. Most of the transactions that were completed in Q4 were financed with mortgages with interest rates agreed in the third quarter, before the recent surge in risk-free rates."
10am: London outlier
London is the only European stock market in the red, thought only slightly as the market takes a bit of a breather after some ups and downs in recent weeks.
Leading the Footsie lower are food retailers, with the biggest faller being Ocado Group PLC (LSE:OCDO), down 3%.
Discounter B&M European Value Retail SA (LSE:BME), along with Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY) also not far behind.
"The FTSE 350 behaved exactly as you would expect as UK inflation hit a 30-year high at 5.5%. Many of the top risers and fallers are affected by the rising cost of living,” says Danni Hewson, financial analyst at AJ Bell.
On supermarkets, she said this was "perhaps as investors speculated there could be cutbacks in the weekly shop given the financial pressures on consumers".
Diageo PLC (LSE:DGE) shares are also lower, in read-across from Heineken warning alcohol sales could decline due to big increases in input prices.
The earlier CPI inflation data showed food inflation edged up to 4.3%, from 4.2%, with food producer output price inflation increased to 6.0% in January, from 5.2% in December, while core producer output price inflation increased to 9.3%, from 8.6%.
This suggests we will see food CPI inflation increase further as retailers continue to pass on higher producer prices to consumers, said economist Sam Tombs at Pantheon Macroeconomics.
The headline CPI rate is likely to shoot up to between 7.5% and 8.0% in April, he added, driven by the 54% rise in the energy price cap and the rate of VAT paid by hospitality and tourism businesses returns to 20%, from 12.5% currently, and all employers pay more in National Insurance contributions.
Miners are among the risers, though apart from Russia-focused Polymetal International PLC (LSE:POLY) , not by very much.
8.29am: Pressure from two sides
The FTSE 100 got off to a quiet start as the threat of conflict in Ukraine appeared to subside.
“One of the twin pressure valves gripping the market has been slightly released, while the other remains strongly in evidence,” said Richard Hunter, head of markets at Interactive Investor.
The second ‘valve’ is UK inflation, which came in at a marginally higher-than-expected 5.5% to hit a level not seen since 1992.
Core inflation, which excludes volatile items such as food, energy, alcohol and tobacco from the basket, rose to 4.4% in January, up from 4.2%.
Martin Beck, chief economist of the EY Item Club, said he expects prices to continue their ascent through 2022, with higher energy bills providing the catalyst, before subsiding next year.
He added: “So, the odds of a scenario where the UK shifts to a regime of persistently high inflation regime are low.”
With the threat of war in Ukraine subsiding, British Airways owner IAG recaptured some ground lost earlier this week with a 2.2% jump. easyJet and the holiday firms such as TUI and Carnival followed in its slipstream as the prospect of international travel restrictions receded.
6.55 am: FTSE 100 called higher
The FTSE 100 is seen starting Wednesday slightly higher as Russian tensions eased tentatively, supporting global equity prices.
London’s blue-chip benchmark was called 22 points higher by CFD firm IG Markets which made the price 7,610 to 7,613 with just over an hour to go until the open.
It comes after the reported de-escalation of tensions in Ukraine as numbers of Russian forces demobilise and return to base.
“While an encouraging development, there was an element of caution all round with US markets also finishing the session higher breaking a three-day losing streak in the process,” said Michael Hewson, analyst at CMC Markets. “The undercurrent of caution is understandable given the lack of empirical evidence on the ground to support this claim which means the next couple of days are likely to be key in determining whether the deeds match the claims.
“Consequently, European markets are expected to open cautiously higher, as we look ahead to today’s UK inflation numbers, as well as US retail sales and the most recent FOMC minutes.”
Last night, in New York, the Dow Jones closed yesterday’s session some 422 points or 1.22% higher at 34,988.
The S&P 500 added 1.58% to finish the session at 4,471 whilst the Nasdaq advanced 2.53% to 14,139. Meanwhile, the small cap focused Russell 2,000 rose by 2.76% to 2,076.
In Asia, Japan’s Nikkei climbed 595 points or 2.22% to trade at 27,460 and Hong Kong’s Hang Seng notched 1.24% higher to 24,657. The Shanghai Composite then moved up 0.46% to 3,461.
Around the markets
The pound: US$1.3556, up 0.13%
Gold: US$1,854 per ounce, up 0.04%
Silver: US$23.42 per ounce, up 0.3%
Brent crude: US$93.35 per barrel, down 3.2%
WTI crude: US$92.28 per barrel, down 3.3%
Bitcoin: US$44,113, up 1.1%
Ethereum: US$3,139, up 3.8%