- FTSE 100 slips 42 points
- PM and CoE get served penalty notice for breaking lockdown rules
- Rolls-Royce among the worst performers after broker downgrade
4.40pm: FTSE sheds 42 points at the close
The FTSE 100 finished the day on a negative note at 7,577 points, a 0.55% loss.
European markets came under pressure for a second day after getting a weak handoff from Asia after Chinese Premier Li Keqiang issued another warning of the effect that covid lockdowns would have on the Chinese economy, said Michael Hewson, chief market analyst at CMC Markets UK. This has cast doubt on China’s ability to deliver on its 2022 GDP target of 5.5%, he added.
"We have recovered off the lows of the day, largely due to the more positive tone coming from Wall Street and the rebound in US markets," Hewson noted. "On the FTSE 100, Rolls-Royce shares are the worst performers after being on the receiving end of a broker downgrade from JPMorgan on scepticism over the profitability prospects of its New Markets unit which includes the production of new modular nuclear reactors."
US markets opened modestly higher after the latest consumer inflation mumbers raised the hope that the surge in price pressures over the last six months might be starting to show signs of topping out.
"While the numbers are encouraging there had been a widespread expectation that they could well have been a lot worse, and this has prompted some paring back in US yields, which in turn has supported a rebound in stock markets," Hewson said.
On Wall Street by the London close, the Dow Jones Industrial Average was up 247 points, or 0.72% at 34,555, while the S&P 500 was 0.94% higher and the Nasdaq was 1.4% to the good.
4.15pm: Footsie still in the red as Johnson receives fined
With half an hour of trading left, the FTSE 100 was deep in the red as the odds on Boris Johnson leaving office shortened considerably.
London’s index of top shares was down 58 points (0.8%) at 7,560, which was not quite its low point of the day but lower than it was before news broke that not only had the prime minister Boris Johnson been fined for breaking lockdown rules but also the man next door, Rishi Sunak.
By man next door, I mean Boris Johnson’s neighbour, not your “typical man next door”, which as we have been reminded this week, the chancellor of the exchequer, Rishi Sunak, is not.
Star Sports, which bills itself as the gentleman’s bookmaker, cut its odds on the prime minister leaving office before the end of the year to 9/4 from 11/4; the odds on “the greased piglet” leaving next year have drifted in to 5/2 from 3/1.
“Partygate has been lurking over Boris Johnson for some time now and just when it looked like the heat was off the Prime Minister, he has been hit with a fixed penalty notice,” said William Kedjanyi, the political betting analyst at Star Sports.
“It seems No 10 were more accustomed to receiving party invitations than police fines, but in response, we’ve had to slash the PM to 9/4 to leave office this year,” he added.
There was no mention in the press release on the odds of Sunak succeeding Johnson at number 10.
3.00pm: US stocks open higher
US stocks opened higher after the release of US inflation data that suggested the worst may be over on the rising prices front.
The Dow Jones industrial average was 278 points (0.8%) heavier at 34,586 while the S&P 500 was 46 points (1.1%) to the good at 4,459.
While US equities have put on a bit of a spurt, their UK counterparts are sliding further into the red, sending the FTSE 100 down 49 points (0.6%) at 7,569.
JUST IN: US inflation hit 8.5% in March – the highest level since the end of 1981.
High gas prices accounted for half the March inflation spike. (Gas prices peaked on March 11). Rising food and rent prices also hurt.
Wages (up 5.6% in past yr) are not keeping up with inflation pic.twitter.com/6gGXNpSQP5
— Heather Long (@byHeatherLong) April 12, 2022
2.15pm: Retailers defy the trend
Retailers are leading an unexpected rally in London, although the FTSE 100 remains in negative territory.
London’s index of heavyweight shares is off 29 points (0.4%) at 7,590 but would be in a bigger hole were it not for investors’ enthusiasm for JD Sports Fashion PLC, Next PLC, Kingfisher PLC and Burberry Group PLC, whose gains range from 2.2% to 3.3%.
That being said, there is little love for grocers ahead of results from Tesco PLC tomorrow. J Sainsbury PLC is down 2.8% while Ocado Group PLC – arguably more of a tech company than a grocer – is 3.3% lower.
In the US, investors are fretting over the US inflation rate, which rose to 8.5% in March versus expectations of 8.4%.
“The rate of inflation is running at the highest level in 40 years, due to large increases in the cost of energy, food and accommodation. The figures will add further pressure to the Fed to accelerate the pace of interest rate increases and potentially hike by 0.50% at the next meeting, as opposed to the traditional 0.25%; however, the significant increases in the cost of living and the interest rate increases will start to have a detrimental impact on the growth outlook for the American economy, which could cause the Fed to divert course throughout the latter half of 2022 or 2023. The Fed has a tricky task ahead of them and historically have struggled to battle inflation without lowering economic growth,” said Dan Boardman-Weston, the chief executive officer and chief investment officer at BRI Wealth Management.
Rob Clarry, investment strategist at Tilney Smith & Williamson – another wealth management outfit – said that the March reading “does little to change the hawkish stance taken by the Fed in recent months”.
“Despite these inflationary pressures and tighter monetary policy, we are still expecting US GDP growth to remain above-trend this year. This will support company earnings, with analysts continuing to forecast robust growth. Moreover, the US economy is less exposed to the Russia-Ukraine war than the Eurozone, which should help it to outperform from a growth standpoint in the second half of this year,” Clarry said.
12.40pm: Cost of living squeeze gets tighter
We – those of us who aren’t the chancellor of the exchequer, anyway – probably did not need telling but the latest wage estimates suggest the cost-of-living squeeze is tightening.
That’s the view of the National Institute of Economic and Social Research (NIESR), which released the results of its wage tracker, indicating that average weekly earnings (AWE) growth will grow at 6.2% in the second quarter of 2022, after increasing by 5.4% in the three months to February.
Growth in average total pay (including bonuses) was 5.4%, and growth in regular pay (excluding bonuses) was 4.0% among employees in December 2021 to February 2022, the Office for National Statistics (ONS) reported.
"Latest ONS estimates suggest wage rises are running at around 5.4%, but with inflation running at over 6.0%, it is clearly not enough to keep up with prices. This confirms that the cost-of-living squeeze is tightening in the UK. The latest Labour Force Survey suggest the labour market is still tight, with unemployment down to 3.8% and the employment rate largely unchanged from the previous three-month period. The imbalance between labour demand and supply mean vacancies remain at record highs, putting upward pressure on wage growth,” said Dr Kemar Whyte, the senior economist at NIESR.
Headline indicators for the UK labour market for December 2021 to February 2022 show that
▪️ employment was 75.5%
▪️ unemployment was 3.8%
▪️ economic inactivity was 21.4%
— Office for National Statistics (ONS) (@ONS) April 12, 2022
The Resolution Foundation said a buoyant labour market isn’t generating enough wage pressure to keep pace with soaring inflation, meaning pay is now falling sharply in real terms.
“The real pay squeeze is particularly significant for public sector workers, where regular pay growth in Feb fell to -3.8% (vs -0.8% in the private sector). Although, part of this gap will be down to furlough base effects, since most of the public sector didn’t use the scheme,” the think tank said.
The foundation added that today’s employment data confirmed that Covid has had a significant impact on participation in the workforce, as inactivity rose again, which the think tank said is “unusual alongside ongoing falls in unemployment”.
“This suggests the workers who left the workforce during the pandemic - mainly older workers - aren’t being tempted back, and points (again) to this being a permanent ‘scarring’ effect of the pandemic rather than something temporary,” the Resolution Foundation said.
Meanwhile, back in the stock market – median pay in finance and insurance is up 19.7% year-on-year, by the way – the FTSE 100 is down 41 points (0.5%) at 7,578.
PageGroup PLC, the recruitment firm, said it enjoyed another record quarterly performance in the first three months of 2022.
“Group gross profit was up 42.6% against 2021, with a strong broad-based performance across all our geographies, disciplines and brands. We delivered another record quarter for the group, with record performances in 19 countries. We exited the quarter strongly, with a record in March, the first time the group has delivered gross profit in excess of £100mln,” said Steve Ingham, the chief executive officer of PageGroup.
11.50am: Mixed start expected for US indices
US stocks are poised to open mixed on Tuesday ahead of US inflation numbers for March which are expected to show a sharp increase from the corresponding month a year ago.
While the hawkish tone struck by the Federal Open Market Committee (FOMC) at its March meeting indicates a path of higher interest rates in the world’s biggest economy, spiralling inflation will add to fears that inflation-busting rate hikes may dent economic growth further out.
Futures for the Dow Jones Industrial Average were down 0.08% in pre-market trading, while those for the S&P 500 were 0.06% lower and contracts for the tech-heavy Nasdaq-100 rose 0.07%.
“All eyes are on US inflation data today. Investors feel the heat before today’s inflation print,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “CPI figure at or ideally below expectations could cool down the recent selloff, but a figure above expectations will likely further boost the Fed hawks and weigh on the equity appetite.”
The headline US consumer price figure was 7.9% in February and that figure may be surpassed in March, with some estimates suggesting a figure as high as 8.5%,
“There is a chance that we see a higher print on the back of higher energy and commodity prices, rising wages and rising rents,” added Ozkardeskaya.
In March, the FOMC raised interest for the first time since 2018. The minutes of that meeting showed that most officials had agreed that “one or more" 50 basis-point increases may be the right course of action to dampen inflation. The latest inflation figures will likely solidify rate hike expectations but whether a series of increases work to reduce price pressures remains to be seen.
“How fast the Fed could bring down inflation that is mostly caused by supply-side problems, by restricting demand, and how will the rising inflation and the rising rates to tame inflation will impact the market?” said Ozkardeskaya.
Elsewhere, gold, a haven in times of uncertainty, continued higher. Gold futures were up 0.5% at US$1958.40. Benchmark Brent crude futures were up 3.5% at US$101.92 while WTI futures were up 3.3% at $97.40, signalling that commodity prices are going to be a mainstay for now.
In London, the FTSE 100 was backsliding again, down 40 points (0.5%) at 7,578,
10.50am: Oil price heads higher (taking BP with it)
Resource stocks are lending their considerable weight to a rally by the Footsie.
London’s index of heavyweight shares has halved earlier losses and is down 28 points (0.4%) at 7,590.
With the oil price back on the rise – Brent crude is up 3% at US$101.40 a barrel – BP PLC is topping the blue-chip risers with a 2.4% rise.
In the mining sector, Rio Tinto PLC and Glencore PLC are going well, with both sporting gains of more than 1%.
After an initially lukewarm response to its trading update, Electrocomponents PLC is now 1.7% firmer at 1,025p.
Away from the blue-chips, it looks like Deliveroo PLC failed to deliver with its first-quarter update as its shares are 3.2% lower at 106p – way, way, waaaaaay below the 390p at which the shares were floated to great fanfare in March 2021.
“Deliveroo and its peers in the food delivery space are facing further regulation of the UK's gig economy. Just Eat’s employee and agency-led delivery model means it is less exposed than Deliveroo and Uber Eats to any unfavourable regulation,2 suggested Dan Thomas at research house Third Bridge.
“Despite seeing a huge surge in revenues since the pandemic Deliveroo continues to be unprofitable. The big question is how long investors will tolerate such a situation in a more demanding funding environment,” Thomas wondered.
“Competition amongst food delivery companies is relentless making it unlikely that Deliveroo will be able to reduce its high marketing expenditure any time soon. Instead, Deliveroo will be counting on better rider cost per order as their network density improves and some advantage from their Amazon Prime partnership driving higher retention,” he added.
Susannah Streeter at Hargreaves Lansdown reckons “Deliveroo’s tyre risks running flat as budgets are squeezed further”.
“With many supermarkets and restaurants set to pass on the cost of higher commodity prices, more consumers may begin to trim budgets by starting with little luxuries like on fast food and on demand groceries and that still could prove a big bump in the road for companies like Deliveroo to navigate as it tries to carve out a dominant position in the delivery market,” Streeter said.
9.25am: Rolls-Royce leads the retreat after broker downgrade
The FTSE 100 remains in the red, with Rolls-Royce Holdings PLC leading the retreat after a broker downgrade.
London’s index of leading shares was down 63 points (0.8%) at 7,555, so it has at least stabilised after a rocky start.
Rolls-Royce Holdings was down 6.1% at 89.17p after JP Morgan downgraded the stock to ‘underweight’ with a price target of 75p. The broker said the company’s plans to diversify “raises the risk for investors”.
In the FTSE 250, easyJet PLC was 3.6% lower after its half-year trading statement.
“First half losses have reduced year on year, outperforming expectations, as self-help measures including network optimisation, ancillary products, and a continued cost focus deliver,” the company said but the market was unconvinced, marking down sector peers TUI AG by 3.7% and Wizz Air Holdings PLC by 3.0% for good measure.
“easyJet’s capacity is climbing, despite pressures from Omicron. In the current quarter, the short-haul specialist is expected to fly around 90% of pre-pandemic capacity, and this will then build to almost 100% for the crucial summer season. As a short-haul operator, easyJet is well-positioned to capture demand from holiday-deprived families and individuals, who may be more wary about travelling further afield while there is still so much uncertainty,” suggested Sophie Lund-Yates at Hargreaves Lansdown.
“Staff absences and flight cancellations in recent days were disappointing but unavoidable. The group’s been trying to pre-emptively cancel some slots in the hopes most passengers can book onto same-day flights. Further bumps in operations are to be expected as life gets back to normal, but from a business perspective, the vital Easter trading season doesn’t seem to have been too badly affected,” she added.
8.30am: A mixed bag of employment data
Despite some decent UK employment numbers, UK equities have opened on the back foot.
The FTSE 100 was down 59 points (0.8%) at 7,559, even with a leg-up from oil and mining stocks.
The latest Labour Force Survey (LFS) estimates for December 2021 to February 2022 show the employment rate was unchanged on the quarter at 75.5%, while the unemployment rate decreased to 3.8%, in line with the consensus forecast, from 4%. Over the same period, the economic inactivity rate has increased slightly, the Office for National Statistics said.
The Labour Force Survey measure of employment was 10,000 higher in the three months to February than in the three months to November but economists had expected a 52,000 increase.
The headline rate of year-on-year growth in average weekly earnings, including bonuses, increased to 5.4% in February, from 4.8% in January; the consensus forecast was for a 5.4% increase, which proves economists can get it right occasionally.
“The latest labour market data show that the recovery in employment got back on track in the three months to February. The three-month-on-three-month increase in employment would have been larger still, if it weren’t for the departure of a cohort of people that in previous months reported a higher-than-average employment rate. Indeed, other measures of employment were strong in February. The PAYE measure of employees rose by 0.6% month-to-month in February, while the employment balance of the S&P Global/CIPS composite PMI rose to a four-month high. The unemployment rate, meanwhile, fell due to a 76K—0.2%—decline in the workforce,” said Gabriella Dickens at Pantheon Macroeconomics.
On the corporate news front, Electrocomponents PLC (LSE:ECM), down 0.4%, was at least outperforming the Footsie index after its trading statement revealed year-on-year like-for-like revenue growth in the year to the end of March was 26%.
Fading stock market star ASOS PLC (AIM:ASC) faded a bit more this morning following underwhelming interims.
ASOS stays ahead in H1, but growth slows, sees risks ahead https://t.co/iJfGIQ52VQ pic.twitter.com/aQnGGCRwfJ
— FashionNetwork Worldwide (@FNW_WW) April 12, 2022
“ASOS is losing some steam. Its lacklustre first-half revenue and customer growth aren’t a disaster, but they sure don’t paint a picture of optimism either,” said Gemma Boothroyd at Freetrade.
“The firm’s latest results are up against a very strong lockdown-ridden base year comparable. So single-digit growth shouldn’t sound the alarm bells. Though it’s hard to ignore the firm’s massive turn from profit to a jarring loss,” she noted.
The shares shed 3.3% as the company posted a loss of £15.8mln for the six months to the end of February 2022, compared to a profit of £106.4mln 12 months earlier, although understandably the company preferred to highlight the adjusted profit before tax, which was positive at £14.8mln – but still down 87% on a year earlier.
6.40am: Consumer confidence sinks
The FTSE 100 is expected to fall sharply at the open on Tuesday after another sell-off on Wall Street overnight and as UK consumer confidence sinks to the lowest since the 2008 financial crisis.
London’s blue-chip index is seen dropping around 50 points, according to spread-betting platforms, extending the losses so far this week, which got off to a 51 point decline yesterday to finish at 7,618.31.
Overnight, the main US share indices all declined, led by the tech-heavy Nasdaq, which fell 2.2%, and with the S&P 500 down 1.7%.
So far this year the S&P is down 8% versus the Footsie's 1.51% gain.
"US and European futures are trading as investors pay attention to bonds' sell-off, which left the 10-year Treasury yield at its highest level since 2018," said market analyst Naeem Aslam at AvaTrade.
"This is chiefly due to higher inflation readings, tightening monetary policies, and China's covid outbreak. In addition to this, investors are anxious about the spillover effect of sanctions imposed on Russia due to its invasion in Ukraine."
This morning we’ve had shopper confidence data from IGD sinking to 14-year lows as the prospect of soaring prices becomes ever more real.
Retail sales numbers have also been released by the British Retail Consortium showing annual growth slowed to s 3.1% rise in March from the 6.7% increase in February and a 12-month average growth rate of 10.3%.
Shortly we’ll be getting the monthly labour market report from the Office of National Statistics, where wage growth will be the key figure.
“With the latest UK March inflation numbers due tomorrow, the cost-of-living squeeze is no better illustrated than in the gap between wage growth which saw an increase of 4.8%, in January, including bonuses, and 3.8% excluding them,” said Michael Hewson, market analyst at CMC Markets.
“On the plus side, this trend of higher wages is set to rise in the coming months; however, it will still fall short of matching the impact of rising prices in the shops, even when the various pay increases announced by various retailers recently.”
February’s average weekly earnings including bonuses are expected to jump to 5.4% from 4.8%, and excluding bonuses to 4% from 3.8%.
Unemployment fell back to 3.9% in January and is expected to retreat to its pre-pandemic lows of 3.8%.
Looking forward, Hewson added: “The change in NI insurance thresholds from July will also help in the longer term, but as far as the here and now, upward pressure on wages is still expected to increase in the coming months, helped by rising vacancies, which rose to a new record high of 1.3m for the three months to January.”
Later today a big focus for markets will be US consumer price inflation, which looks set to push well above 8% and seal the deal for a sharp hike in interest rates from the Federal Reserve.
6.50am: Early Markets - Asia / Australia
Asian markets were mixed on Tuesday as the World Health Organization said it is monitoring the COVID-19 situation in China, where officials are battling a severe surge in cases.
The Chinese city of Shanghai has accounted for most of mainland China’s new cases and is still in lockdown as officials do not want to relax its zero-Covid stance over fears of a destabilising outbreak.
Japan's Nikkei 225 tumbled 1.83% and South Korea’s Kospi slipped 0.85%.
The Shanghai Composite in China gained 0.91% while Hong Kong’s Hang Seng index rose 0.24%.
Australia’s S&P/ASX200 closed 0.42% lower, weighed down by losses across the energy sector after a fall in oil prices.