- FTSE 100 closes down 171 points at session low
- US stocks extend sharp declines led by Nasdaq Composite
- April Inflation data due for US this week
4.50pm: Footsie exits 7,300 level
The FTSE 100 index ended sharply lower on Monday, tracking similar big falls on Wall Street as markets started the new week as it left the last, unsettled by worries over inflation, economic growth, and further interest rate rises, even aside from the war in Ukraine and worries over COVID-19 clampdowns in China.
The UK blue-chip index closed down 171.36 points, or 23% at 7,216.58, the session low and well below the day’s peak of 7,391.59.
In New York, around London’s close, the Dow Jones Industrial Average was a hefty 470 points, or 1.4% lower at 32,424, while the broader S&P 500 index dropped 2.2%, and the Nasdaq Composite tumbled 3% as tech stocks once again bore the brunt of the selling pressure.
Danni Hewson, AJ Bell financial analyst, commented: “If anyone was hoping a new week would bring a marked change in sentiment they were in for some serious disappointment. US markets opened lower and across Europe things just didn’t get any better. With a fresh set of tasty inflation numbers due out from a whole host of countries this week, including the US, investors are still very much in the sell camp. Talk of recession is rife as markets really begin to price in a series of interest rate rises as central banks remain under pressure to help people out of the cost-of-living crisis they’ve found themselves slap bang in the middle of.”
Hewson added: “There are always winners and today’s shout out must go to Tyson Foods (NYSE:TSN) which has raised its sales outlook because of soaring meat prices. It’s passing on increased costs from labour and animal feeds to the consumer and so far, volumes haven’t been particularly affected, though the business is trying to keep hikes to a minimum by improving productivity.
“Higher prices for staples like meat give governments and central bankers a huge headache because they can’t be avoided by the man on the street and when push comes to vote they will remember the tough times. Two percent inflation seems a ridiculously alien concept right now and investors are nervous that chasing down that target could require faster and deeper action by central banks, action which could well knock growth prospects even farther off course.”
3.55pm: Monday blues
It has been a rough day for equity markets across the globe and London has been no exception, although there has been a bit of support for retailers.
The FTSE 100 was down 134 points (1.8%) at 7,256 but defensive favourites such as J Sainsbury PLC (LSE:SBRY), Tesco PLC (LSE:TSCO) and B&M Value Retail SA in the retail sector and British American Tobacco PLC (LSE:BATS) in the tobacco sector made gains of between 0.5% and 2.8%.
With technology stocks again taking a shoeing in the US, Scottish Mortgage Investment Trust PLC (LSE:SMT), down 5.2%, got the cold shoulder but even its decline was surpassed by bookies Entain PLC (LSE:ENT), down 7.8%, and Flutter Entertainment PLC (LSE:FLTR), down 5.3%, on regulatory concerns.
2.40pm: US equities fall out of bed with a bump
As expected, US equities have fallen out of bed with a bump, with the tech-heavy Nasdaq Composite the hardest hit of the big three indices.
The Dow Jones industrial average was 475 points (1.4%) lower at 32,424 while the S&P 500 tumbled 66 points (1.6%) to 4,056. The Nasdaq Composite dived 188 points (1.6%) to 11,957.
In London, the FTSE 100 is down by a similar amount, in percentage terms, to its US counterparts; the index is 116 points (1.6%) weaker at 7,272, having fallen as low as 7,230 at one point.
William Kedjanyi, the political betting analyst at Star Sports, reports that the odds on Sir Keir Starmer stepping down as leader of the Labour Party have recently shortened to 3/1 from 14/1 before the “beergate” issue hit the headlines.
There are reports that Starmer is planning to commit to resigning if he is found guilty of breaking the law by the Durham police, which would put pressure on prime minister Boris Johnson to do likewise, both for the law-breaking he has already perpetrated and any further instances that might or might not be revealed by the Sue Grey investigation.
1.15pm: Plenty of things for investors to fret over
Corporate news from FTSE 350 is rarer than a clean sheet at St James’s Park today but that has not stopped London’s blue-chips and mid-caps from going into full retreat.
The FTSE 100 is down 143 points (1.9%) and the FTSE 250 is faring even worse, plunging 452 points (2.3%) to 19,368.
In such circumstances, one might expect gold to find favour from risk-averse investors but that’s not the case; the yellow metal is US$23.90 (1.3%) cheaper at US$1,858.90 an ounce.
“Not even gold is able to decouple itself from the ongoing bond market rout or the rallying US dollar. The precious metal has started the new week how it ended the last three: on the back foot. Despite the sharp continuation of sell-off in equity markets, there were no signs of any serious haven demand buying of the precious metal by mid-morning London session,” reported Fawad Razaqzada at City Index.
“Gold has been unable struggling because it is a non-interest-bearing commodity. Unlike government bonds and stocks, it doesn’t give interest or dividends and costs money to store. So, as yields on government debt continue to press higher, investors are forced to get out of assets that pay low or – in the case of gold – no interest or dividend,” he explained.
Investors appear to be spoilt for choice over things to worry about: the resurgence of Covid in Beijing, the US Federal Reserve’s plans for interest rate rises; and Russia’s show of strength in the Moscow parade.
There is a smattering of good news among the small caps. One of London’s biggest movers this Monday is Ideagen PLC (AIM:IDEA), surging 46% to 356p.
The board of the Nottinghamshire-based software company released a statement today that it agreed to a £1.06bn takeover from Hg Pooled Management Ltd.
Hg Pooled “indirectly” owns Rainforest Bidco Limited, which made the cash offer, with shareholders receiving 350p per share, a 52% premium on Friday’s close.
In other takeover news, Tungsten Corp PLC (AIM:TUNG) rallied 10% to 50.2p, with the provider of business transaction networks recommending the 48p a share cash offer made for the business by Pagero Group.
Elsewhere, S4 Capital continues to tumble, down 10% to 319p after finally releasing its unaudited 2021 results on Friday, which revealed a pre-tax loss.
12.05pm: Losses deepen
Losses are deepening for the FTSE 100 and FTSE 250, with oil and other commodities-focused shares weighing.
The blue-chip index is down 139 points or 1.8% to 7,249, while the mid-cap index is down 456 points or 2.3% at just over 19,360.
With China worries hitting oil prices, with Brent crude futures are down 1.7% to US$110.48 a barrel, leading to with BP PLC (LSE:BP.) dropping 2% and Shell PLC (LSE:SHEL, NYSE:SHEL) reversing its positive start and now down 0.7%.
The biggest 350 fallers include Ukraine iron ore producer Ferrexpo PLC (LSE:FXPO), Ladbrokes owner Entain PLC (LSE:ENT) and commodities giant Glencore PLC (LSE:GLEN).
There's also gloomy UK economic news darkening the mood.
Following on from the Bank of England's warning last week about a potential recession, the EY ITEM Club has cut its UK growth forecasts as the squeeze on business investment and consumer spending are "raising risk of recession".
Business investment is forecast to grow 10% in 2022, down from the 12.7% growth expected in February, while consumer spending is set to grow 4.9%, down from the 5.6% predicted before.
Total UK GDP is forecast to grow 4.1% in 2022, 1.9% in 2023 and 2.2% in 2024, but EY said growth will be dependent on under-pressure households continuing to spend by saving less and borrowing more.
Amid the biggest fall in real wages since 1977, there is a real possibility that this may not occur, which would lead to a recession.
Hywel Ball, EY UK Chair, says: “Uncertainty about the pandemic has been replaced by geopolitical uncertainty, which has also had consequences for the cost of capital goods and supply chain frictions. The temporary super-deduction tax incentive should support an investment pick-up this year, but its impact is being countered by strong headwinds.
“Some businesses also appear to be grappling with labour shortages and aren’t always able to access the talent needed to identify or deliver investment opportunities. At the same time, many large businesses are actually well-placed to invest, having paid down bank debt during the pandemic and built cash holdings which could can be used to fund new projects.”
11.38am: Wall Street to continue sell-off
US stocks are expected to open lower as investors continue to fret about the Federal Reserve's policy tightening.
Tech stocks are expected to lead the decline, with futures for the Nasdaq-100 down 2.0%, while the S&P 500 is seen opening 1.7% lower and the Dow Jones down 1.3% in pre-market trading.
Last week, the Fed hiked interest rates by 50 basis points and US non-farm payrolls rose by a higher-than-expected 430,000, underscoring the strength of the labour market in the world’s biggest economy and putting the focus firmly on US inflation data due out the middle of this week.
Later this week, the latest US inflation figures will be released, with the CPI expected to have eased to 8.1% in April, from 8.5% a month earlier.
“If the jobs data couldn’t improve sentiment, as a strong data would fuel the hawkish Fed expectations, and a soft data would fan the recession fears, sign of softer inflation could improve appetite in risk assets, and trigger a positive correction in US indices," said Ipek Ozkardeskaya at Swissquote.
Either way, equity markets look set for a continued rocky ride, what with bond yields rising again. The yield on the benchmark 10-year Treasury rose to 3.17% on Monday from 3.12%, putting it on the path to new multi-year highs.
Over in China, Premier Li Keqiang warned of a “complicated and grave” jobs market.
10.39am: McColl’s saved from collapse
Morrisons has reportedly won the battle to save McColl’s Retail from collapse, beating the owners of Asda to the 'prize' of the struggling convenience store chain.
After McColl's said on Friday that administrators had been appointed, both Morrisons improved its offer over the weekend.
And in spite of tweaks to the offer from EG Group, which is owned by the Issa Brothers and private equity firm TDR Capital, McColl’s will be sold via a pre-pack deal to Morrisons, Sky News has reported.
Bought by private equity firm Clayton, Dubilier & Rice last year, Morrisons has been working closely with McColl’s in recent years, supplying wholesale products and with many McColl's stores rebranded as Morrisons Daily.
PwC was appointed administrator on Friday after McColl's banks, HSBC, Barclays and NatWest declined to extend the waiver of the banking covenants after they expired.
Meanwhile, the FTSE 100 is down 74 points or 1% at 7,313.74.
The FTSE 250 is doing even worse, down 384 points or 1.9% to 19,435.97, testing lows seen in early March, with Ukraine-based Ferrexpo PLC (LSE:FXPO) PLC leading the fallers.
Other leading mid-cap losers include Chrysalis Investments, Baltic Classifieds Group PLC, Trustpilot Group PLC and a pair of investment trusts, Baillie Gifford US Growth Trust and the UK midcap and small-cap focused BlackRock Throgmorton Trust PLC.
9.48am: Tech investor leads losers
Reflecting the declines in US and Chinese growth stocks, tech investor Scottish Mortage is now the biggest faller as the FTSE fell below 7,300 for the first time in almost two months.
SMT is down more than 6%, while other China-focused investment trusts such as Fidelity China Special Situations PLC (LSE:FCSS) and JPMorgan China Growth & Income are also in the red.
Other fallers include cardboard box makers DS Smith and Smurfit Kappa, Ladbrokes owner Entain PLC (LSE:ENT) and US-focused construction equipment hire group Ashtead.
The cardboard box makers are down as Barclays noted that parcel delivery volumes are "normalising fast", with several European parcel companies reporting double-digit percentage drops.
“The optimism that followed the US Federal Reserve meeting last Wednesday feels a long way off on Monday morning as the FTSE 100 dropped to its lowest levels since mid-March,” says AJ Bell investment director Russ Mould.
“The continuing impact of Beijing’s zero-Covid policy in China and concerns about the Fed’s next moves are helping to pile the pressure on markets.
“The impact of Chinese restrictions was reflected in export growth hitting two-year lows in April – in effect back where we were near the start of the pandemic."
8.44am: Rightmove leads blue chips lower
London got off to a soft start with the FTSE 100 shedding 20 points at 7,368.
“All the major European bourses are under pressure with the FTSE 100 trading below 7,400, driven by weakness in the miners with stocks like Anglo American, Rio Tinto and Fresnillo trading at the bottom of the basket following China’s softer trade data,” noted Victoria Scholar at interactive investor.
Rightmove PLC (LSE:RMV) was off 4.5% at 533.6p after its chief executive, Peter Brooks-Johnson, signalled his intention to step down from the board in February 2023.
The shake-out on NASDAQ continues to hit Scottish Mortgage Investment Trust PLC (LSE:SMT), which was down 2.6% in early deals.
6.30am: Weak start to the week expected
The FTSE 100 is expected to open the new trading week firmly in negative territory with economic growth fears, inflation, rising interest rates and the Ukraine conflict driving sentiment.
Asia’s main markets set the tone with the slowdown in China adding another layer of misery amid further Covid restrictions, which will undoubtedly have an impact growth.
However, it was Japan’s main index that fared the worst as the Nikkei 225 lost more than 2% of its value.
Looking ahead, Wall Street looks set to pick up where it left off on Friday with a negative start, according to the latest stock futures reading.
“US markets underwent another disappointing week falling for the fifth week in a row, although up until Wednesday things had looked much more promising in the wake of the Fed’s decision to raise rates by 50 basis points, the biggest one-month rate rise since May 2000,” said Michael Hewson of CMC Markets.
“In less than 24 hours the positive vibe generated by the Fed announcement and Fed chair Jay Powell’s press conference had evaporated faster than an ice cube in the desert, after Bank of England governor Andrew Bailey offered his own rather bleaker outlook of the economic environment, downgrading the UK’s economic outlook to a -0.25% contraction in 2023.
“This caused investors to question whether the Federal Reserve was being less than honest about what is coming down the track. You certainly don’t have to look too far to see where the problems are coming from.
“Russia’s war on Ukraine is in plain sight, however, anyone thinking that China’s easing of monetary policy will ease things for the Chinese economy probably need to take a closer look at events currently playing out over there now.”
Looking ahead, we have market updates from BT, ITV and Disney this week.
Around the markets
- Pound US$1.2272 (-0.64%)
- Bitcoin US$,560.80 (-1.37%)
- Gold US$1,872.00 (-0.57%)
- Brent Crude US$112.77 (+0.34%)