- FTSE 100 closes up by 53.55 points
- Imperial Brands leads the way
- Unilever slips back
Britain's main equity index closed higher on hopes that China would ease its pandemic-related curbs and regulatory scrutiny, although strength in the pound following an upbeat employment report capped gains for the export-oriented benchmark index.
The FTSE 100 index closed nearly 53.55, or 0.7% higher at 7,518.35, but lagged its continental peers as the pound jumped more than 1%.
Oanda senior market analyst Craig Erlam noted that the spikes we've seen in UK yields and the pound suggest “markets are anticipating more rate hikes as a result, and at a time when a recession is already the base case.”
Strength in the sterling dented shares of global companies such as Unilever, AstraZeneca and GlaxoSmithKline, according to market analysts.
3.50pm: Market remains in the green heading into the close
Leading shares are off their best levels but remain in positive territory.
The FTSE 100 is currently up 35 points or 0.47% at 7499.8, having earlier climbed as high as 7538.
Imperial Brands PLC (LSE:IMB) is maintaining its position at the top of the leaderboard following its results, up 7.24%.
Mining shares are also in demand, on hope that major commodity consumer China will ease its lockdown restrictions.
Fresnillo PLC (LSE:FRES) is up 3.89%, helped by a positive note from RBC.
Glencore PLC (LSE:GLEN) has climbed 3.83%, Anglo American PLC (LSE:AAL) has added 3.54% while Antofagasta PLC (LSE:ANTO) is 3.36% better.
Meanwhile Prudential PLC (LSE:PRU) is up 5.27% after a buy note.
But supermarket shares have slipped on concerns about the cost of living crisis, with Tesco PLC (LSE:TSCO) down 2.92% and J Sainsbury PLC (LSE:SBRY) off 1.15%.
2.55pm: US market opens higher as tech stocks recover
US stocks rebounded on Tuesday morning led by the tech-heavy Nasdaq which was up 241 points or 2% at 11,903 points just after the open.
The Dow had gained 373 points or 1.2% at 32,597 points and the S&P 500 was up 58 points or 1.5% at 4,065 points.
Oanda senior market analyst Craig Erlam said stock markets were in positive territory as investors were seeing value after a substantial sell-off in recent weeks but noted the rebound may not last.
“I'm not particularly convinced about the sustainability of such a move against the backdrop of high inflation, much higher interest rates and probable recessions but there's no doubting that the scale of the declines recently was bound to attract some back in,” Erlam said.
Back in the UK, the FTSE 100 remains in the green despite the prospect of a trade war with the EU.
It is off its best but still up 54.45 points or 0.73% at 7519.25.
2.42pm: UK plans to scap parts of Northern Ireland protocol
As if there was not enough to worry about the UK government has - as it looked likely it would - unveiled plans to scrap parts of the Northern Ireland protocol.
A bill is expected in the next few weeks, but could spark a trade war with the European Union at a time of economic uncertainty and a cost of living crisis.
Angela McGowan, CBI Northern Ireland Director, said: “Politicians everywhere should be focussed on helping the most vulnerable in society amid the worst cost of living crisis in decades. Firms are already reeling from the rising cost of doing business. The last thing they want is further uncertainty in trading arrangements amid global supply chain challenges.
“Now more than ever, flexibility and compromise are needed from both sides to reach lasting trade solutions, securing peace and prosperity.
“With good political will a landing zone can undoubtedly be found so that GB-NI trade flows are smoothed.”
2.10pm: Oil rises as China set to ease lockdown restrictions
Oil is edging higher and could make further gains, say analysts.
Brent crude is up 0.39% to US$114.69 a barrel, while West Texas Intermediate has added 0.26% to US$114.5.
Craig Erlam, senior market analyst at Oanda, said: "Oil prices have hit their highest levels since early March as Europe continues to work towards a Russian embargo and China looks to ease COVID-19 restrictions. The lockdowns have offset some of the concerns over supply disruptions amid Russian sanctions following the invasion of Ukraine. The lifting of restrictions could be another bullish catalyst for crude.
"With oil prices now at or above their recent range highs, the question becomes just how much further they'll go and how uncomfortable it's going to get. Both from an economic and monetary policy standpoint. The next test for Brent is $120 but let's face it, a full reopening in China and an EU embargo could see prices rise much further."
1.56pm: US retail sides disappoint
US retail sales for April have come in slightly below expectations, although the previous month's figure has been revised sharply upwards.
Total sales rose 0.9% compared to forecasts of a 1% increase.
But the March figure has been lifted from 0.5% to 1.4%.
US Retail Sales Advance (M/M) Apr: 0.9% (est 1.0%; prev 0.5%; prevR 1.4%)
- US Retail Sales Ex Auto (M/M) Apr: 0.6% (est 0.4%; prev 1.1%; prevR 2.1%)
— LiveSquawk (@LiveSquawk) May 17, 2022
Retail & food services seasonally adjusted sales were $677.7b in April 2022, up 0.9% from March 2022, and up 8.2% from April 2021. https://t.co/kx4PEcY4yc #CensusEconData #RetailSales pic.twitter.com/JKze48JdrM
— U.S. Census Bureau (@uscensusbureau) May 17, 2022
The overall increase was driven by sales of cars, electronics and restaurant meals.
12.30pm: FTSE 250 outpaces blue chip index
The mid-cap index is outpacing its larger rival, helped by the £1.75bn cash deal for ContourGlobal PLC (LSE:GLO).
The FTSE 100 is up 64.19 points or 0.86% at 7528.99.
But the FTSE 250 is 1.03% better at 20,129.
The biggest gainer in the second tier is power plant operator ContourGlobal, which has surged 32.37% after agreeing to be bought by US private equity giant KKR.
11.52am: Wall Street set for positive start
US markets are expected to open higher ahead of the release of retail sales data that will provide another indication of the health of the US economy.
Futures for the Dow Jones Industrial Average rose 1.54% in Tuesday pre-market trading, while those for the broader S&P 500 index gained 1.79% and the Nasdaq added 2.18%.
The Dow ended nearly flat on Monday after spending time on both sides of the flatline. The blue-chip index picked up 27 points, less than 0.1%, to end the day at 32,223. The Nasdaq dropped 142 points, or 1.2%, to 11,663, and the S&P 500 slid 15 points, or 0.4%, to 4,008.
News that retail sales and industrial output in China had dropped in April weighed on sentiment, underscoring wider concerns about the global economy and signaling that the uncertain tone in equity markets is likely to continue.
Also, investors continue to worry that higher inflation and rising interest rates will crimp economic growth.
“Investors remain unable to shake off the shackles of inflationary and recessionary concerns, as markets continue to struggle to find a sustainable level,” said Richard Hunter, head of markets at interactive investor. “The situation is particularly acute in the US, where fears remain that over-enthusiastic tightening by the Federal Reserve could lead the economy into recession. With interest rate rises of 0.75% already in the bag, it is expected that two further increases of 0.5% will follow in short order as the Fed wrestles with the pressure which inflation has brought.”
11.38am: Buoyant market mood continues
Leading shares remain in a buoyant mood despite the host of negative factors which continue to concern investors.
With talk of an easing of lockdowns in China, as well as signs the country may consider ending its clampdown on tech companies, markets are choosing to accentuate the positive.
So the FTSE 100 is currently up 64.74 points or 0.87% at 7529.54.
Imperial Brands PLC (LSE:IMB) continues to lead the way, up 7.45% after its well received update.
Prudential PLC (LSE:PRU) has put on 4.24% to 1006.5p as Bank of America (NYSE:BAC) issued a buy note, albeit edging its price target down from 1660p to 1600p.
Fresnillo PLC (LSE:FRES) also benefitted from a positive recommendation, up 4.2% after RBC slapped an outperform rating on the precious metals miner.
10.53am: UK facing price-wage spiral?
Back with UK wages, and average weekly earnings are expected to grow by 6.1% in the second quarter, according to research group NIESR.
That is down in the 7% first quarter increase announced earlier today, but still shows strong growth boosted by a combination of high bonus payments and increasing regular pay.
Dr Kemar Whyte, NIESR senior economist, said: “This morning’s announcement from the ONS indicates the squeeze on UK living standards intensified as regular wage growth fell further behind the rate of inflation.
"With inflation expected to reach 8.3% in the fourth quarter of this year and the Health and Social Care levy being introduced, workers are facing an extraordinary decline in their real disposable incomes. The MPC are raising interest rates to help bring inflation back to its 2.0 per cent target.
"However, there is a chance that pay demands could ramp up if workers’ expectations are that inflation will remain higher for longer, potentially triggering a price-wage spiral”
10.33am: European GDP edges higher in first quarter
Europe's economy grew by slightly more than expected in the first quarter.
In the eurozone, GDP was up 0.3% quarter on quarter compared to forecasts of a 0.2% increase.
Year on year the increase was 5.1%, just marginally better than the anticipated 5% growth.
In the wider EU, GDP rose by 0.4% quarter on quarter and 5.2% year on year.
Euro area #GDP +0.3% in Q1 2022, +5.1% compared with Q1 2021: flash estimate from #Eurostat https://t.co/mICrevu7A5 pic.twitter.com/pKn3PZFxAt
— EU_Eurostat (@EU_Eurostat) May 17, 2022
9.45am: Sterling boosted by UK jobs news
The pound is showing signs of recovering from its recent weakness, driven by the prospect of further rate rises following the growth in wages shown in the latest jobs data.
Analysts believe the Bank of England will continue to raise the cost of borrowing despite the impact on households already facing a costs of living crisis, even as it warns of "apocalyptic" food prices due to Russia's invasion of Ukraine.
Sterling is currently up 1.21% against the dollar at US$1.2474, while against the euro it is 0.8% higher at €1.1904.
Susannah Streeter at Hargreaves Lansdown said: ‘’A spurt of growth in the UK labour market and a round of higher wages has pushed the pound higher in the expectation further rate hikes from the Bank of England are inevitable despite the weakening economy...
"Although consumer purchasing power is set to be eroded further by an apocalyptic rise in food prices, that is not likely to deter the Bank of England from the necessity of having to be tougher with its monetary policy given that wage growth is fast becoming another inflationary pressure.
"The fight for staff has led to higher bonuses across a raft of businesses from retailers to airlines with the three-month rate of annual earnings growth jumping from 5.6% in February to 7% in March. Wage growth is still lagging behind inflation by 1.2%, which is expected to dent consumer spending and help tip the UK into recession. But this spiralling up in earnings is still likely to keep policymakers at the Bank firmly on the path of rate hikes, however uncomfortable this journey will be for households who are being side swiped by the cost-of-living crisis.
Money markets pricing an extra 7bps of BoE hikes by y/e vs. yday after the jobs data
— Michael Brown (@MrMBrown) May 17, 2022
Danni Hewson, AJ Bell financial analyst, said: "Job vacancy numbers and the battle to recruit might push businesses to up pay, adding fuel to the inflationary fire the Bank of England is trying to put out.
"Further rate rises seem inevitable as 14 out of 18 industry sectors have increased vacancies over the last quarter, with construction and arts and entertainment at the front of the pack. But the number of new vacancies is slowing and for some people, increased costs in things like fuel and childcare make work unaffordable. And for those working two or even three jobs and still struggling to get by it’s not rate hikes they’re after but more tangible help, an immediate solution to their own personal crises.”
Meanwhile the FTSE 100 continues to gain ground, up 56.04 points or 0.75% at 7520.84.
8.55am: Imperial Brands and DCC lead the way after updates
Markets are picking up the pace, with the FTSE 100 now up 38.92 points or 0.52% at 7503.72.
Tobacco giant Imperial Brands PLC (LSE:IMB) and support services group DCC PLC (LSE:DCC) are leading the way after their latest updates, climbing 5.61% and 2.33% respectively.
Imperial raised its half year dividend despite a 27% fall in operating profits from £1.64bn to £1.2bn.
It took a £201mln charge for exiting Russia, while last year there was a £291mln gain from the sale of its cigar business.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "Imperial Brands took the top spot in early trade with investors seeming relieved that the firm is on track to hit its full year guidance figures, as it proceeds in its five year strategy to shift to tobacco alternatives.’’
But Unilever PLC (LSE:ULVR) is down 1.66% as analysts at Societe Generale cut their recommendation from buy to sell.
8.19am: Footsie shrugs off global woes
Leading shares are edging higher again despite persistent worries over inflation and possible recession, amid the continuing conflict in Ukraine.
The FTSE 100 is up 14.9 points or 0.2% at 7479.7, helped in part by the weakness of the pound against the surging dollar as the US Federal Reserve plans more interest rate rises.
Richard Hunter, head of markets at interactive investor, said: "Currency investors have been seeking havens such as the dollar in the face of the global challenges, which has been to the detriment of the pound.
"More positively, the weakness of sterling against a rampant US dollar has underpinned gains for the FTSE100, which draws much of its earnings power from overseas and the US in particular. The premier index remains ahead by 1.3% in the year to date, helped by its exposure to an oil price which is ahead by 47% in 2022 and any number of resilient defensive plays. As such, the index has remained a rare investment destination of choice for investors amid the current maelstrom.”
Vodafone Group PLC (LSE:VOD) is missing out however after its latest figures.
After Monday's gains on news that state controlled Emirates Telecommunications Group had taken a near 10% stake, its shares are down 1.98%.
Back with the latest employment data, and Matthew Percival, CBI Director for People and Skills, said: "Despite a slowdown in growth this March, the UK's labour market remains red hot with record vacancies and job-to-job moves.
"Firms are struggling under the weight of persistent labour shortages, rising energy prices and soaring inflation which is adding to the cost of doing business. Workers are also struggling, with inflation already 1.2% higher than pay and rising.
“Urgent action is needed to help alleviate the pressure facing businesses and communities across the UK. Putting pounds into the pockets of people facing hardship and stimulating business investment are two actions the government can take now that will help us to emerge from this crisis."
7.49am: Cost of living squeeze intensifies even as jobs market improves
Total pay in the UK rose by 7% per year in the three months to March, higher than the expected 5.4%.
But that includes bonuses paid out during the period.
Regular pay rose by a much lower 4.2%, albeit slightly higher than the forecast 4.1%.
And with inflation as measured by the consumer price index jumping 7% in March and expected to hit 9% in April when figures are released tomorrow, the figures show the impact of the cost of living crisis.
Darren Morgan concluded:
(4/4) ⬇️ pic.twitter.com/2FgSL7tjAL
— Office for National Statistics (ONS) (@ONS) May 17, 2022
Bank of England comments about workers not asking for pay rises look even more tone deaf in that context.
Even if wages are lagging inflation, there are concerns about a vicious circle emerging.
That wage-price spiral suddenly looking a lot more like reality… pic.twitter.com/owlnb608p1
— Michael Brown (@MrMBrown) May 17, 2022
Meanwhile today's figures from the Office for National Statistics show the UK's unemployment rate fell from 3.8% to 3.7%, the lowest since 1974.
And for the first time since records began, there are more job vacancies than unemployed people.
6.50am: Market to start on the front foot
The FTSE 100 is expected to start on the front foot for the third day in a row on Tuesday, ahead of unemployment figures and with the pound trading close to a two-year low.
A rise of 31 points was predicted on the IG spread-betting platform for London’s blue chip share index, adding to its near 47-point gain at the start of the week to 7,464.8.
It was a mixed day in Europe and the US yesterday, with Germany, France and Italy’s bourses in the red, while on Wall Street the Dow Jones was minutely above flat, while the S&P 500 dipped 0.4% and the Nasdaq dropped 1.2%.
Today in the UK, wage growth will be the key number in the unemployment data released shortly.
However, with inflation numbers tomorrow expected to show consumer price growth jumping from 7% in March to 9% in April, wages for the three months to March are only expected to be up 5.4% including bonuses, and 4.1% without.
Soft commodity prices are another focus today, said Naeem Aslam, market analyst at AvaTrade, which could make the ongoing inflation situation even more challenging.
“India’s ban on wheat exports has sent ripple waves throughout the markets, even though India isn’t even the largest producer of wheat,” he said.
“Investors and traders are worried that the ongoing conflict between Ukraine and Russia has disturbed the global supply chain of soft commodities, and now countries like India have started to secure their future food supply by banning the export of the essential soft commodity.
“So far, the conflict between the US and Russia over Ukraine has brought us higher energy prices. Now it seems like the actual impact of this conflict has started to filter through, which is likely to cause even bigger panic than anyone has anticipated.”
In company news, the City will be examining numbers from Imperial Bands PLC, (Land Securities Group PLC (LSE:LAND)) and Vodafone PLC, among others. (See our daily preview for more.)
Around the markets
Pound up 0.1% to US$1.2341
Oil down 0.4% to US$113.82 per barrel of Brent crude
Gold up 0.2% to US$1827.06
Bitcoin up 0.2% to US$30,418.91