- FTSE down 80.26 points
- Inflation hits 9%
- British land reports jump in profits
London’s blue-chip index snapped three sessions of gains as a UK inflation reading of 9% sparked recession fears and once again offered investors a grim reminder of the struggles that lie ahead.
The FTSE 100 index closed 80.26 points, or 1.07% lower at 7,438.09 as investors wrestled with red-hot inflation data and the biggest squeeze on the cost of living since the 1970s.
Analysts are not willing to predict the end to selling after a bruising first five months of the year for risky assets given so much macroeconomic uncertainty.
“After clawing their way higher earlier in the week, indices have lost their footing and have slumped into the red. Investors seem to have taken counsel of their fears once again, fretting about inflation and a recession in parts of the global economy,” said Chris Beauchamp, chief market analyst at online trading platform IG.
“While it was expected that this bounce would be short-lived, the rapidity with which it has unravelled will mean that even more investors will start heading for the exits,” he added.
3.48pm: Inflation hits 40 year high
Craig Erlam, a senior market analyst at OANDA, provides a recap on today’s events in the market.
“European equity markets are a little flat on Wednesday, with inflation data this morning once again offering a reminder of the struggles that lie ahead.”
“Not that we need reminding given all of the data we've seen recently. And then there are the gloomy forecasts from central banks, with even the Fed now targeting a softish landing which feels very much like the stage before a mild recession.”
“It may be time to buckle up and prepare for a very bumpy year.”
“UK inflation is running at a 40-year high and it's not peaked yet as the cost-of-living crisis looks set to squeeze the economy into recession.”
“While annual inflation came in slightly below expectations at 9%, pressures are broad-based and as the year progresses, it is expected to hit double figures.”
“There is still plenty more pain to come for households, most notably when the energy price cap increases again in October. But price increases are broad-based, as evident in the jump in core inflation to 6.2%.”
“This comes as the Bank of England has warned of more pain and a probable recession, as it continues to aggressively raise interest rates in the hope of being able to catch up without inflicting too much harm in the process.”
“Like many other central banks, it has been heavily criticised for its misjudged faith in pandemic-induced inflation being transient for too long.”
“And in the UK's case, the problem looks far greater and more widespread, with Brexit effects compounding the problems and driving up prices.”
“Can the Bank of England afford to continue raising rates so gradually, as markets expect with 25 basis points every meeting or will they be forced to join their US counterparts with super-sized hikes? Pressure is mounting.”
3.38pm: Shell CEO set for bumper payday
Shell’s chief executive, Ben van Beurden, is reportedly facing an investor rebellion over his £13.5mln pay package.
Investment adviser Pirc urged shareholders to vote against the pay at next week’s AGM, calling it “excessive.”
Last year, the Dutchman made £6.3mln, up from £5.2mln the year prior. (Read more)
3.10pm: Truss doesn't back windfall tax
Foreign secretary Liz Truss dismissed further claims for a windfall tax on oil and gas companies, with Shell and BP both rising today.
Truss admitted that the UK was in a “very difficult economic situation,” but warned that a one-off tax on the two giants could deter investment.
Truss said, "We are in a very, very difficult economic situation. We're facing some very, very serious global headwinds. Inflation is extremely high.”
"What we're doing is working to increase growth in our economy, attract investment to the United Kingdom, to face down these global headwinds.”
When questioned on the windfall tax, Truss argued Britain was able to keep unemployment levels at their lowest level in 50 years due to being able to attract investment.
"The problem with a windfall tax is it makes it difficult to attract future investment into our country - so there is a cost in imposing a tax like that.”
"My view is that lower taxes are the best way to attract more investment - to get the businesses into this country that can create these high-paid jobs, which is what we need to face down these global headwinds."
2.42pm: Inflation across the globe
A quick glance at the UK's inflation compared to the other economies....
some methodological considerations esp vs US too - but comparison has some indicative value, especially after IMF predicted UK inflation next year at 5.3% highest in the G7, and higher than all EU members, and only exceeded in G20 by crisis-ridden Argentina, Turkey and Russia. pic.twitter.com/L9ecnIb6Ew
— Faisal Islam (@faisalislam) May 18, 2022
2.41pm: Inflow into crypto
Marcus Sotiriou, an analyst at GlobalBlock said data suggests there has been a large inflow back into crypto funds almost a week since USDT and LUNA’s collapse.
“Crypto fund business Coinshares show that digital-asset funds last week experienced their highest inflows over the past 6 months, reaching $274mln.”
“This occurred during the collapse of the UST stablecoin, showing that high-net-worth individuals and accredited investors bought into market panic caused by Terra's implosion and saw it as a buying opportunity.”
“Bitcoin-focused funds received $299mln in inflows, which was the highest inflow out of all crypto funds. This was the highest weekly inflow for Bitcoin since the last week of October 2021.”
“Non-Bitcoin funds performed poorly in the market sell-off, as some $26.7mln flowed out of funds managing ether (ETH), while vehicles focused on Solana (SOL) recorded $5mln of outflows.”
“This shows that investors have flocked to the safety of the largest digital asset, and de-risked with many altcoins.”
2.06pm: Ocado and Experian (LSE:EXPN) largest fallers
London’s blue-chip index is currently down 35 points, with Ocado and Experian (LSE:EXPN) leading the way as the largest fallers.
Ocado fell 5% to 756p and blamed waning demand on the return to “pre-Covid customer behaviours.”
The FTSE 100-listed company also pointed to rising raw materials, food and energy prices as adding further “cost headwinds” to the grocery sector.
Experian (LSE:EXPN), on the other hand, fell 4% to 2,540p growth outlook warning, despite what looked like a positive financial full-year results statement.
The world’s largest credit data firm provided a bleak future revenue growth forecast on expected sinking demand as surging inflation piled further pressure on household budgets.
At first glance, however, the results for the year ended March 2022 seemed upbeat, with a 34% hike in pre-tax profits.
1.37pm: British Land reports jump in profits
British Land is the second-largest climber on London’s blue-chip index after it predicts to reap big profits, around about £2bn, from its investments in London.
Shares were up 3% to 526p after chief executive Simon Carter predicted a windfall tax from its redevelopment of Canada Water and investment in warehouse space across London in the coming years.
Carter added that the property giant sees “a wealth of development opportunities.
British Land also announced a 25% jump in profits to £251mln in the year end of March, with the value of its portfolio to 6.8%, with demand for space rebounding after the pandemic.
“The property firm has benefited from a revival in office and retail occupancies post-pandemic. However British Land is still grappling with a structural decline in office property demand, its biggest segment, putting pressure on valuations and rents,” said Victoria Scholar, head of investment at interactive investor,
“Shares in British Land have recovered by more than 55% since the pandemic lows. However the stock still has nearly another 30% to go in order to retest the pre-covid highs from December 2019.”
1.00pm: US preview
US markets were expected to open lower on Wednesday as concerns over inflation and higher interest rates continue apace, suggesting that the volatility seen over the past few weeks is not going to fade.
Recent US economic data show that consumption remains strong despite the prospect of higher interest rates, signalling that the US Fed will continue on a path of aggressive interest rate hikes, weighing on sentiment.
Futures for the Dow Jones Industrial Average fell 0.1 in pre-market trading, while those for the broader S&P 500 index shed 0.2% and the Nasdaq lost 0.4%.
“US retail sales grew more than 8% on yearly basis in April, more than around 7.30% printed a month earlier, meaning that Americans continue spending despite tighter economic conditions,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Unfortunately, the resilience of spending means that the Federal Reserve’s (Fed) actions don’t result in the desired cooling effect on inflation.”
She noted that price pressures are mostly due to rises in the supply side, mainly from soaring energy and food prices while monetary policy is intended to control demand.
“If demand doesn’t ease fast enough, the Fed must tighten faster,” she added.
Investors are worried that the Fed may consider hiking rates even more quickly, in moves that might crimp economic growth and threaten corporate bottom lines.
So far this year, the Fed has already raised interest rates by a total of three-quarters of a percentage point in efforts to stamp out inflation which is at its highest level in decades.
Elsewhere, oil prices were higher, indicating that commodity price pressures are not letting up, partly due to Russia's invasion of Ukraine. WTI crude oil futures were up 1.25% at $113.80 a barrel while Brent crude futures increased 1% to $113.02.
“Crude oil spiked above the $115 per barrel, but bumped into top sellers above this level. Solid support approaching the $120 mark will likely be hard to clear, as the rising energy prices have a curbing effect on demand at the actual levels, and automatically cool down the rally,” Ozkardeskaya said.
12.26pm: Burberry continues its recovery
Footsie constituent Burberry continued its recovery with profits and revenue up in 2022, although it remained cautious on its outlook, with recovery in China playing a key part.
For the year ending 2 April 2022, revenue increased to £2.8bn from £2.3bn, while operating profit grew to £543mln from £521mln, with the fashion brand maintaining its guidance of high single-digit revenue growth.
Revenue growth was delivered “despite a continuing challenging external environment”, with lockdowns in Mainland China weighing on store sales in March.
“While surges in inflation rates and the cost of living is anticipated to dampen the performance of many apparel players, Burberry’s luxury positioning means that it will be more protected, since its shoppers tend to have higher discretionary incomes,” said Pippa Stephens, an apparel analyst at GlobalData.
“During the last year. Burberry increased its proportion of full-price sales, helping its adjusted gross margin grow by 0.6ppts to 70.6%.”
“It must now ensure that it continues down this path, rather than allowing economic challenges to pressure it into issuing more markdowns or distributing more stock to its outlets, as this will impact shopper perceptions and devalue the brand.”
11.56am: Sterling falls back
The sterling fell back towards its lowest level since the start of the pandemic after climbing slightly yesterday as the recession fears continue to loom, currently back to US$1.24,
Lower than expected UK #inflation sent the British pound into a tailspin as London markets open. Are dip-buyers going to emerge to prop up the $GBP with YoY inflation at 9%? #GBPUSD #ThinkMarkets #forex pic.twitter.com/Ht5zfq2CnD
— ThinkMarkets (@ThinkMarketscom) May 18, 2022
11.25am: Labour to push through a vote for an emergency budget
Labour will force a vote in parliament for an emergency budget amid the cost-of-living crisis and the looming possibility of a recession.
Rachel Reeves, the shadow chancellor, said it was “unconscionable” that the government was piling taxes on working people in the middle of a crisis and repeated calls for a windfall tax on oil and gas producers to help with energy bills.
Chancellor Rishi Sunak is coming under intense pressure, from both the opposition and some members of his own party, to provide help to those most in need.
Labour, among other things, called for a VAT cut on energy bills and more help on energy costs for the lowest-paid members of the public.
Sunak previously resisted calls for an emergency budget and windfall tax, but both are seemingly back on the agenda.
10.55am: Petrol hits another high
Petrol prices hit another all time high in the UK, adding further pressure to the cost of living crisis.
Prices at the pump hit 167.64p litre for petrol, surpassing the record of 167.3p set on 22 March, the day before Rishi Sunak’s 5p/litre fuel duty cut.
Motoring bodies have also warned that retailers were not passing on the price cuts, with diesel also climbing to new highs of 180.9p.
The AA has calculated that the cost of filling the typical 55-litre has risen from £70.61 to £92.20 for petrol, over the last year, and from £71.94 to £99.48 for diesel.
“Despite his best efforts, the Chancellor must feel like King Canute having tried to reverse the tide of rising pump prices. At least though, he can say that UK drivers would be £2.75 a tank even worse off now had he not tried to take action in March,” said Luke Bosdet, a spokesperson for AA,
“He hasn’t been helped by a fuel trade that, despite a 16p-a-litre fall in petrol costs that coincided with the Spring Statement, couldn’t even pass on the full 5p fuel duty cut and the 1p VAT reduction that it brought with it.”
Under the AA’s calculation, the cost of filling a 55-litre car has risen from £70.61 last year to £92.20 for petrol, and from £71.94 to £99.48 for diesel.
My letter to petrol retailers this evening following concerns the Chancellor’s 5p Fuel Duty cut is not being passed on in any visible or meaningful way.
The Competition and Markets Authority is now engaged on this issue.
???????? pic.twitter.com/a7ysGyvWWA
— Kwasi Kwarteng (@KwasiKwarteng) May 17, 2022
10.26am: House prices remain high
Data from the Office of National Statistics showed that the average house price remained high in March at £278,000, but we may have not seen the peak yet, according to Sarah Coles, a personal finance analyst at Hargreaves Lansdown.
“House prices paused in March, with the average sitting at around £278,000, but this isn’t the peak of a rollercoaster. In the coming months, we may see the market dynamics start to shift.”
“But right now it looks like it’s going to be more of the gentle undulation of a tame toddler attraction than the big drops of a thrill ride.”
“Average annual price rises have bounced in and out of double digits for almost a year now, so a single monthly drop isn’t the canary in the coalmine. It’s not the first monthly pause in the relentless rise of average prices either.”
“There are still plenty of signs of strength in the market that have come through since March, with sales remaining brisk, mortgage approvals running above pre-pandemic levels, and the number of buyers still growing – and continuing to dramatically outnumber sellers.”
“Zoopla figures out yesterday also show rents rising an astonishing 11% in a year, helping to fuel demand from first-time buyers determined to escape the rent trap.”
“However, it’s only a matter of time before we see house prices slow on a more sustained basis. The latest RICS report showed that the number of buyers continued to rise, but that they were getting a bit more cautious.”
“Even if they’re still keen to buy, mortgage companies are increasing rates and boosting the assumed costs in their affordability calculations, so there’s going to come a time when it gets harder for people to get a loan.
“It means buyers right now have every reason to be cautious. There’s no reason why anyone should halt the hunt for a home they can easily afford.”
“However, if you’re stretching your finances to the limit, it’s vital to think carefully about whether it’s a sensible move at a time when the price of everything is on the march.”
9.50: A look around the market
A quick snapshot of what's going on.
The government warned petrol retailers to pass the fuel duty cut onto consumers with the regulator monitoring the situation. This comes as diesel prices reached a record high on Monday.
Netflix laid off 150 workers just a month after it reported a first fall in subscriber numbers in a decade. This accounts for 2% of its North American workforce.
Elsewhere, Argo Blockchain reported a 14% increase in first-quarter earnings. The cryptocurrency miner also increased its mining hashrate and prepared to begin operations at the Helios facility in Texas, which opened this month.
Open Orphan said its hVIVO subsidiary landed an influenza challenge study. The study will be conducted with one cohort receiving the active treatment, while the other half will be administered a placebo.
Eurasia Mining named Artem Matyushok as an independent non-executive director. Matuyshok is experienced in M&A, and company hopes his appointment will speed up the process of selling its Russian assets.
9.15am: Inflation will likely hit 10%
The FTSE 100 kept more or less on an even keel as investors come to terms with inflation data which whilst shudderingly steep was largely anticipated.
London’s blue-chip benchmark was down just 5 points after an hour of trade, marked at 7,514.
All things considered, it would appear a rather cool and calm response to bleak economics, though it mostly reflects that so far the market is already pricing-in this much gloom.
“We already knew that the Bank is now looking at a peak inflation rate of five times its 2% target, so as bad as these figures are, the worst is very much still on its way,” said Shafiq Shabir, head of electronic trading at Intertrader.
“We’ll likely see inflation peak beyond 10% when the energy price cap is raised once again in October – a rate not seen since the early 1980s.”
Shabir added: “It’s clear that Threadneedle Street and government are trying to shirk responsibility for runaway prices, but it remains certain that one – or both – will need to act quickly and drastically in order to avoid the potentially catastrophic consequences of a full-blown recession.”
In the market, Aviva PLC (LSE:AV.) was a notable name reporting to investors this morning with its first quarter showing annuities and equity release business as its star performer, whilst general insurance business was blown off course by £70mln of costs from storms Dudley, Eunice and Franklin.
Aviva shares nudged 2.9p or 0.7% higher.
8.45am: Inflation hits 9%
UK consumer price inflation hit 9% in April, which is the highest since current records began and the highest since 1982, according to new data from the Office for National Statistics, up from 7.0% in March.
Although CPI was not as high as the 9.1% expected, retail price inflation (RPI) crashed into double–digits at 11.1%.
Underlying core CPI inflation, which excluded energy, food, alcohol and tobacco, rose to a new 30-year high of 6.2% for April, as expected, versus 5.7% previously.
The rise in headline CPI was mostly driven by higher energy prices, the ONS said, which rose by 46.5% on the month, with electricity up 40.5% and gas 66.8% as the Ofgem price cap was increased.
This "heaps more misery on households and highlights the pressure on the Bank of England to keep raising interest rates", said Paul Dales at Capital Economics, who predicted rates will be raised from 1.00% now to 3.00% next year.
The rise in core inflation rose was driven by gains in recreation/culture prices and restaurant/hotels inflation, which was in part due to businesses passing on higher product and wage costs and some were due to the reversal of the government’s pandemic temporary cut to VAT for the hospitality sector.
"A lot of these moves are being drive by domestic factors as well as global ones," said Dales.
The FTSE is heading for a seven-point gain when it opens in 10 minutes.
6.45am: Small gain expected
The FTSE 100 is seen modestly higher on Wednesday as a strong session on Wall Street lifted spirits on the eve of what’s expected to be a record high measure of UK inflation.
CFD firm IG Markets sees London’s blue-chip benchmark starting about 5 points higher, making a price of 7,519 to 7,523 with just over an hour to go until the open.
On Wall Street, the Dow Jones gained 431 points to close Tuesday 1.34% higher at 32,654 whilst the S&P 500 added 2.02% and the Nasdaq rose 2.76% to close at 4,088 and 11,984 respectively. The small-cap focussed Russell 2000 index advanced 3.19% to 1,840.
“This positive US finish looks set to translate into a flat European open, with the pound and euro riding higher on expectations that both the Bank of England and ECB might have to raise rates more aggressively in the coming months than originally the markets had been pricing, as we look ahead to a day which is expected to see a record high for UK CPI,” said Michael Hewson, analyst at CMC Markets.
In Asia, Japan’s Nikkei was up 0.7% to 26,846 and Hong Kong’s Hang Seng was ever so slightly lower at 20,582. Similarly, the Shanghai Composite dipped 0.12% to 3,090.
Around the markets
The pound: US$1.2486, down 0.008%
Gold: US$1,809 per ounce, down 0.3%
Silver: US$21.56 per ounce, down 0.32%
Brent crude: US$112.74 per barrel, down 1.4%
WTI crude: US$113.49, down 0.7%
Bitcoin: US$29,968, down 1.33%
Ethereum: US$2,042, down 1.53%