- FTSE 100 closes down 116 points
- Retailers under pressure
- Mitie moves higher
4.45pm: FTSE closes firmly in red
FTSE 100 closed the day in negative territory as the hawkish stance from the European central bank (ECB) rattled investor nerves.
Britain's blue-chip benchmark finished down over 116 points, or 1.54%, at 7,476
"It might be late to the party, but the ECB looks committed to raising rates," said Chris Beauchamp, chief market analyst at online trading firm IG in a note.
"This has given fresh impetus to the rush to sell stocks, with Wall Street beginning the day in the red and European markets seeing losses intensify.
"Investors can look at today’s oil prices and realise that high CPI readings aren’t going away, so hopes of a cooling in the pace of central bank tightening are likely to remain unfulfilled," he added.
3.52pm: Footsie fall accelerates
Leading shares are at the day's low as we head into the close on growing worries about the state of the global economy, and the UK in particular.
Everyone from the OECD to the World Bank to the British Chambers of Commerce seem to be coming to the same conclusion, that growth will falter amid rising inflation and interest rate increases.
The European Central Bank finally bent with the wind and revealed it would raise its own rates next month, albeit by 25 basis points which was less than some had expected.
Nevertheless the direction of travel is clear as the ECB follows the Bank of England and US Federal Reserve by increasing the cost of borrowing.
Whether that is a good move in the middle of a cost of living crisis or whether it will just make things worse remains to be seen.
Investors are clearly nervous about the state of affairs, with the FTSE 100 down 105.09 points or 1.38% at 7487.91.
Retailers remain among the fallers, on concerns that consumers will be increasingly forced to tighten their belts.
A poor update from DFS Furniture PLC (LSE:DFS), down 10.38%, is also weighing on the sector.
J Sainsbury PLC (LSE:SBRY), whose shares also went ex-dividend, is down 6.07% while B&Q owner Kingfisher PLC (LSE:KGF) has fallen 3.82% and Ocado Group PLC (LSE:OCDO) is off 3.42%.
Another ex-div, marketing group WPP PLC (LSE:WPP), is down 4.36%.
Mining shares are weaker on news of another mini-lockdown in Shanghai, with Rio Tinto PLC (LSE:RIO) falling 1.22%.
Michael Hewson, chief market analyst at CMC Markets, said: "It’s been another weak session for European markets as the early week optimism over the dropping of restrictions in China gives way to the reality that China’s zero-covid strategy will mean that any recovery in the world’s second biggest economy, will be very much stop-start in nature.
"This has been borne out by the news that some parts of Shanghai will go into a renewed lockdown with a widespread testing program to be conducted this weekend. Coming on top of yesterday’s OECD warning about the wider recovery story, the reality is dawning that any post COVID-19 rebound in China is going to be of the long and slow variety.
"This is weighing on the mining sector in the form of lower metals prices, which is putting the likes of Rio Tinto under pressure."
But Melrose Industries PLC (LSE:MRO, OTC:MLSPF) is up 4.12% as it launched a £500mln share buyback programme.
And gaming group Entain PLC (LSE:ENT) has added 0.72% after an overweight recommendation from analysts at JP Morgan.
2.55pm: Wall Street reacts to employment data
Despite being expected to open slightly higher on Thursday, US stocks dipped at the open as investors weigh up the latest US jobs data amid confirmation the European Central Bank intends to continue raising interest rates in a bid to rein in inflation.
At the open, the Dow had shed 149 points at 32,762 points.
The S&P 500 was down 18 points at 4,097 points and the Nasdaq had lost 61 points at 12,025 points.
Electric carmaker Tesla Inc (NASDAQ:TSLA) was up about 3% at the open after the company was upgraded to a ‘Buy’ rating by UBS. The analyst report noted that the stock market slide has provided an attractive entry point for the high-growth business which is “best positioned to become one of the top-three global car makers by 2030.”
On the worse than expected US jobless claims, Pantheon Macroeconomics chief economist Ian Shepherdson said the numbers were trending higher, but this was not alarming.
“Last week’s drop always looked unsustainable and the seasonals pointed clearly to a rebound this week,” he said. “The current four-week average is 215,000.”
He said widespread anecdotal reports of increased layoffs pointed to a rising trend in claims over the summer, but that it was expected the numbers would remain low by historical standards.
“Next week’s reading likely will be very close to this week’s, but claims should then drop slightly until the end of the month,” Shepherdson said.
“At that point, the annual period of volatility due to the auto retooling shutdowns will obscure the trend for a few weeks, until early August.”
The fall on Wall Street has helped push the FTSE 100 even lower.
The leading UK index is now down 80.15 points or 1.06% at 7512.85, but is off the immediate low of 7494.
1.42pm: US jobless claims climb
US weekly jobless claims have come in higher than expected.
The number of Americans claiming unemployment benefit for the first time rose to 229,000 last week, up from 202,000 the previous week (itself revised up by 2,000).
This is more than the 206,000 analysts had been expecting, and will do little to dissuade the US Federal Reserve from its path of rate rises.
1.02pm: ECB disappoints - analyst
Naeem Aslam, chief market analyst at Avatrade said there was some disappointment that the European Central Bank kept rates on hold, with the euro slipping back against the dollar.
But he added: "However, the bank does see the interest rate going up in July and another one followed by that soon enough [which] is an encouraging sign and could help the euro to recover its initial losses once the dust settles."
Simon Harvey, head of FX analysis at Monex Europe, said: "Despite recent speculation that the ECB would provide a shock hawkish message in the near-term, either by signalling they would hike rates by 50bps at July’s meeting or potentially raise rates earlier at today’s meeting, the central bank has maintained its core messaging that rates won’t rise until July’s meeting and will only exit negative territory at the end of the third quarter."
12.58pm: ECB says inflation will hit 6.8%
And here's the reason why the ECB has finally acted: inflation is going to be well above its 2% target for some time.
It said: "In May inflation again rose significantly, mainly because of surging energy and food prices, including due to the impact of the war. But inflation pressures have broadened and intensified, with prices for many goods and services increasing strongly.
"Eurosystem staff have revised their baseline inflation projections up significantly. These projections indicate that inflation will remain undesirably elevated for some time. However, moderating energy costs, the easing of supply disruptions related to the pandemic and the normalisation of monetary policy are expected to lead to a decline in inflation.
"The new staff projections foresee annual inflation at 6.8% in 2022, before it is projected to decline to 3.5% in 2023 and 2.1% in 2024 – higher than in the March projections.
"This means that headline inflation at the end of the projection horizon is projected to be slightly above the governing council’s target. Inflation excluding energy and food is projected to average 3.3% in 2022, 2.8% in 2023 and 2.3% in 2024 – also above the March projections."
12.50pm: ECB keeps rates on hold for now
The European Central Bank has kept interest rates on hold, but set out plans for an increase at its July and September meetings.
But the proposed rise is just 25 basis points, rather than the 50 basis point increase some had expected.
It said: "The governing council undertook a careful review of the conditions which, according to its forward guidance, should be satisfied before it starts raising the key ECB interest rates. As a result of this assessment, the governing council concluded that those conditions have been satisfied.
"Accordingly, and in line with the Governing Council’s policy sequencing, the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting."
It also plans to raise rates again in September, and if the medium-term inflation outlook persists or deteriorates, it said a larger move might be appropriate.
Beyond that, it expects a gradual but sustained path of further increases.
It also decided to end net asset purchases under its asset purchase programme as of 1 July.
12.30pm: Mid-cap index outperforms
With the FTSE 100 down around 0.44%, it is currently being outperformed by the mid-cap index.
The FTSE 250 is virtually flat, down just 21 points at 20,289, helped by a positive response to results from Mitie Group PLC (LSE:MTO), up 8.77%, and a possible bid for Mediclinic International Plc (LSE:MDC), 5.27% better.
11.39am: Wall Street set to recover
US markets were expected to open slightly higher, stabilising after Wednesday's falls as investors await key inflation data due out data on Friday.
Investors worry that inflation will be hard to control despite the US Fed’s aggressive path of interest rate hikes, raising fears that the world’s biggest economy may slide into a recession. These factors are likely to keep trading choppy.
Futures for the Dow Jones Industrial Average gained 0.3 % in pre-market trading, while those for the broader S&P 500 index rose 0.3%, and contracts for the Nasdaq-100 were up 0.4%.
As the yield on the 10-year US treasuries remains above the key 3.0% level and oil prices continue to stay elevated, investors appear to be risk averse.
“In terms of their concerns, the very same issues, such as slower economic growth and higher inflation, are weighing their decision when it comes to back riskier assets,” said Naeem Aslam, chief market analyst at avatrade.com.
US CPI inflation data, scheduled for release on Friday, will be key as markets look for signs that price pressures have already peaked. Ahead of that initial weekly jobless claims will be scrutinised today.
The US Fed’s June meeting comes next week and the headline inflation rate is likely to be a factor in the rate verdict. The Fed is widely expected to hike interest rates by another 50 basis points and follow that up with a similar increase the following month.
In energy markets, WTI crude oil futures eased 0.1 % to $122.01 a barrel and Brent crude futures were flat at $123.61
Aslam noted that investors are watching to see what will happen to oil supply when economic activity in China resumes to normal levels: “This is the message that we also heard from some members of the OPEC yesterday, and this remains a wild card for the oil market. Due to this, traders and investors believe that it is likely that we may see oil prices remain anchored for an extended period of time.”
Elsewhere, the European Central Bank’s rate decision this morning will also be closely watched.
“There is no doubt that there is tremendous pressure on the President of the European Central Bank, Christine Lagarde, to adjust the monetary policy of the Euro zone as inflation is running red hot,” added Aslam.
Meanwhile the FTSE 100 has recovered from its worst levels but is still in the red, down 25.05 points or 0.33% at 7567.95.
10.22am: Average cost of filling a car with petrol hits £100
More on the cost of living crisis with the price of filling up a typical family car now passing £100 for the first time.
The figures from data firm Experian (LSE:EXPN) Catalist show the average price of a litre of petrol reached a record 182.3p on Wednesday, up 1.6p from the day before.
The RAC said it was a "truly dark day" for drivers.
Still, we can always take public transport. What's that, strikes you say?
10.08am: British Chambers of Commerce adds to the gloom
On top of the recent cut in growth forecasts from the OECD and the World Bank - the former saying the UK will be the worst performing major economy next year apart from sanctions hit Russia - the British Chambers of Commerce is pretty negative too in its latest predictions.
It reckons the UK will see no guarter on quarter GDP growth in the second and third three month periods this year.
And in the fourth quarter it sees a 0.2% contraction.
Overall it expects 3.5% growth in 2022, down from last year's 7.5%, and just 0.6% in 2023 (although on the bright side this is better than the zero growth for next year pencilled in by the OECD).
So the FTSE 100 continues to be stuck in negative territory, down 30.28 points or 0.4% at 7562.72.
With the gloom over the UK economy and worries about consumer spending power - or rather the lack of it given the cost of living crisis - retailers are among the main fallers.
A downbeat statement from DFS Furniture PLC (LSE:DFS) is not helping the sector.
The furniture retailer has slumped 16.97% after it said underlying full year profit before tax is expected to be only £57mln to £62mln as demand for big ticket items slows. In March it forecast profits of £66mln to £85mln.
J Sainsbury PLC (LSE:SBRY) is the biggest loser in the leading index, down 5.85% although it has gone ex-dividend, as has Primark owner Associated British Foods PLC (LSE:ABF), off 1.99%.
But others do not have that excuse for their decline.
B&Q owner Kingfisher PLC (LSE:KGF) has fallen 3.87%, Ocado Group PLC (LSE:OCDO) is off 3.49%, JD Sports Fashion PLC (LSE:JD.) is 2% lower as is Tesco PLC (LSE:TSCO).
9.51am: House buyer demand slips
More signs of a potential weakening of the UK housing market.
New buyer enquiries fell in May, according to the Royal Institution of Chartered Surveyors.
Its latest report showed a net balance of 7% reporting falls rather than rises, the first negative reading in nine months.
In April a net 8% reported rises.
Simon Rubinsohn, RICS chief economist, said: "The increase in the cost of mortgage finance alongside growing concerns about the economic outlook is unsurprisingly having an impact, albeit a relatively modest one at this point, on buyer activity in the sales market.
"Despite this, prices are viewed as likely to remain resilient into 2023. But as is often the case in these circumstances, the pressure is likely to felt more visibly in transaction levels which are seen as likely to slow as the year wears on."
Victoria Scholar, head of investment at interactive investor, said: “The data confirms yesterday’s report from Halifax suggesting that although the housing market remains extremely strong with demand sharply outstripping a severe supply shortage, there are tentative signs that it could be approaching its peak.
"The UK housing market looks set to soften in the months ahead as a stagnating UK economy, the cost-of-living crisis, near double-digit inflation and rising interest rates dampen residential activity.”
8.57am: THG down after board departure
Shares in THG PLC (LSE:THG) - better known as The Hut Group - have fallen after it announced a board departure just as the market closed on Wednesday.
Retail analyst Nick Bubb said: "The embattled THG announced that its non-exec Dominic Murphy (a powerful figure in the private equity world) had suddenly decided to step down, “with immediate effect”, after nearly 8 years on the board, which is very odd timing two days before the AGM tomorrow."
The company said in April it had received a number of "unacceptable" bid proposals but there were now no approaches. It also released delayed results which included a cut in its profit margin guidance.
Another online retailer heading lower is AO World PLC (LSE:AO.), down 2.39% as it decided to close its struggling German business.
8.44: Sainsbury lower as it goes ex-div
Among the fallers in the blue chip index are the companies going ex-dividend.
In that category we have J Sainsbury PLC (LSE:SBRY), down 5.49%, Primark owner Associated British Foods PLC (LSE:ABF), 2.46% lower and WPP PLC (LSE:WPP), off 2.32%.
Heading the other way are Melrose Industries PLC (LSE:MRO, OTC:MLSPF), up 0.95% as it continues to benefit from this week's buyback news, as well as British American Tobacco PLC (LSE:BATS), 0.74% better after its latest trading update.
The strong oil price - albeit it has dipped slightly today - continues to support BP PLC (LSE:BP.), up 0.88%, and Shell PLC (LSE:SHEL, NYSE:SHEL), ahead by 0.74%.
Overall though the fall in the FTSE 100 is accelerating, with the leading index now down 53.24 points or 0.7% at 7539.76.
8.14am: Growing stagflation fears leave markets struggling
Leading shares have dropped back at the open on continuing concerns about slowing growth and rising inflation.
The OECD yesterday followed the World Bank in cutting its growth forecasts, with the war in Ukraine the latest blow to the global economy.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "Warnings from the OECD that the world is paying a hefty price for Russia’s invasion of Ukraine are crystallising concerns that the months ahead are set to be very difficult to navigate for many companies and consumers."
So with downbeat sessions in the US and Asia, the FTSE 100 is currently down 33.85 points or 0.45% at 7559.15.
Sentiment has not been helped by news that Shanghai will lock down a region in the south west later this week, raising fears that the city's reopening which began at the start of the month might be reversed.
Authorities are conducting a mass COVID-19 testing drive on Saturday morning, but the worry is it could be shut down further if infections are discovered.
The news has seen the oil price slip back, on the basis that demand from the world's second biggest economy could be hit if heavy restrictions are re-introduced.
Brent crude, which had been soaring again in recent days, has dipped 0.15% to US$123.4 a barrel.
The news has overshadowed strong China trade figures for May, with imports up by 4.1%,and exports rising 16.9%.
In April imports were unchanged and exports gained 3.9%.
Elsewhere the European Central Bank faces the prospect of having to indicate a rate rise having downplayed inflation risks for arguably too long.
Michael Hewson at CMC Markets UK said: "Although no change in policy is expected, it is expected that ECB President Lagarde will use her time to tee the markets up for a policy move next month...
"It was only at the end of last year that [Lagarde] said that a rate hike this year was unlikely, even as CPI prices rose to 4.9%, and were already at 6% in Germany...
"Fast forwarding six months and the ECB is now having to contend with CPI of 8.1%, while in Spain CPI is at 8.5%, and in Germany its even higher at 8.7% and at its highest since the early 1990s...
"The calculus now appears to be shifting towards discussion of a 50bps rate move in July, and not 25bps which is what is currently priced.
"Even with the current direction of travel a 50bps move in July still seems a big ask even at this stage but it would be foolish to rule it out completely."
6.50am: Footsie likely to be under pressure again
FTSE 100 was set to open in the red according to financial spread betters with inflation top of the agenda again today.
London’s blue-chip index was predicted to drop around 30 points when it opened according to the financial bookies’ forecasts. On Wednesday, Footsie closed down six at 7,593.
Attention today will be centred on the ECB, with the talk this week about the bank laying the ground work for its first rate hike in 11 years after eurozone inflation hit a record 8.1% last month.
Oil prices continue to make headlines. The price of crude rose to almost US$124 a barrel overnight with the UAE Oil Minister the latest to warn that high prices are here to stay.
Many newspapers picked up on that and today led with the sobering fact that soon it will cost £100 to fill up a (big) family car.
Asian markets perked up on China easing covid restrictions but Jeffery Halley at Oanda said the chances of extended restrictions returning remain a worry.
“They could repeat over and over again. About the only good news from this development is that it might take the edge off the oil rally,” he said
Elsewhere, New Zealand has come up with a novel way to pay for rising fuel costs - taxing cows and sheep for the methane they exude when they burp.
Details are sketchy but the tax will be introduced in 2025 said James Shaw, the country's climate change minister.
Company news scheduled today includes trading updates from cigarette and tobacco giant BAT Industries and spread bet firm CMC (read more), while Sainsbury's, WPP, AB Foods and Compass going ex-dividend will knock around 2.5 points off the FTSE 100 index.