- FTSE 100 ends 111 points lower
- April UK GDP falls 0.3%
- US stocks tumble ahead of Fed meeting this week
4.50pm: Black Monday for Footsie
The FTSE 100 index ended with hefty losses on Monday as Wall Street suffered further big falls as investors braced for this week’s Federal Reserve policy meeting and the likelihood of a bigger than expected interest rate hike following Friday’s above-forecast US inflation data.
At the close, the UK blue-chip index was down 111.71 points, or 1.5% at 7,205.81, above the session low of 7,174.02 but well below the day’s opening peak of 7,317.52.
In New York, around London’s close, the Dow Jones Industrial Average was 651 points, or 2.1% lower at 30,740, while the broader S&P 500 index shed 2.8% and the tech-laden Nasdaq Composite dropped 3.6%.
Peter Garnry, Head of Equity Strategy at Saxo Bank commented: “Market sentiment is weak across equity indices but also crypto expressing that the most risk-taking market participants are dialing back on risk.
“Friday's US inflation figures show core inflation is getting entrenched at levels where it is increasingly likely that the Fed will have to pull the brakes hard to kill demand and restore more normal inflationary dynamics.
“Russia's tactics in Ukraine will worsen the food crisis and the weekend has shown that China has difficulties opening up suggesting supply chains will remain fragile.”
4.00pm: Global melt-down
Over an hour into open, and as expected, American stocks plunged lower, mirroring wider global markets.
US markets plummeted as investors were still digesting the spike in the headline inflation figure from last week and braced themselves for a further interest rate increase when the US Federal Reserve's latest policy meeting verdict is revealed on Wednesday.
The tech-heavy Nasdaq, which predominantly holds riskier assets, sank 4.2%, or 479 points, to 10,859. Cryptocurrencies are closely correlated with America’s technology index.
Meanwhile, the S&P 500 fell 3.6%, or 141 points, to change hands at 3,760.
The Dow Jones Industrial Average seemed to have the smallest retreat, at 2.6% or 821 points, to 30,752 but its large value makes the percentage figure deceiving, and in fact, it actually gave up the most points of the three indices.
3.27pm: Bitcoin hits 18-month low as crypto woes continue
Bitcoin and Ethereum continued to fall, mirroring wider global markets, as investors dumped riskier assets following the spike in US inflation revealed last week and April’s UK GDP contraction figures released Monday.
The leading digital currency sunk 14% to an 18-month low of US$23,463, while its closest rival by market value slightly outpaced Bitcoin in its decline, having nosedived 16% to US$1,222.
The total market capitalisation of cryptocurrencies fell below US$1tn as the week began, with Bitcoin and Ethereum both over 65% below their all-time highs seen November.
Bitcoin gave up 26% of its value in the past week, while Ethereum plummeted some 36% in the same period.
Myron Jobson, Interactive Investor senior personal finance campaigner, commented: “Bitcoin has suffered from a dramatic reversal of fortune, which has blindsided those who invested in the coin amid the crypto boom during the pandemic.
“How long the crypto plunge might last remains to be seen, but it is a timely reminder of how much and how quickly the value of cryptocurrencies can change unexpectedly.
“Cryptocurrencies have typically rebounded from steep falls in the past, although in some cases it took several years to hit new heights.
“But past performance is not indicative of future results and the market environment now is very different.
“The prospect of further regulatory crackdowns on the crypto industry remains a perpetual threat to the sector.”
3.01pm: Pound sinks against dollar
Pound Sterling retreated to its lowest level in a month on Monday amid news of the UK economy’s contraction in April.
The pound sunk 0.8% against the dollar to US$1.221 after a 0.3% fall in gross domestic product – worse than experts’ predictions.
Although it must be noted the pound’s relationship to the euro has remained relatively unchanged, with the Eurozone’s currency also struggling amid surging inflation and impacts from the war in Ukraine.
London’s blue-chip index suffered, falling 1.5%, or 111 points, to 7,206 on fears of a looming recession this year. FTSE 100 plummeted to its lowest level in a month during Monday morning’s changing of hands.
The Bank of England will face the unwanted task of balancing soaring inflation with a downturn in economic activity.
Its Monetary Policy Committee is expected to hike interest rates by 25 basis points to 1.25% this week to offset growing prices.
2.28pm: Lloyds offers workers £1,000
Lloyds Banking Group PLC (LSE:LLOY) offered tens of thousands of its staff £1,000 to help alleviate the cost of living crisis.
England’s largest domestic bank revealed the money would be given to its workers in August, with senior executives and managers exempt.
The memo to staff said: "As the rising cost of living continues to impact our people and our customers we've been assessing the evolving outlook for inflation and considering how we can support you even further." (Read more on the story here.)
Trade union Unite has piled pressure on the lender to help its lower-paid workers amid surging inflation.
It argued the blue-chip bank gave shareholders dividend payments following record profits but failed to help its own bank branch and call centre staff.
1.50pm: UK offshore wind jobs to triple this decade
Jobs in the UK offshore wind sector are expected to treble over the next eight years to 97,000, according to a new report.
The Offshore Wind Industry Council (OWIC) also predicted private investment in the sector will also accelerate.
The number of offshore wind workers will grow from today's 31,000 to 97,000 by 2030.
And some £155bn will be invested in new offshore wind projects between 2022 and 2030, bringing the average annual spend to over £17bn - significantly higher than the £10bn reported last year.
"This report demonstrates the extraordinary potential of renewable energy to create jobs, drive investment and secure cheaper, clean electricity," said energy minister Greg Hands. "We have ambitious plans to go even further as the UK becomes a global renewable energy powerhouse."
Prime Minister Boris Johnson wants the offshore wind capacity in the UK to jump fivefold by 2030 to wean the UK grid off gas.
1.05pm: Petrol reaches another record high
Petrol prices reached another all-time high on Sunday, an event that seems to occur as frequently as the sun comes out from behind a cloud.
They hit a record 185p per litre over the weekend, as ministers urged the Competition and Markets Authority to investigate whether the fuel duty cut is being passed on to drivers by retailers quickly enough.
Although the AA has provided some hope of respite, claiming that prices at the pump "should be grinding to a halt, at least temporarily, by the end of the week," on flattening wholesale prices.
Unprecedented fuel prices have been attributed to Russia’s invasion of Ukraine, as much of the West reduced or entirely stopped receiving Putin’s oil.
An increase in demand in the wake of the pandemic coupled with global shortages were also to blame.
"The speed and scale of the increase is staggering with unleaded going up 7p in a week and diesel by nearly 6p," Simon Williams, RAC fuel spokesman, commented.
12.23pm: Heathrow passenger numbers grow
England’s biggest airport in terms of passenger numbers per year, Heathrow, saw numbers climb again in May in the wake of the pandemic.
5.3mln people travelled through the London airport, up by 1.1mln compared with March and almost eight times greater than last year when Covid-19 restrictions were still in full throttle.
Despite this, British Airways owner International Consolidated Airlines Group (IAG) and EasyJet retreated 1.9% and 4.2% respectively on Monday afternoon.
Heathrow has been one of many UK airports to have been criticised in recent weeks as hundreds of flights had to be cancelled amid an increase in demand and a staffing shortage.
Airports also attributed the struggle to difficulties with new recruits passing security checks. Although Terminal four, which was shut due to the crisis, is expected to reopen on Tuesday.
"We are working closely with airlines and government to keep supply and demand in balance as we grow so that passengers can travel through Heathrow this summer with confidence," chief executive John Holland-Kaye, said, after the Jubilee half-term.
11.45am: US to retreat on open
US markets were expected to open lower on Monday as investors digest the spike in the headline inflation figure from last week and brace for a further interest rate increase when the US Federal Reserve's latest policy meeting verdict is revealed on Wednesday.
While a 50 basis point increase is widely priced in, investors are wary of the possibility of a larger rate hike as price pressures have clearly not reached their peak as of yet.
Futures for the Dow Jones Industrial Average fell 1.8 % in pre-market trading, while those for the broader S&P 500 index slumped 2.3%, and contracts for the Nasdaq-100 were down 2.9%.
On Friday, the US consumer price index hit a 41-year high in May, beating expectations to accelerate to 8.6% amid surging energy and food prices.
The data dented hopes that inflation had peaked and revived the hawkish expectations that the Fed should get more aggressive if it wants to take control of inflation, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“On Wednesday, the FOMC (Federal Open Market Committee) is expected to raise the interest rates by another 50 basis points, yet the possibility of a 75-basis-point hike is now being priced in," she said, noting that ahead of the inflation data, activity on Fed funds futures assessed around a 5% chance of a 75-basis point hike at this week’s meeting but now they are pricing in a 23% chance.
The likelihood of large back-to-back rate hikes is also creeping higher, adding to the overall cautiousness in equities.
“The chance of a 75 basis point hike in July meeting is now more than 50%, and the market even gives a 14% chance for a 100 basis point hike. This is how hawkish the Fed expectations got following Friday’s unfortunate CPI read,” added Ozkardeskaya.
Against this backdrop, the yield on benchmark US 10-year Treasuries continues to climb, signalling that stock markets may be in for a fresh round of falls.
“The unexpected U-turn in US inflation number also removed the 3% speed bump on the US 10-year yield. The 10-year yield shot up to 3.20% this morning, and the 2-year yield hit 3.19%. We shall see a further selloff in the US short and long-term treasuries on revived hawkish Fed expectations into Wednesday’s FOMC decision,” said Ozkardeskaya.
In energy markets, WTI crude oil futures shed 1.7% to $118.62 a barrel and Brent crude futures fell 1.6% to $120.03.
11.11am: UK recession looms
Earlier, before the GDP data emerged, the Confederation of British Industry warned of a potential recession before the year end, as well as downgrading its 2022 outlook for economic growth.
It lowered its growth outlook for the year to 3.7% from 5.1%, and a mere 1% in 2023 from its original 3%.
The promoter of business interests that advises governments also commented it anticipates inflation to grow further, climbing to 8.7% in October as part of a “historic squeeze” in household budgets, which will further slash consumer confidence.
Tony Danker, CBI director general, said: "Let me be clear - we're expecting the economy to be pretty much stagnant.
“It won't take much to tip us into a recession, and even if we don't, it will feel like one for too many people.
"Times are tough for businesses dealing with rising costs and for people on lower incomes concerned about paying bills and putting food on the table.”
It comes as figures were released on Monday morning revealing that the UK economy (GDP) contracted for the second consecutive month in April, down 0.3%.
Production, manufacturing and services numbers all retreated.
Danni Hewson, AJ Bell financial analyst, commented: “With just days to go before the Bank of England makes its next rate decision there will be plenty of debate about how best to curb searing levels of inflation whilst still providing a “soft landing.
“Is recession an inevitability at this point?
“With the OECD’s warning still ringing in the ears, there’s plenty to be concerned about.
“Russia’s invasion of Ukraine has seriously set back Covid recovery plans around the world but a backdrop of reduced trade, rising taxes and a price cap creating artificial energy peaks, the UK has particular problems.”
10.41am: Fresnillo leads risers, Scottish Mortgage sinks
On what has been a sour morning for London’s blue-chip index, Fresnillo PLC (LSE:FRES) was one of only five companies to advance higher on Monday.
The Mexican precious metals mining company soared 6.8% to 799.2p
On the contrary, Scottish Mortgage Investment Trust led the fallers, having plummeted 4.9% to 709.4p.
Housebuilder Barratt Developments PLC (LSE:BDEV) and hotel brand Whitbread PLC (LSE:WTB) weren’t all that far behind in their decline, having given up 4.1% and 3.7% respectively.
Almost four hours after opening, the Footsie had nosedived 1.8%, or 132 points, to 7,185p.
9.48am: Kwasi Kwarteng urges CMA to investigate fuel retailers
Business secretary Kwasi Kwarteng urged the Competition and Markets Authority (CMA) to carry out an urgent review into whether the 5p fuel duty cut has been passed on swiftly enough to motorists.
This comes as new petrol and diesel record high prices are being hit every few days amid the worsening cost of living crisis.
Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.), the blue-chip fuel retailers, sunk 2.3% and 1.8% respectively on the news on Monday morning.
The UK’s competition watchdog has been asked to look at the state of the fuel market and determine whether there are local price variations.
The Confederation of British Industry (CBI) warned the UK will likely plummet into a recession before the year end, fuelled largely by Russia’s invasion of Ukraine which squeezed global oil supply as demand picked up in the wake of the pandemic.
The Petrol Retailers Association (PRA), the independent fuel retailer representative, "welcomed transparency regarding fuel pricing" and agreed to co-operate with the CMA's inquest.
Kwarteng insisted that despite the fuel duty cut "there remains widespread concern about the pace of the increase in prices at the forecourt and, that prices may not fall as much or as fast as they rise."
The PRA insisted its members passed on the fuel duty cut in March but wholesale prices have continued to spike since then.
Jack Cousens, head of roads policy at the AA, commented: "To relieve pressure at the pumps we need an immediate 10p cut to fuel duty. That would help restore some balance ahead of the initial CMA findings due in early July."
Edmund King, AA president, said: "The government is still making 8.74p more in VAT than they were this time last year… so there is money there for another possible duty cut."
9.07am: Smurfit Kappa Birmingham plant up in flames
A huge fire at a major Smurfit Kappa Group plc (LSE:SKG) packaging plant on Sunday night sent its shares tumbling soon after market open.
Over 30 fire engines were needed to put out the blaze that destroyed paper and cardboard bales in Birmingham.
The blue chip paper and packaging firm lost 3.4% in value on Monday morning, changing hands at 2,857p.
There were no casualties or reports of a potential cause at one of the Irish company’s two UK paper mills.
It usually produces 500-700 tonnes of packaging paper per day, which is then converted to cardboard boxes.
8.25am: UK April GDP retreats
The FTSE 100 index fell out of bed in early deals on Monday as new figures showed the UK economy shrinking for the second straight month.
Gross domestic product in April fell 0.3% on the previous month, according to the Office for National Statistics, when it had been forecast to grow 0.1%.
This followed zero GDP growth in February and a 0.1% decline in March.
Industrial production fell 0.6% in the month of April, following on from a 0.2% decline in March, and far undershooting the forecast 0.3% rebound.
Manufacturing companies reported being affected by rising fuel and energy prices, said ONS director of economic statistics Darren Morgan.
“A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April,” he said.
These factors were partially offset by growth in car sales, which recovered from a significantly weaker than usual March.
London’s blue-chip index dropped 66 points or 0.9% to 7,251.45.
Martin Beck, chief economic advisor to the EY ITEM Club, said: “Combining April's contraction with a poor launchpad for growth in Q2 and June's extra bank holiday, the risk is increasing that the current quarter will see a fall in GDP.
“Output should rebound in Q3 with its full quota of working days. But the effect of continued global supply chain frictions and the weaker pound in keeping inflation higher for longer, alongside further interest rate rises, will exacerbate cost of living pressures and hold back activity.”
Shares leading the blue-chip fallers included US tech investor Scottish Mortgage Investment Trust PLC (LSE:SMT), catching up with last Friday’s Nasdaq sell-off.
Industrial software group Aveva was bottom of the list, while housebuilders including Barratt Developments PLC (LSE:BDEV) and Taylor Wimpey PLC (LSE:TW.) were not far behind.
6.38am: The hangover
The FTSE 100 looks set to be hit by a hangover from last Friday’s worse-than-expected US inflation print.
That’s because traders have been left fretting the US Federal Reserve may lift interest rates more sharply than originally expected to combat the threat of rising prices.
A Reuters poll of economists suggested the Fed could opt for two half percentage point hikes when it meets this Wednesday and Thursday.
However, the temperature reading was taken before America’s inflation print, which revealed consumer prices were rising at a faster-than-anticipated 8.6%, rather than flattening out.
Now, the consensus is shifting towards a 0.75% increase in base rates.
“In the space of a few days, markets have gone from optimism that inflation might be on the cusp of plateauing, to rising apprehension that we could not only see higher prices but that prices might well remain higher for a lot longer than originally thought,” said Michael Hewson of CMC Markets.
“This concern has started to manifest itself into the reaction function of central banks, who appear belatedly to have realised that inflation is starting to run out of control, along with consumer expectations of higher prices.”
Asia’s main markets took a tumble on Monday in a belated reaction to last Friday’s US CPI number. The stock bourses of Japan, South Korea and Hong Kong, each down 3%, mirrored the retreat seen on Wall Street.
Turning to the UK, the spread betting firms at expecting Footsie to open 44 points lower at 7,273.52 after tumbling almost 160 points, or 2.1% on Friday.
Looking ahead, a busy week for corporate news will include updates from Whitbread, Boohoo, Games Workshop, and Crest Nicholson.
Around the markets
- Pound US$1.2298 (-0.14%)
- Bitcoin US$25,632 (-3.50%)
- Gold US$1,868.40 (-0.38%)
- Brent crude US$118.68 (-1.65%)