- FTSE 100 closes down 18 points
- Largest fall in UK real wages for two decade
- US stocks mixed after big falls
4.50pm: Footsie trips lower
The FTSE 100 index closed a touch lower on Tuesday, running back from earlier gains as US blue-chips reversed an early small rally to resume recent hefty falls with the mood cautious ahead of the latest Federal Reserve policy meeting and the likelihood of a bigger than expected interest rate hike.
The UK blue-chip index ended 18.35 points, or 0.3% lower at 7,187.46, well below the session peak of 7,271.85 but above the session low of 7,135.15.
In New York, around London’s close, the Dow Jones Industrial Average was 124 points, or 0.4% lower at 30,392, while the broader S&P 500 index lost 0.1% though the tech-laden Nasdaq Composite added 0.3%.
Chris Beauchamp, chief market analyst at online trading platform IG commented: “An anaemic and now rapidly disappearing bounce in US markets shows us that investors are very cautious about going bargain hunting ahead of tomorrow’s momentous Fed decision.
“Not just 75bps but even 100bps are being viewed as a possibility on Wednesday evening, as the committee looks to try and steal a march on inflation. At the moment it is quite tough to gauge the kind of decision that will keep markets from selling off yet further, and whether hints at more dramatic tightening will counter any optimism if the Fed sticks to 50 bps. But hopes of a summer pause are certainly entirely dashed now.”
Beauchamp added: “Today’s brief gains for Wall Street look to have a short lifespan anyway, given the rise in oil prices. Additional gains for oil spell yet more inflationary pressures on companies and consumers, hitting earnings well into Q3 and beyond. All in all, this risk rally looks to have only a short time to prosper.”
4.05pm: Footsie attempts a recovery
Leading shares are drifting around break even after a reasonably volatile day, supporting by a calmer performance on Wall Street so far.
With the focus on this week's interest rate decisions from the US Federal Reserve and then the Bank of England, markets are likely to remain unsettled in the short term.
After falling as low as 7135, the FTSE 100 is now up 2.91 points at 7208.72.
Banks are providing some support, understandable given their balance sheets are likely to be boosted by any further rate rises.
Standard Chartered PLC (LSE:STAN) is up 3.87%, HSBC Holdings PLC (LSE:HSBA) is 3.4% higher and Lloyds Banking Group PLC (LSE:LLOY) has been lifted 1.87%.
The first two have also been lifted by hopes of recovery in Hong Kong.
Michael Hewson, chief market analyst at CMC Markets UK, said: "HSBC and Standard Chartered are [higher] after a report from KPMG which said that Hong Kong banks are likely to see their revenues rise in 2022, due to improved interest margins. This is particularly good news for HSBC which has very thin margins."
The continuing strength in the oil price has seen BP PLC (LSE:BP.) put on 2.45%.
But with wage growth continuing to lag inflation, retailers are under pressure on concerns about the cost of living crisis.
Ocado Group PLC (LSE:OCDO) is down 9.18%, B&Q owner Kingfisher PLC (LSE:KGF) has fallen 4.03% and Next PLC (LSE:NXT) has lost 2.89%.
3.11pm: Sterling drops on economic and trade war concerns
The pound continues to fall on general worries about the UK economy, as well as the specific concern that the government's plan to rip up its agreement with the European Union could spark a trade war.
(No doubt Europe would then be the ideal scapegoat to get the blame for the UK's falling growth and its cost of living crisis, come the time of the next election.)
Sterling is at its weakest for more than two years, down 0.7058% at US$1.2056 - also undermined by the strength of the US currency on the back of the Federal Reserve's expected hefty interest rate rise expected tomorrow.
Meanwhile against the euro, the pound is off 1.0687% at €1.1534.
2.48pm: US investors nervous despite opening rise
US stocks have opened slightly higher but analysts say this is unlikely to last as investors eye the Fed’s upcoming interest rate hike.
Just after the open, the Dow had gained 70 points at 30,586 points.
The S&P 500 was up 20 points at 3,770 points and the Nasdaq was up 94 points at 10,904 points.
OANDA senior market analyst Craig Erlam said the mood had turned very negative since the latter half of last week, with Friday’s inflation data delivering the knockout blow to investors.
“Expectations have turned more hawkish again with numerous calls for 75 basis point hikes overnight, which markets are now heavily pricing in,” he said. “We're now at a stage whereby if the Fed doesn't deliver 75, the backlash could be quite severe.”
He added that, against such a backdrop, it was hard to imagine sentiment drastically improving any time soon.
“Part of the pause in the US may simply be a factor of the S&P hitting bear market territory and the proximity to the Fed interest rate decision tomorrow,” Erlam said. “I don't think we'll be seeing much FOMO dip-buying all of a sudden.”
Back in the UK, the FTSE 100 is virtually flat, down just 6.14 points at 7199.67.
1.47pm: US producer prices in line
With all eyes on inflation as the Federal Reserve meets, US producer prices have come in more or less in line with expectations.
The producer price index increased 0.8% in May after a 0.5% rise in April.
On a twelve month basis, prices rose 10.8% after an 11% increase in the previous month, underpinned the continuing rise in energy prices but much as economists had expected.
Core PPI, excluding food and energy, rose 8.3%, better than the 8.6% forecast.
- US PPI Final Demand (M/M) May: 0.8% (est 0.8%; prev 0.5%)
- US PPI Ex Food And Energy (M/M) May: 0.5% (est 0.6%; prev 0.4%)
- US PPI Final Demand (Y/Y) May: 10.8% (est 10.9%; prev 11.0%)
- US PPI Ex Food And Energy (Y/Y) May: 8.3% (est 8.6%; prev 8.8%)
— LiveSquawk (@LiveSquawk) June 14, 2022
Wall Street has added to its gains after the figures, although in truth they still show strong pricing pressures and are unlikely to alter the Fed's decision materially.
The Dow is now forecast to open 0.62% higher with Nasdaq anticipated to add 1.23% and the S&P 500 0.85%, which in turn has seen the UK market come off its worst levels.
The FTSE 100 is now down 9.09 points at 7196.72 having earlier fallen to 7135.
U.S. PPI DATA -
The annual pace of producer price inflation in the US according to the Producer Price Index (PPI) fell slightly to 10.8% from 10.9% a month earlier, a tad below expectations.
Now, US dollar has been pulling back a tad in wake of slightly weaker #PPI #USA #USD
— Anaya (@Anaya99253544) June 14, 2022
12.38pm: FTSE 250 joins in the general declines
The UK mid-cap index is also having a bad day.
The FTSE 250 is currently down 0.62% or 119.13 points at 19.041.08 as investors continue to fret about stagflation and rising interest rates.
The biggest faller is Wood Group (John) PLC (LSE:WG.), down 6.54% at 194.5p.
The decline comes as analysts at Berenberg cut their price target, but only from 300p to 270p and they also retain their buy rating.
11.42am: Wall Street set to recover some ground
US markets were expected to edge higher with a slight rebound from the hefty falls seen on Monday with the wider S&P index having ended in 'bear market' territory.
Futures for the Dow Jones Industrial Average rose 0.2% in pre-market trading, while those for the broader S&P 500 added 0.3%, and contracts for the Nasdaq-100 were up 0.5%.
However, the very same concerns about spiraling inflation and slowing growth that sent share prices sharply lower for the past few sessions are here to stay and trading is expected to remain choppy. Investors are also looking to Wednesday’s US Federal Reserve's latest policy meeting verdict for direction.
The S&P's fall into bear market territory - down 20% from the start of the year - signals that further declines are likely. One key trigger was the US inflation data last Friday which showed that price pressures are at 41-year highs.
Given the focus on inflation, US producer price data, which will give a snapshot of upstream price pressures, are due out later today and could deal equities another blow. Consensus forecasts point to a 0.8% rise in May after rising by 0.5% in April.
Back in the UK, and there is no sign of improvement.
The FTSE 100 is continuing its slide and is currently down 61.66 points or 0.86% at 7144.15.
11.12am: Footsie at low for the day
Bank shares are holding firm on hopes for a boost for financial balance sheets from higher interest rates.
But that is not enough to keep the blue chip index in positive territory.
The FTSE 100, having earlier climbed as high as 7271, is now at the low of the day, down 35.28 points or 0.49% at 7170.53.
The biggest faller is equipment rental specialist Ashtead Group PLC (LSE:AHT), down 4.05% despite a 38% rise in full year profits as investors took some profits.
Laura Hoy, equity analyst at Hargreaves Lansdown, said: "Although the group’s approved further buybacks this year, management is unlikely to keep up with this level of repurchases given the pressing need for increased investment in the business
"For now all appears to be well at Ashtead, and the inflationary environment’s done little to dull the shine. However with a recession still a very real concern in the group’s largest markets, construction spending could start to shrink which would undo much of this progress.”
Among the other fallers are a handful of retailers, hit by renewed concerns that slowing wage growth could hit consumer spending.
Ocado Group PLC (LSE:OCDO) is down 3.57%, B&Q owner Kingfisher PLC (LSE:KGF) has fallen 3.05% and Next PLC (LSE:NXT) has lost 2.53%.
10.57am: German confidence better but still negative
Over in Germany, confidence in the economy has improved but is still in negative territory.
The ZEW Indicator of Economic Sentiment climbed 6.3 points to - 28.0 points in June, while the assessment of the economic situation in the country improved by 8.9 points to -27.6 points.
ZEW president Professor Achim Wambach said: “The economy is still exposed to numerous risks, such as the effects of the sanctions against Russia, the unclear pandemic situation in China and the gradual change of course in monetary policy. So although expectations have improved, they are still deep in negative territory."
#ZEW Indicator of Economic Sentiment at -28.0 pts. “Financial market experts are less pessimistic. However, the economy is exposed to numerous risks, such as #sanctions against Russia, #Corona in China & #MonetaryPolicy,” says ZEW President @AchimWambach. https://t.co/NGsUyu636g pic.twitter.com/9t0Zii5j4a
— ZEW_en (@zew_en) June 14, 2022
10.24am: Crude climbs again
The market enthusiasm did not last long.
Having hit 7271 earlier, the FTSE 100 is now virtually flat, up just 1.84 points at 720.75.
Meanwhile oil remains at heady heights, as motorists will not need reminding.
Brent crude is currently up 0.78% at US$123.22 a barrel while West Texas Intermediate, the US benchmark, is up 0.76% at US$121.79.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: Brent crude is hovering at around US$123 per barrel, as concerns surrounding supply continue to weigh. That’s despite potential new COVID-19 curbs in China, which could dampen demand.
"Supply is being suffocated by reduced Libyan oil exports amid a political unrest, at a time other OPEC+ producers are struggling to meet output targets, while Russian oil is facing wide reaching bans. Further volatility in the oil market is all but guaranteed in coming weeks, and we may not have seen the peak.”
9.19am: Builders boosted by Bellway and Crest
Housebuilders are also higher after positive trading updates from Bellway PLC (LSE:BWY) and Crest Nicholson PLC (LSE:CRST).
Bellway said demand was strong and completions for the year were expected to grow by around 10% to around 11,100 – in line with guidance – though the average price was expected to dip marginally to £305,000.
Despite warning of rising energy prices and wage costs, its shares are up 2.31%.
Meanwhile Crest has climbed 8.47% despite moving into a first half loss after a £105mln charge to pay for fixing unsafe cladding.
The news has helped lift Persimmon PLC (LSE:PSN) by 2.13%, Barratt Developments PLC (LSE:BDEV) by 2.1% and Taylor Wimpey PLC (LSE:TW.) by 1.27%.
8.58am: Rate rise talk lifts financials
If you wanted to bet on a sector likely to be doing well thanks to the prospect of rising interest rates, you'd probably go for the banks.
And today you'd be right.
With talk of ever bigger rate rises to deal with soaring inflation, the financial stocks are leading the risers.
HSBC Holdings PLC (LSE:HSBA) is 3% higher, NatWest Group PLC (LSE:NWG) is up 2.33%, Standard Chartered PLC (LSE:STAN) has climbed 2.3%, Lloyds Banking Group PLC (LSE:LLOY) has been lifted 1.83% and Barclays PLC (LSE:BARC) is 1.79% better.
Overall the FTSE 100 is off its best but remains in positive territory, up 29.02 points or 0.4% at 7234.83.
8.10am: Footsie shrugs off US woes for now
Leading shares have shrugged off the bear market moves in the US, as investors await the next round of central bank rate rises.
The US Federal Reserve unveils its latest decision tomorrow and with a shock CPI figure last Friday, markets have been spooked by the prospect of a 75 basis point rise.
Today's US producer prices figures will be widely watched to see whether they confirm that theory or ease the pressure on the Fed.
Meanwhile the Bank of England is tipped to lift the cost of UK borrowing by as much as 50 basis points on Thursday.
Ahead of all that, the FTSE 100 - which fell 111 points on Monday - has recovered 53.59 points or 0.74% to 7259.40.
Richard Hunter, head of markets at interactive investor, said; "A positive open for stocks did little to erase the damage caused by the previous day’s decline. Having spent much of the year in positive territory as compared to many of its global peers, the FTSE 100 is now down by 1.6% in the year to date.
"Today’s respite could yet prove to be brief, especially if there are any further shocks to come on the scale of central bank tightening. In addition, the strength of the US dollar as a haven investment has weakened sterling, which in turn has slightly underpinned the FTSE 100, whose constituents are largely dollar-facing in terms of earnings and exposure. Even so, the level of volatility currently being seen across most asset classes is likely to persist for the time being.”
Back with the UK jobs and pay data, the Institute for Employment Studies said real wages - excluding bonuses which most people do not get - fell by 3.4% between April 2021 and April 2022, the biggest drop since the data was collected in 2001.
IES director Tony Wilson said: “This is really grim news on pay and is only likely to get worse. Despite the tightest labour market on record, nominal pay is broadly flat meaning that rocketing inflation is leading to the largest cuts in real pay in at least two decades. The picture is particularly bad for public sector workers, with real pay falling by nearly 6% year on year."
James Andrews, personal finance expert at Money.co.uk, said: “Wages are continuing to plummet in real terms... This paints a deteriorating picture for household finances across Britain and raises the prospect that the cost of living crisis will worsen quicker than feared.
“Pay rises, excluding bonuses, still trail inflation by a large margin and the risk is that income will become even more detached from the reality on the high street over the coming months."
The biggest decline in inflation-adjusted regular pay in the UK since late 2011 at -2.2%... BUT bonus payments continue to make total average pay +ve in real terms (+0.4%). pic.twitter.com/TmO4TQ90Qe
— Stuart McIntyre (@stuartgmcintyre) June 14, 2022
Meanwhile Matthew Percival, CBI Director for People and Skills, said: “With pay continuing to fall behind inflation, it’s no wonder that households are forecast to further reduce their spending this year. Urgency is needed to build confidence and ease the risks of a full-blown recession.
“Not being able to hire the people they need is a major drag on business confidence, so the government should immediately allow firms to use their Apprenticeship Levy to tackle shortages and update the Shortage Occupation List.”
7.14am: Wages higher but still lagging inflation
UK wage growth continued to grow by less than inflation in the three months to April, while the unemployment rate ticked up to 3.8%.
Regular pay, excluding bonuses, grew 4.2%, the Office for National Statistics said, which was the same as a month earlier and higher than the 4% expected.
Real wages fell continue to be negative, adjusting for inflation that is running at around 9%.
The unemployment rate decreased by 0.2 percentage points on the quarter to 3.8% for the three months to April, but was up one percentage point from the 3.7% the report for March.
Headline indicators for the UK labour market for February to April 2022 show that
▪️ employment was 75.6%
▪️ unemployment was 3.8%
▪️ economic inactivity was 21.3%
— Office for National Statistics (ONS) (@ONS) June 14, 2022
ONS head of economic statistics Sam Beckett said: “Today’s figures continue to show a mixed picture for the labour market.
“While the number of people in employment is up again in the three months to April, the figure remains below pre-pandemic levels. Moreover, although the number of people neither in work nor looking for a job has fallen slightly in the latest period, that remains well up on where it was before COVID-19 struck.
“At the same time, unemployment is close to a fifty-year low point and there was a record low number of redundancies. Job vacancies are still slowly rising, too. At a new record level of 1.3 million, this is over half a million more than before the onset of the pandemic.”
6.50am: Small comeback predicted
The FTSE 100 is predicted to mount a small comeback on Tuesday ahead of a UK jobs report and a busier day in the corporate diary.
This is despite a further big sell-off on Wall Street overnight and with Asian stock markets mostly in the red this morning.
London's gauge of blue-chip shares has been called 40 to 45 points higher on spread-betting platforms, having dropped over 111 points the previous day to 7,205.81, down more than 400 points over the previous five days.
Overnight, the Nasdaq managed more than that in one sitting as it plummeted almost 531 points or 4.5% to 10,809.23, down getting on for 32% since the start of the year to its lowest level since October 2020. The S&P 500 fell 3.9% and the Dow Jones 2.8%, both at their lowest since January last year.
US investors are still freaking out about inflation and the Federal Reserve's likely reaction to it, with a surge in bond yields prompted by Friday’s consumer price index (CPI).
This "could be tempered" by today’s US producer prices index (PPI) report, says market analyst Michael Hewson at CMC Markets, noting that this factory gate inflation measure, "in recent months has started to show signs of slowing and is much more a leading indicator than CPI which tends to be more backward looking".
Before that we get another look at how the UK economy is doing after yesterday’s disappointing April GDP report which saw a sharp contraction of 0.3% follow a 0.1% fall the month before.
"Despite this weakness and the concerns around a weak economy we know that unemployment is at its lowest levels since the 1970s and wages growth is showing signs of picking up," said Hewson.
The most recent wages and unemployment numbers showed that the labour market remained tight for the three months to March, with unemployment falling to 3.7%, the lowest level since 1974, with wages excluding bonuses up 4.2%.
Says Hewson: "Today’s April numbers are expected to get a big lift from the various pay rises that were announced by retailers as they look to keep their staff in what is expected to become a very competitive labour market in the coming months, with average weekly earnings including bonuses expected to rise to 7.4% from 7%. Excluding bonuses, the rise is expected to be more modest at 4%."
6.50am: Early Markets - Asia / Australia
Asian shares tumbled on Tuesday after the S&P 500 on Wall Street fell nearly 4% overnight and closed in bear market territory (down more than 20% from its high).
The Shanghai Composite in China declined 0.49% while Hong Kong’s Hang Seng index fell 0.14%.
Japan's Nikkei 225 slumped 1.43% and South Korea’s Kospi was trading 0.57% lower.
Australia’s S&P/ASX200 fell 1.75% after bond markets priced in a terminal cash rate of 4.6% within 18 months.
This would mean the central bank would have to tighten policy by 375 basis points over 17 policy meetings, a task viewed as too aggressive by analysts.