- FTSE 100 closes almost 86 points higher
- Wall Street manages early gains
- Fed rate decision due at 7.15pm GMT
4.50pm: Fed rate hike eyed
The FTSE 100 index ended higher on Wednesday, recovering some recent falls helped by positive moves by the European Central Bank and as Wall Street made good early progress although the mood was still cautious ahead of the outcome of the latest Federal Reserve policy meeting and an expected 75 basis point interest rate hike.
The UK blue-chip index ended 85.95 points, or 1.2% higher at 7,273.41, below the session peak of 7,313.70 but well above the session low of 7,186.50.
Meanwhile, in New York, around London’s close, the Dow Jones Industrial Average was 143 points, or 0.5% higher at 30,508, while the broader S&P 500 index added 0.9% and the tech-laden Nasdaq Composite gained 1.7%.
Craig Erlam, senior market analyst, UK & EMEA, at OANDA commented: "The Fed meeting this evening was always the week's headline event, although as it turns out other central banks have since put themselves in contention. What was looking like a straightforward 50 basis point hike and warning of at least one more to come has become far more complicated since Friday's inflation reading and the market fallout.
"Markets are now almost fully pricing in a 75 basis point hike - the first since 1994 - as well as another in July with the rate hitting 3.5-3.75% in December. Some are even suggesting a 100 basis point hike would be more suitable under the circumstances but that strikes me as highly unlikely this time around.
"Either way, the message is clear. Many more rate hikes will be demanded in the short term to get a degree of control over inflation before it spirals out of control. A soft landing is looking increasingly unlikely as well, with recession indicators starting to flash as interest rate expectations are raised."
3.55pm: Respite for European markets after recent falls
Leading shares continue to gain ground as investors shrug off the continuing worries about the economy and interest rate rises.
They have taken some comfort from the European Central Bank making moves to combat the rise in European bond yields, but there is also nervousness ahead of the Federal Reserve meeting later, which could see US interest rates raised by as much as 100 basis points.
Nonetheless the FTSE 100 is in buoyant mood, up 114.06 points or 1.59% at 7301.52, not far off the day's high of 7313.
Michael Hewson, chief market analyst at CMC Markets UK, said: "European markets have enjoyed a welcome respite today, after six days of losses, driven largely by the news that the ECB was looking to speed up work on a crisis tool to deal with concerns about fragmentation in EU bond markets, and Italian bonds.
"[Italy's] FTSEMib has been the standout gainer because of these reports, leading the rebound higher, however we’ve also seen some decent moves in the rest of Europe’s markets, as we look towards this evening’s Federal Reserve rate meeting..
"On the FTSE 100 we’ve seen broad based gains primarily driven by consumer discretionary and financials, both of which have seen some big falls in recent days."
London Stock Exchange Group PLC (LSE:LSEG) is the biggest riser in the leading index, up 6.12% after a positive note from analysts at UBS.
Premier Inn owner Whitbread PLC (LSE:WTB) has climbed 6.08% following its latest update, while technology investor Scottish Mortgage Investment Trust PLC (LSE:SMT) is up 5.55% after a positive start for the US Nasdaq market.
B&M European Value Retail SA (LSE:BME) is 5.26% better in the wake of an overweight rating from Barclays.
But energy shares are failing to spark. Shell PLC (LSE:SHEL, NYSE:SHEL) is down 0.63% while BP PLC (LSE:BP.) - which has agreed to take a 40.5% stake in the Asia Renewable Energy Hub in Australia - is off 0.4%.
3.22pm: ECB buys itself some time - analyst
The main central bank event is clearly the US Federal Reserve's interest rate decision later.
But, as Craig Erlam at Oanda said, others have put themselves into contention.
By which he no doubt means the European Central Bank's unscheduled meeting earlier today.
He said: "The monetary policy conundrum is troubling different central banks in very different ways. Take the ECB which today called an extraordinary meeting to deal with its unique problem of fragmentation across the bloc. Many years of QE have suppressed yields and prevented any flare-ups but the pandemic and the inflation aftermath have drastically changed that, with the Italian 10-year jumping above 4% earlier this week.
"After the emergency meeting today, the ECB elaborated on the promises it made last week and committed to applying flexibility to reinvesting redemptions under PEPP with an eye on reducing unwanted fragmentation and accelerating the completion of a new anti-fragmentation instrument.
"It has basically sought to buy itself some time and the decline in yields and recovery in stocks, particularly those in Italy, suggest they may have done just that. It isn't a permanent solution but it may be enough for now."
2.45pm: Wall Street opens higher
US stocks opened higher with cautious trading expected ahead of the Fed’s interest rate decision due later.
At the open, the Dow had gained 243 points at 30,608 points.
The S&P 500 was up 35 points at 3,770 and the Nasdaq had jumped 114 points at 10,943 points.
Evelyn Partners associate director of investment strategy David Goebel said futures markets were signalling that the Fed would increase the interest rate by 75 basis points, with some chance of even a 100 basis point increase.
“Our view is that a move of 100 basis points could be so large as to open the committee to accusations of panic and is therefore unlikely,” he noted. “However, the Fed will be keen to look tough in the face of historically high headline inflation, and we, therefore, think they will deliver on market expectations of a 75 basis points increase.”
A 75 basis point increase would be the largest interest rate hike since 1994.
Back in the UK, the FTSE 100 is also flying and is near the day's peak so far, up 105.55 points or 1.47% at 7293.01.
1.59pm: US retail sales disappoint
Meanwhile ahead of the Federal Reserve's expected rate rise later, some below par US figures.
Retail sales fell by 0.3% month on month in May, as rising food and petrol prices put a dampener on demand.
Analysts had been expecting a rise of 0.1%
- US Retail Sales Advance (M/M) May: -0.3% (est 0.1%; prev 0.9%)
- US Retail Sales Ex Auto (M/M) May: 0.5% (est 0.7%; prev 0.6%)
- US Retail Sales Ex Auto And Gas May: 0.1% (est 0.4%; prev 1.0%)
- US Retail Sales Control Group May: 0.0% (est 0.3%; prev 1.0%)
— LiveSquawk (@LiveSquawk) June 15, 2022
The Empire manufacturing survey also came in below expectations.
US Empire Manufacturing Jun: -1.2 (est 2.3; prev -11.6)
— LiveSquawk (@LiveSquawk) June 15, 2022
1.52pm: ECB plan underwhelms - analyst
The European Central Bank has agreed to speed up work on a new policy tool to help combat jumps in eurozone bond yields.
The move comes after its unscheduled meeting following a surge in Italian yields to the highest level since the European sovereign debt crisis.
In a statement the central bank said: "The pandemic has left lasting vulnerabilities in the euro area economy which are indeed contributing to the uneven transmission of the normalisation of our monetary policy across jurisdictions.
"Based on this assessment, the Governing Council decided that it will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism, a precondition for the ECB to be able to deliver on its price stability mandate.
"In addition, the Governing Council decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council."
Neil Wilson at Markets.com was underwhelmed.
He said: "It’s not exactly a decisive more and did not require a meeting as such.
"The euro pared gains made during the session to return to where it was before the news of the ad-hoc meeting broke. EURUSD completed its round-trip to around 1.0420 after having risen to as high as 1.05 earlier in the session.
"Stocks also nudged lower off the session highs with the DAX whipping around in an 80-pt range as ECB statement emerged around 13:10. Bond yields ticked higher as the Italian 10yr moved back towards 3.95% from a session low of 3.759%., still down from the +4% level traded earlier.
"Market is going to be a little happier that the ECB is working on this tool but it’s so darn slow and does not appear fully attuned to the risks of further widening of spreads as rising yields reveal the cracks papered over for the last decade by QE and the Draghi effect."
12.49pm: Italian bond yields fall as ECB meets
As the European Central Bank's unscheduled meeting to discuss the slumping bond market continues, the Italian 10 year yield is heading lower again.
It is now down 31 basis points on the day at 3.91%.
The meeting began at 10am BST and was scheduled to last around two hours.
Bull case: The ECB meeting is going on so long as they are agreeing substantial measures.
Bear case: ECB meeting is going on so long as they cannot agree anything.
— Lorcan Roche Kelly (@LorcanRK) June 15, 2022
12.28pm: Eurozone trade deficit nearly doubles due to energy costs
Ahead of the outcome of the unscheduled European Central Bank meeting, the latest snapshot of the euro area's economy shows a soaring trade deficit.
It almost doubled to €32.4bn in April, up from €16.4bn the previous month as the bloc imported ever more expensive energy as the war in Ukraine drove up prices.
Euro area trade in goods deficit €32.4 bn in April, €43.6 bn deficit for EU. These are the largest deficits recorded since the start of the time series (1999 and 2002, respectively) and are seasonally adjusted https://t.co/425DKw8yFB pic.twitter.com/DfZh8PiO63
— EU_Eurostat (@EU_Eurostat) June 15, 2022
Meanwhile industrial production in the eurozone rose 0.4% month on month in April but was down 0.2% on a year ago.
11.30am: Wall Street set for positive start
US markets were expected to open higher as investors look to the US Federal Reserve interest rate decision later.
Markets have scaled up rate rise expectations following recent data, with a 75-basis point rate increase now widely expected amid signs that inflation has yet to peak, causing the Fed to move more aggressively.
Futures for the Dow Jones Industrial Average rose 0.7% in pre-market trading, while those for the broader S&P 500 added 0.7%, and contracts for the Nasdaq-100 were up 0.8%.
“Investors know that the Fed will want to get more aggressive on the back of a difficult-to-ease inflation, and yesterday’s producer data came as another confirmation that inflation has more to inflate in the coming months,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “At this point, the decision of a 75bp is almost made, the Fed should only confirm the market verdict.”
If the Fed chooses to stick to another 50-basis point hike, the market will certainly rebound on relief, she said but noted that the Fed’s primary goal is to tame inflation right now, and not to boost the equity markets.
“Now that the 75 basis point pill has been swallowed by the market, it would be irrational for the Fed not to go ahead with a bigger hike,” Ozkardeskaya noted.
Until the rate verdict is announced, however, trading is expected to be cautious.
The Fed’s economic projects and path for key short-term rates, the so-called dot plot, will also be eagerly awaited.
But given that stocks have dropped so much even a hawkish surprise in economic and dot plot projections, might not damage equities too much, said Ozkardeskaya.
Equity markets have had a rough ride over recent weeks with the S&P 500 index falling into bear market territory - down 20% from the start of the year - signaling that more falls may be coming.
Headline US inflation data last week showed an unexpected spike to a 41-year high and spooked markets, leading to widespread stock market falls. Investors are worried that elevated inflation and the Fed’s aggressive rate hikes will crimp economic growth.
In energy markets, WTI crude oil futures fell 1.3% to $117.44 a barrel and Brent crude futures lost 1.1% to $119.85.
Back in the UK, the FTSE 100 remains well in positive territory, up 90.55 points or 1.26% at 7278.01.
11.05am: Banks help push UK market higher
The rise in the UK market is accelerating, despite the continuing concerns about stagflation and much higher interest rates.
Investors are also shrugging off the growing row between the UK and the European Union over the Northern Ireland protocol.
The FTSE 100 is up 94.64 points or 1.32% at 7282.10, close to the day's peak so far.
Among the risers, broker recommendations have boosted B&M European Value Retail SA (LSE:BME), up 5.57%, and London Stock Exchange Group PLC (LSE:LSEG), 5.11% better.
Whitbread PLC (LSE:WTB) has climbed 5.5% following its well-received update.
And banks are better on the basis that rising rates are good for their balance sheets, with NatWest Group PLC (LSE:NWG) up 3.48% and Barclays PLC (LSE:BARC) 3.43% better.
In the mid-cap index WH Smith PLC (LSE:SMWH) has added 7.69% after the retailer said its full year results would be at the top end of expectations, helped by the return of customers to its travel stores in stations and airports.
AJ Bell investment director Russ Mould said: “To some people it’s a great mystery how WH Smith continues to grow earnings at quite a clip. Messy stores, overpriced sweets, newspapers stored in fridges and useless trinkets that collect dust on the shelves seem to point toward a firm going in the wrong direction.
“Despite all this, time after time its trading updates and results show that customers see through the chaos and are happy to keep spending in its stores...
“The fact that WH Smith believes its full year results will be at the higher end of expectations comes as surprise given the difficult backdrop for consumer spending. Most retailers are being very cautious about their outlook, so it’s welcome turn of events that WH Smith can be upbeat, albeit recognising the uncertain economic outlook.”
Playtech PLC (LSE:PTEC) has put on 6.51% after it received the necessary regulatory approvals for the all-cash sale of its financial trading division Finalto to Gopher Investments.
10.08am: Tech hope for London?
The London market is hardly a standard bearer for big techology companies these days, but there is talk there might be a bit of positive news on that front.
AJ Bell investment director Russ Mould said: “There was also boost for the UK market on chatter that former FTSE 100 Cambridge chipmaker ARM might list some of its shares in London alongside a main listing in the US.
“There have been efforts to make the London market a hub for technology companies, a sector which is heavily underrepresented at present. A return for ARM, after a delisting necessitated by the 2016 acquisition of the group by Japan’s Softbank, would represent a baby step in the right direction.”
9.20am: ECB panicking?
More on the European Central Bank's unexpected meeting today.
Is it a panic move so soon after last Thursday's scheduled get together, given bond yields have been soaring since then?
Neil Wilson at Markets.com said: "The ECB will have an unscheduled/ad-hoc/emergency meeting today to discuss the current market conditions – that is, the sell-off in government debt markets.
"Given there was a scheduled meeting last week, it smacks of panic and a lack of control, but the market is happy to see it happen. European bank shares rose and the euro also rallied, whilst Italian yields came back down. The ECB is clearly worried that ‘peripheral’ bond yields are rising too much...but this is all a bit of a mess coming so soon after the scheduled meeting last week..
"What could the ECB do? It’s not easy since tightening monetary policy is rather like the tide going out and revealing who’s swimming naked...The ECB could probably first reassure the market that it will do ‘whatever it takes’ to prevent fragmentation, but given this meeting has been called abruptly then it might actually feel that it needs to intervene with a new tool – perhaps a yield spread cap of some sort. Or it could reinvest cash from maturing bonds into those sovereign bond markets that need it.
"This would undoubtedly introduce political risk and would be challenged in the German courts, as would any new tool. Or it could just QE forever... tricky when you are supposed to be tightening financial conditions.
"For today it might be enough to tell the market it is working on a new tool/plan in this regard – the lack of detail last week means the Governing Council has not discussed this much and so it might be too early for a specific tool/policy to be announced – plus it has the political and legal dimension to consider too...
"The fact the ECB didn’t bother with this last week is mystery and shows it is still far too complacent and unwilling to get ahead of the curve."
9.01am: Oil and miners slip back
Commodity companies have taken some of the shine off the market, after a disappointing update from Antofagasta PLC (LSE:ANTO) and some profit taking.
Antofagasta has fallen 0.9% after saying full-year production was likely to be at the bottom end of guidance after a leak in the concentrate pipeline at Los Pelambres, while Anglo American PLC (LSE:AAL) is off 0.55%.
Meanwhile BP PLC (LSE:BP.) is down 2.52% and Shell PLC (LSE:SHEL, NYSE:SHEL) has slipped 1.93%,
Broker recommendations are also having an effect.
Abrdn PLC (LSE:ABDN) is down 2.04% at 165.95p after analysts at Credit Suisse slashed their rating from outperform to underperform and their price target from 230p to 180p.
But B&M European Value Retail SA (LSE:BME) is 4.01% better following an overweight recommendation from Barclays, and London Stock Exchange Group PLC (LSE:LSEG) has been lifted 4.45% to 7038p after UBS moved from neutral to buy with an 8500p target.
UBS said: "Our view on LSEG's management has improved in recent quarters as revenues (ex-one time items), costs and leverage have generally progressed better than we expected. And with LSEG's shares down more than 20% since early April, we think current valuations offer an attractive entry point."
Overall the FTSE 100 is now up 37.9 points or 0.53% at 7225.36.
8.18am: Positive start as China figures provide some support
Leading shares have made a positive start despite continuing worries about stagflation and the prospect of more hefty rate rises from central banks.
A stronger than expected recovery in China is helping sentiment, with industrial output rising 0.7% in May from a year earlier after falliing 2.9% the previous month, as lockdown restrictions were easedn.
But retail sales were still weak, down 6.7% in the year to May.
So ahead of today's rate decision from the US Federal Reserve, the FTSE 100 is up 49.92 points or 0.69% at 7237.38.
Airlines have shrugged off news that the government has told them to cancel flights to avoid airport chaos this summer, with British Airways owner International Consolidated Airlines Group SA (LSE:IAG) up 1.7% and easyJet PLC (LSE:EZJ) adding 0.87%.
Premier Inn owner Whitbread PLC (LSE:WTB) has jumped 3.35% after a positive trading update.
Richard Hunter, head of markets at interactive investor, said: “Whitbread has turned a corner following the return to normality, with growth now exceeding pre-pandemic levels for the most part.
"Indeed, accommodation sales in the UK are significantly higher than last year but, perhaps more tellingly, are 31% ahead of 2020."
Back with the US Federal Reserve, and not everyone is convinced the US central bank will - or indeed should - raise interest rates by 75 basis points later.
Michael Hewson, chief market analyst at CMC Markets UK, said: "Up until a week ago it was pretty much a slam dunk that the Fed would be raising rates today by another 50bps to 1.5%, to be followed by another 50bps in July.
"This calculus has shifted quite sharply since last Friday’s May CPI report to the markets pricing 75bps because of a single CPI print of 8.6%, over concerns that the Federal Reserve is falling behind the curve when it comes to addressing sticky inflation expectations...
"A responsible Fed would look to wrestle back the narrative and do what it said it would do, which means we need to see 50bps today, with a hawkish pivot at the very least, especially if it wants to be taken seriously when it comes to future guidance.
"It’s also not apparent what a pivot to 75bps would achieve when the Fed could simply deliver a 50bps hike, today and then throw the prospect of 75bps into the hat for July, as well as September. Given that market pricing had been for a possible pause in September that is still a hawkish pivot, and guidance tends to be half the battle when it comes to policy adjustments.
"As such it seems more likely we’ll see a 50bps move today, along with hawkish guidance for 75bps in July, as well as September, but very much dependant on the data."
Meanwhile the European Central Bank is planning an unscheduled meeting to discuss the recent sell-off in government bonds since its last get-together - which was just a few days ago on Thursday.
The spread between yields on German bonds and those of Italy have jumped to the highest level in more than two years.
But news of the meeting has had an effect.
Italian bond yields dive and euro climbs as ECB announces emergency meeting on market conditions https://t.co/8ldg623EFl
— Trade Today (@tradetoday9) June 15, 2022
6.50am: Market expected to make positive start
FTSE 100 was called higher ahead of the open though London is likely to be a sideshow from lunchtime onwards as eyes turn to the US.
An hour before trading, financial spread betters had Footsie up around 25 points from Tuesday's close of 7,272 (down 18) though the predictions were changing quickly.
US markets had another tough day as investors fretted over the Federal Reserve rate decision this evening (UK time).
The S&P 500 has shed 10% in the last five days since US inflation came in higher than forecast and expectations of a much tougher stance from the Fed were pencilled in.
Consensus now is for a 0.75% rise in the Fed Funds rate this evening, but some analysts still see some room for a surprise and possibly an even bigger increase by the FOMC.
Wednesday's agenda: All eyes on the Fed, Whitbread and WH Smith
Jeffry Halley, a senior market analyst at Oanda noted: “The market has priced in at almost 100% an FOMC hike of 75bps [0.75%] this evening.
“My two cents worth is that the Fed will not go 100bps, as that would further erode their credibility on the forward guidance front, which is already ragged.
“They may, however, decide to upgrade their forward guidance to an even more hawkish tilt.”
Asian markets were mixed overnight with Hong Kong the best performer. Currency markets steadied with the dollar giving back some of its recent gains while gold and oil were little changed.
In the UK, airlines might be in for turbulence at the start of trading after being told by the government to cancel flights to avoid more airport chaos over the summer.
“We think it's important that each airline reviews afresh its plans for the remainder of the summer season until the end of September to develop a schedule that is deliverable.” said the Department of Transport and Civil Aviation Authority in a joint letter.
Company news is scheduled today from Whitbread, WH Smith and AO World.