- FTSE 100 closes 228 points lower
- US benchmarks also plunge
- Persimmon the worst heavyweight performer
4.55pm: FTSE closes down over 3%
The FTSE 100 cratered on Thursday to close down over 3% as markets fretted over interest rate rises and the prospects of recession.
The UK index of top shares finished down around 228.43 points, or 3.14%, at 7,044.98.
On Thursday, the Bank of England moved to hike its base rate by 0.25 percentage points to 1.25% to tackle inflation - a 13 year high. It followed the US Fed's move last night to lift rates by 0.75 percentage points.
"We’ve now had five consecutive rate rises as the Bank of England faces unprecedented public pressure to bring inflation under control. It’s notable that policymakers decided against following their US counterparts in imposing a larger increase," said Rachel Winter, partner at investment group Killik & Co, in a note.
"This is clearly a huge balancing act for our central bank. Figures suggest the UK will have the highest inflation in the G7 into 2024, not least because of persistently high energy prices. It presents a serious challenge in taming a wage-price spiral," she added.
"On the other hand, the UK economy is shrinking faster than expected and is at serious risk of going into reverse. This latest decision shows the Monetary Policy Committee is very mindful of applying too much pressure on the brakes."
4.01pm: Footsie falling
Despite falling more than 200 points, the FTSE 100 actually sports nine stocks on the up.
London’s index of heavyweight shares was down 212 points (2.9%) at 7,061.
Ironically, on the day when shares took a tonking, the best performing blue-chip was London Stock Exchange Group PLC (LSE:LSEG), which was up 2.7%.
The worst performer was housebuilder Persimmon PLC (LSE:PSN), which plunged 11% to 1,956.5p.
3.01pm: US stocks plunge
In the US the Dow Jones industrial average has given back all of yesterday’s gains and more.
The Dow was off 706 points (2.3%) at 29,962 while the S&P 500 was down 104 points (2.8%) at 3,686.
Things remain no better in London where the FTSE 100 is down 222 points (3.1%) at 7,051, with Scottish Mortgage Investment Trust PLC (LSE:SMT), down 6.3%, once again getting a kicking as the US’s tech-heavy Nasdaq Composite plunges 3.3%.
1.35pm: Retailers queue up to deliver bad news
The Bank of England interest rate decision proved to be a non-event, leaving investors to concentrate on corporate news, most of which has been alarming, especially for the retail sector.
ASOS PLC (LSE:ASC) is the day’s biggest faller, plunging 29% to 825p after its trading statement. The online retailer cut its full-year profit guidance to reflect the impact of inflation on consumer behaviour, it said in a trading statement today.
Sector peer Boohoo Group PLC (AIM:BOO) was also in the wars as it announced revenue dropped 8% year-on-year in the three months to the end of May as inflation affected costs in "its supply chain and international competitive proposition."
Compared to ASOS it got off relatively lightly – down 13%.
Another online retailer, THG PLC (LSE:THG), was about as popular as a Gareth Southgate team selection, with the company losing one-fifth of its market value as it said it had turned down all takeover offers during the period when it was in play.
READ THG bid deadline ends with all offers deemed unacceptable
https://www.proactiveinvestors.co.uk/companies/news/985039/thg-bid-deadline-ends-with-all-offers-deemed-unacceptable-985039.html
Even old-fashioned high street retailers were getting it in the neck today. Halfords Group PLC (LSE:HFD) issued new profits guidance that was around 15% below the consensus forecast among the analyst community, prompting a 21% markdown.
None of the above are FTSE 100 constituents, which is probably just as well as the index has problems of its own, down 173 points (2.4%) at 7,100.
12.15pm: Bank of England conforms to expectations
The Bank of England has stuck to the script and hiked its key interest rate to 1.25% from 1.0%.
Rachel Winter, a partner at wealth management firm Killik & Co, noted we’ve now had five consecutive rate rises.
“It’s notable that policymakers decided against following their US counterparts in imposing a larger increase,” Winter said.
“This is clearly a huge balancing act for our central bank. Figures suggest the UK will have the highest inflation in the G7 into 2024, not least because of persistently high energy prices. It presents a serious challenge in taming a wage-price spiral. Employees are understandably requesting higher wages to cover the higher cost of living, which in turn will cause firms to raise their prices.
“On the other hand, the UK economy is shrinking faster than expected and is at serious risk of going into reverse. This latest decision shows the Monetary Policy Committee is very mindful of applying too much pressure on the brakes.
“Given the pace of inflation, the rise in rates provides only a modest boost for cash savers. A long-term investment strategy may be more appropriate to help maintain the value of savings as we face a potentially prolonged period of uncertainty,” she said.
Les Cameron of M&G Wealth, whose job title seems to be “financial expert”, said today’s announcement was no surprise and we now wait to see how savings and lending rates will react.
“With the current high levels of inflation we’re experiencing, a modest increase to savings rates would still mean that most cash or near-cash savers, for example National Savings & Investments, would see their wealth being eroded in real terms. Of course, many of those with cash savings are pensioners who spend a higher proportion of their savings on energy costs, which we know are increasing at a much higher rate even than the headline inflation rates. The increasing cost of living will mean those repaying debt, that is not on a fixed rate, will no doubt feel the pinch even more if rates rise.
“With higher inflation and potentially higher borrowing costs, reviewing your finances to make sure you’re prepared for the future has never been more important and, for many, that will involve seeking some form of professional financial advice,” Cameron said.
Yoo all I’m seeking is breaking news of fuel prices going up, and Bank of England raising interest rates every 3 days. £100 is starting to feel like £10. Is this a simulation or what because damn???? #FuelPrices #interestrates pic.twitter.com/EHfOs6udTZ
— Midnight Black???????????? (@DrMac558) June 16, 2022
The FTSE 100 perked up a tad following the announcement, relieved that the Bank of England had not followed the US Federal Reserve’s example and gone for a bigger rise.
Nevertheless, the index was still languishing below 7,100 at 7,096, down 177 points (2.4%) on the day.
11.20am: US markets tipped to open lower
US markets were expected to open lower on Thursday as the initial favourable reaction to the US Federal Reserve’s 75 basis point interest rate hike on Wednesday gives way to persistent concerns over the economy.
The aggressive rate hike had been expected and brought some relief then to equities but wider concerns over the outlook for the economy amid an environment of steep interest rate increases have not been displaced, especially as inflation does not look to have peaked.
Futures for the Dow Jones Industrial Average slumped 1.9% in pre-market trading, while those for the broader S&P 500 lost 2.5%, and contracts for the Nasdaq-100 were 2.9% lower.
“The Fed made it clear yesterday that they are willing to risk recession, but they are not willing to let the inflation reading to run hot hence they increased the interest rate by 75 basis points rather than 50 basis points,” said Naeem Aslam chief market analyst at avatrade.com.
He noted that Fed Chairman Jerome Powell made it clear to traders and investors that future monetary policy is very much data-dependent, adding that market players should expect interest rate hikes of between 50 to 75 basis points through the year.
“Looking at the dot-plot, it becomes evidently clear that the Fed is likely to increase the interest rate by 50 basis points in every single meeting until the rest of the year.”
It remains to be seen if the Fed’s interest rate increases will work to dampen inflation, which in May hit a 41-year high. There are also serious concerns about whether the broader economy can withstand the steep rate increases. Many worry that the world’s biggest economy may slide into recession.
“For instance, if one looks at yesterday's retail sales number, it was nothing short of a disaster and made it clear that consumers are reluctant to spend. Americans are dipping into their savings to handle the rising prices, and this is evident by looking at the recent drop in the personal savings rate, which fell to its lowest level since 2008,” Aslam said.
US retail sales fell 0.3% month-on-month in May, disappointingly lower than the 0.2% increase expected.
Further, Aslam argued that the Fed has a serious reputation problem.
“Firstly, they called inflation a transitory matter, and they allowed it to run hot and failed to scale back on their dovish monetary policy in a timely manner. Now, they are desperate to put a leash on inflation at every cost, and traders are nervous that their desperation to bring inflation lower could lead them to make another policy mistake,” he said.
In energy markets, WTI crude oil futures fell 0.5% to $114.79 a barrel and Brent crude futures lost 0.6% to $117.81.
In London, as the countdown to the Bank of England’s interest rate decision continues, the FTSE 100 was down 176 points (2.4%) at 7,097.
10.00am: Halma shareholders rattled by CEO succession
The FTSE 100 had a torrid opening session but events and publishing group Informa PLC (LSE:INF) defied the trend.
London’s index of leading shares was down 126 points at 7,148 in mid-morning trading but Informa PLC (LSE:INF) was up 2.7% at 526.6p after a trading in which it boasted of robust trading with strong performance across all of its businesses.
In contrast, Halma PLC (LSE:HLMA), the holding company that specialises in life-saving technology, rattled the market with news that Andrew Williams, its chief executive officer, will retire next year.
He will be succeeded by Marc Ronchetti, the group’s chief financial officer.
8.40am: FTSE 100 takes a tumble as traders wait on BoE rate decision
The FTSE 100 has taken an early plunge on Thursday morning, falling over a hundred points as retailers led the retreat.
London's blue-chip index gave up 113 points or 1.55% to 7,160.35.
Clothing retailers JD Sports Fashion PLC (LSE:JD.) and Next PLC (LSE:NXT) led the way, down 6-7%, with retailers Primark owner Associated British Foods PLC (LSE:ABF), Kingfisher PLC (LSE:KGF) and Ocado Group PLC (LSE:OCDO) among the biggest fallers.
This followed a profit warning from ASOS PLC (LSE:ASC) due to the effects of inflation and a wobbly update from Halfords Group PLC (LSE:HFD), with fellow fashion retailer Boohoo Group PLC (AIM:BOO) also revealing lower sales.
Adding to recent inflation worries, there was a warning from grocery body IGD that food price rises in the UK could hit 15% this summer.
8.15am: Falling off the fence
Fence-sitting Footsie traders have been rudely awakened, as the London benchmark tumbled 40 points in early trades to 7232.
London's commodities heavyweights stocks are weighing, with Shell PLC (LSE:SHEL, NYSE:SHEL), BP PLC (LSE:BP.), Rio Tinto PLC (LSE:RIO) and Glencore PLC (LSE:GLEN) all in the red.
This followed a Wall Street rally overnight on the back of the US Fed's interest rate hike of 0.75 percentage point rate, with the pound also recovering against the dollar.
Sterling is down 0.8% this morning, however to $1.2073.
Ahead of the Bank of England policy decision this afternoon, market analyst Jeffrey Halley at Oanda said: "Soaring energy prices, robust labour demand, cost of living increases, and a central bank that raised the white flag on imported inflation some time ago, have torpedoed the British pound.
"The BoE has quietly gone about its business with a series of 0.25% hikes these past months and I don’t expect that to change today. A potential trade conflict with the EU over the unilateral rewriting of the Northern Ireland Protocol is another headwind the BOE doesn’t need, given the already poor growth outlook. It is another reason to not consider a 0.50% rate hike.
"That should mean that the Sterling’s overnight rally versus the US dollar will be temporary."
6.40am: FTSE on the fence
The FTSE 100 has splinters in its backside, stuck on the fence ahead of today’s Bank of England interest rate decision.
It comes after a 75 basis points rate raise by the US Federal Reserve prompted something of a relief rally in New York stocks, and supported stronger prices in Asia.
In the UK, CFD firm IG Markets meanwhile prices the FTSE 100 very slightly lower – down just a couple of points, making a price of 7,272 to 7,275 with just over an hour to go until Thursday’s open.
The midday Bank of England meeting looms on the immediate horizon, whilst European benchmarks found support.
“In the aftermath of last nights Fed decision today’s European open looks set to be a positive one, after Asia markets also got a lift from last night’s events,” said Michael Hewson, analyst at CMC Markets.
He added: “US markets also saw a strong session despite the Fed raising rates by 75bps, while retaining optionality on raising rates in July by either 50bps or 75bps. This refusal to confirm a 75bps move for July appears to have taken some of the steam out of yields and given stocks a boost.
“The dot plot projections which FOMC members use to project interest rate expectations would appear to suggest rates coming back down again towards the end of 2023. The move rather counterintuitively prompted a rally in bond prices and a slide in yields, as a well as a sell-off in the US dollar.”
The Dow Jones added 303 points, around 1%, to close Wednesday at 30,668 whilst the S&P 500 gained 1.46% to 3,789.
Rising 270 points or 2.5%, the Nasdaq had an even stronger finish reaching 11,099.
The Russell 2000 small-cap focussed index meanwhile climbed 1.36% to 1,731.
In Asia, Japan’s Nikkei added 151 points or 0.57% to trade at 26,476 whilst Hong Kong’s Hang Seng was more volatile, losing 1.12% to 21,069 and similarly, the Shanghai Composite was on the back foot, albeit by only 0.21%.
Around the markets
The pound: US$1.2144, down 0.21%
Gold: US$1,831 per ounce, down 0.14%
Silver: US$21.66 per ounce, down 0.26%
Brent crude: US$119 per barrel, down 2.1%
WTI crude: US$115.87 per barrel, down 3%
Bitcoin: US$22,134, up 4.56%
Ethereum: US$1,199, up 6.72%