- FTSE 100 closes in red
- Abrdn hit by downgrades
- Wetherspoon update disappoints
4.51pm: FTSE closes lower
FTSE 100 closed in the red midweek as surging US inflation spooked traders, strengthening the case for more big Fed interest rate hikes.
The UK's premier share index finished down around 53 points, or 0.74%, at 7,156.
The headline CPI reading showed 9.1%, which was the highest figure since 1981, bolstering the case for more strong Federal Reserve rate hikes.
"If anyone had been harbouring hopes that US inflation had topped out at 8.6% those hopes have been dashed today," said Danni Hewson, financial analyst at AJ Bell.
"A potent mix of soaring prices both at the pump and at food stores has created a situation that no-one can hide from.
"Markets will now have to lock in the expectation that the Fed will deal out another 75 basis point hike later this month as it seeks to push the lid down on the pot that just keeps bubbling over," she added.
"There’s been plenty of volatility as investors consider how fast the economy will slow once the brakes are tapped again."
3.48pm: Inflation fears keep markets on the back foot
Leading shares are still sharply lower as we head into the close, although off their worst levels in the immediate aftermath of the worse than expected US inflation figures.
The FTSE 100 is currently down 78.94 points or 1.09% at 7130.92, having earlier fallen as low as 7104.
The US consumer price index rose to 9.1% and puts more pressure on the Federal Reserve to hike rates aggressively, which sent the dollar higher and Wall Street lower.
The prospect of persistently high inflation and how high rates must go to tame it have been a major concern for investors for some time now, and this latest US data only adds to more fuel to the fire.
Global Inflation Rates... pic.twitter.com/dpeeKuu7KS
— Charlie Bilello (@charliebilello) July 13, 2022
The main fallers were a mixed bunch, with Abrdn PLC (LSE:ABDN) down 4.68% after two broker downgrades.
Mining shares were also weaker on worries about economic growth amid rising inflation, with Antofagasta PLC (LSE:ANTO) fallling 3.72% and Anglo American PLC (LSE:AAL) off 2.89%.
Elsewhere British Airways owner International Consolidated Airlines Group SA (LSE:IAG) has lost 4.04% after the latest restrictions on summer flights.
3.23pm: Bank of Canada lifts rates
With the US Federal Reserve set for further interest rate hikes later this month, Bank of Canada has lifted its own rates by more than expected.
It has raised rates by 100 basis points to 2.5%, saying inflation was higher and more persistent than it expected in April and was likely to remain around 8% in the next few months.
Analysts had been forecasting a 75 basis point increase.
Following the surge in US inflation, analysts believe the Fed may now also plump for a 100 basis point rise rather than 75 when it next meets.
2.49pm: US markets drop, with Delta pulling airlines lower
US stocks opened lower as traders digested June’s CPI data which showed inflation has not yet peaked in America.
Just after the open, the Dow Jones Industrial Average had shed 304 points or 1% at 30,677 points.
The S&P 500 was down 49 points or 1.3% at 3,770 points, while the Nasdaq Composite was down 199 points or 1.8% at 11,066 points.
Forex.com financial market analyst Fiona Cincotta said the latest inflation data had dashed any hopes the US was passing peak inflation.
“More outsized rate hikes are expected, and the Fed is unlikely to take its foot off the hiking gas anytime soon,” Cincotta said. “The data has fueled hawkish Fed bets boosting the US dollar while pulling stocks and gold sharply lower.”
Meanwhile, Delta Airlines Inc was down about 7% just after the open following the release of its second quarter report, where the company posted an earnings miss but achieved a profit with higher prices compensating for increased costs.
Other airline stocks fell alongside Delta, with American Airlines Group (NASDAQ:AAL) (American Airlines Group (NASDAQ:AAL)) Inc down about 6%, JetBlue Airways (NASDAQ:JBLU) (JetBlue Airways (NASDAQ:JBLU)) Corporation slipping 4%, and Southwest Airlines (NYSE:LUV) (Southwest Airlines (NYSE:LUV)) Co and United Airlines Holdings Inc (NASDAQ:UAL) (United Airlines Holdings Inc (NASDAQ:UAL)) dipping about 3% each.
Back in the UK, the FTSE 100 has calmed down a little after its knee-jerk reaction to the US figures.
The UK blue chip index is now down 54.33 points or 0.75% at 7155.53, still worse than before the inflaton data was released.
1.48pm: Dollar jumps after CPI data
The pound's better performance against the dollar in the wake of the UK growth figures has not lasted.
With analysts expecting hefty rate rises from the US Federal Reserve as inflation hit 9.1%, the dollar has regained its attraction to investors.
Sterling is now down 0.30% at US$1.1839 having earlier hit US$1.1947.
1.42pm: US inflation sends markets lower
Wall Street futures have dropped sharply after the higher than forecast inflation figures.
Analysts believe a 100 basis point rise in interest rates, rather than 75, could now be on the cards.
???? #BREAKING: The U.S. unseasonably adjusted #CPI annual rate was 9.1% in June. The previous forecast was 8.80%, and the previous quarter was 8.60%. After the CPI data was released, #Nasdaq futures fell 1.5%, #Dow futures fell 0.6%, and #S&P 500 futures fell about 1%.
— Koba Finance (@KobaFinance) July 13, 2022
The FTSE 100, which was down around 35 points before the US data, has now fallen 99.43 points or 1.38% to 7110.43.
Naeem Aslam, chief market analyst at Avatrade, said: "The inflation reading has blown past all expectations today and there is no doubt now that the Fed will be even more aggressive. Inflation at 9.1% makes you sick as a consumer and as a central banker and that is the summary of today’s reading."
⚠️ Which media outlet is going to leak a 100bps Fed hike. That's where the market sentiment will shift to given the beat in core CPI.... used/new car prices are strong again. Shelter too. Breadth of CPI gains doesn't look like it's easing. Rinse & repeat of last month $USD pic.twitter.com/l8KvVHM8tK
— Viraj Patel (@VPatelFX) July 13, 2022
1.35pm: US CPI hits more than 40 year high
US inflation has grown more strongly than expected, putting more pressure on the US Federal Reserve to hike interest rates aggressively.
The consumer price index increased 9.1% year on year in June, the biggest increase since November 1981.
Analysts had been expecting a rise form the May figure of 8.6%, but only to 8.8%.
The core index slipped from 6% to 5.9%, but this was higher than the forecast 5.8%.
The month on month rise was 1.3%, up from 1% in May. The concensus was for a 1.1% increase.
The increase was broad-based, with the indexes for gasoline, shelter, and food being the largest contributors, said the US Bureau of Labor Statistics.
11.55am: Wall Street set for steady start as investors eye US inflation figures
US stocks are expected to open little changed ahead of the release of June inflation data, with analysts expecting the topline CPI figure to be in the high eight or nine percent range.
The data will be closely watched as it will determine which way the Federal Reserve votes when it meets on 26-27 July, although markets largely expect the Fed to raise the key rate by 75 basis points, its third consecutive interest rate hike.
In addition, the second-quarter reporting season hits full stride on Thursday when JPMorgan Chase & Co (NYSE:JPM) (JPMorgan Chase & Co (NYSE:JPM)) and Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)) are set to report, followed by Citigroup and Wells Fargo on Friday. Trading is expected to remain choppy.
Futures for the Dow Jones Industrial Average were trading 0.2% higher pre-market, while those for the broader S&P 500 index were up 0.2% and futures for the tech-laden Nasdaq-100 added 0.3%.
“All eyes will be on one data point and one data only, and that is the US CPI number,” said Naeem Aslam, chief market analyst at AvaTrade. “It is highly likely that the report will show consumer inflation sped up to 8.8% year-on-year, which will be the fastest clip since 1981 or in nearly 41 years.” Inflation rose 8.6% in May.
The inflation reading is crucial to determine the outcome of the FOMC meeting later this month, Aslam said. He believes the policymakers will stay aggressive, with a strong number only adding to the odds of a 75 basis point hike.
Swissquote Bank senior analyst Ipek Ozkardeskaya said a few factors hint at a softer-than-expected inflation number, pointing to softening food, energy and commodity prices, easing supply chain challenges and shipping costs, and lower purchasing manager indices.
“(These) hint that US inflation may have hit a peak last month, or will hit one soon,” she said, adding that she too believes the single set of data will not be sufficient to alter the Fed’s view, which means that market volatility will remain high.
OANDA Asia Pacific senior analyst Jeffrey Halley noted the Bank of Korea and the Reserve Bank of New Zealand raised their respective key rates by 0.50% on Wednesday, with a hawkish tone to their statements.
“Rather surprisingly, the Korean Won and New Zealand Dollar are both sharply unchanged, suggesting that the news was already priced in.”
Back in the UK, the FTSE 100 is off its worst levels but is still down 55.34 points or 0.77% at 7154.52.
10.52am: Pub shares fall after Wetherspoon update
Pub investors are crying into their beer after a downbeat statement from JD Wetherspoon PLC (LSE:JDW).
The firm, run by the ever opinionated Tim Martin, said an expected post-pandemic pub boom had not materialised and it would now make a higher than expected loss this year.
Martin said: “The 'fear factor', used by governments to encourage compliance with lockdowns and restrictions, has also had lingering after-effects, with many people remaining cautious about leaving their homes.”
AJ Bell's Danni Hewson said: "The biggest surprise was a big slump in sales of draught ales, lagers and ciders, which perhaps suggests that people are watching their wallets and making fewer visits to the pub for a casual drink with family and friends."
That has helped send Wetherspoon shares down 8.33%, while Marston's PLC (LSE:MARS) has lost 3.87% and Mitchells & Butlers PLC (LSE:MAB) is off 3.32%.
10.10am: Sports broadcasting probe hits BT and ITV shares
Shares in BT Group PLC (LSE:BT.A) and ITV PLC (LSE:ITV) are under pressure after news that the two companies, along with Sky and IMG Media, are being investigated by the UK competition authorities over whether they are fixing rates of pay for freelance workers who work on sports broadcasts.
BT is down 1.98% while ITV has slipped 0.825.
AJ Bell financial analyst Danni Hewson said: "ITV has faced a bruising few months as shareholders reacted negatively to its new streaming venture and concerns about a slowdown in advertising. The last thing it needs is the distraction and potential damage of a regulatory probe."
9.32am: Retailers buck the downward trend
Leading shares continue to decline but there are some bright spots.
Retailers in particular seem to have taken heart from the growth in the UK economy, after this week's disappointing shop sales figures from the British Retail Consortium.
Next PLC (LSE:NXT) is up 1.56%, JD Sports Fashion PLC (LSE:JD.) has climbed 1.04% and Primark owner Associated British Foods PLC (LSE:ABF) has added 0.88%.
But Abrdn PLC (LSE:ABDN) is leading the fallers, down 3.7% at 156.3p after a couple of downgrades.
Analysts at Barclays reduced their recommendation from equal weight to underweight and their price target from 210p to 140p.
At the same time HSBC cut its rating from buy to hold and its price target from 255p to 175p.
Overall the FTSE 100 is now down 84.79 points or 1.18% at 7125.07.
The FTSE 250 is also in the red after an early attempt to move higher, down 0.51% at 18,759.65.
8.54am: Oil on the rise again
Oil has recovered some ground after dropping sharply on Tuesday on recession worries.
Brent crude is up 1.11% at US$100.59 while West Texas Intermediate - the US benchmark - is 1.04% better at US$96.77.
Victoria Scholar, head of investment at interactive investor said, “Oil is trading higher, after a volatile session yesterday which saw prices tumble 7%, breaking below US$100 a barrel for the first time since April
"Focus now shifts to lunchtime’s key US inflation data, which will impact the value of the dollar and in turn the price of oil. Concerns about a global economic slowdown, further lockdowns in China and a strong US dollar have all contributed to this week’s bearish sentiment in the oil market while an upside surprise in today’s US inflation data could add to the negativity.”
The increase has done nothing for oil company shares, however, with Shell PLC (LSE:SHEL, NYSE:SHEL) down 0.98% and BP PLC (LSE:BP.) off 0.46%.
8.16am: Footsie falls as sentiment remains fragile
Leading shares are in the red after the pound heads higher in the wake of the better than expected UK growth figures.
Sterling is currently up 0.3406% at US$1.1916 while against the euro it is 0.2462% better at €1.1869. A stronger pound is not a positive for all the overseas earners in the UK blue chip index.
So the FTSE 100 is down 51.6 points or 0.72% at 7158.26 in early trading.
Investors are also cautious ahead of the US inflation figures later.
Richard Hunter, head of markets at interactive investor, said: "Sentiment remains fragile given the current backdrop, and early features included general pressure on financial stocks, while a number of broker downgrades had stock specific impact."
The more domestically focused FTSE 250 is in better shape, up 0.07% at 18,868.41.
7.40am: Growth figures are volatile, warn economists
Some reaction to the better than expected UK growth figures.
Ben Jones, CBI Lead Economist, said: “Economic growth in May was stronger than expected. However, GDP data is volatile at the moment.
“This is in part due to the impact of the Jubilee bank holidays, and this noise will continue to obscure the true state of the economy over the next few months. In reality, CBI surveys and real-time data point to subdued economic momentum.
“The priority of the next Prime Minister must be getting the economy growing again. Tax policy is an important part of this, but we need tax changes that drive investment rather than fuel inflation.
“Yet growth policy is about more than this and concerns the policies of virtually every department. Only a broad plan can be effective.”
⚠️ Maybe everything is actually ok in the UK given this latest GDP report. Wonder whether forward-looking markets will "buy" this? The canary in the coal mine from the GDP report: "Output in consumer-facing services fell by 0.1% in May, driven by a 0.5% fall in retail trade"$GBP pic.twitter.com/199nqrQZbk
— Viraj Patel (@VPatelFX) July 13, 2022
So are the figures too good to be true?
Rory Macqueen, principal economist at NIESR, said: "If April activity was more encouraging than the headline figure suggested – with strong consumer-facing services dragged down by the reduction in vaccinations – the opposite may be true in May.
"Headline growth of 0.5 per cent owed much to rising GP visits, while sectors like hospitality, retail and the arts all contracted, suggesting that rising prices may have eaten into discretionary household consumption. More encouragingly, manufacturing had its joint strongest month since November 2020, and construction recorded a seventh consecutive month of expansion.
"With plenty of room for revisions, it looks like touch and go as to whether or not the UK economy entered recession in the second quarter."
7.17am: UK GDP grows by 0.5%
The FTSE 100 is heading for a bigger fall, as the pound has strengthened on the back of news that the UK economy grew more than expected in the latest monthly figures from the Office for National Statistics.
UK gross domestic product (GDP) for May was up 0.5% on the month before, when the market had predicted just a 0.1% rise.
April's figure was better than first thought. It has now been revised from a 0.3% fall to a 0.2% decline.
For the three months to May, growth was 0.4%, up from 0.3% a month earlier and better than the consensus estimate for no growth.
GDP grew 0.5% in May with services up 0.4%, manufacturing up 1.4% and construction up 1.5% https://t.co/Bj1wiA6D7w pic.twitter.com/Qxng0HMrrA
— Office for National Statistics (ONS) (@ONS) July 13, 2022
“The economy rebounded in May with growth across all main sectors," said the ONS director for economic statistics, Darren Morgan.
“Health was the biggest driver with many more people seeing GPs, despite test and trace and the vaccination programmes winding down. Road hauliers also had a busy month, while travel agencies fared well with pent up demand for summer holidays.
“There was widespread growth across manufacturing after several tough months, while construction also fared well with housebuilding and office refurbishment driving growth.”
Sterling is up 0.3% against the dollar to US$1.1912, and the Footsie is now expected to drop by 35 points.
6.39am: Pencilled in for a fall
FTSE 100 was tipped to retrace yesterday’s modest gains with inflation data and interest rates again the main focus.
Financial spread betting firms had pencilled in a drop of around 20 points for the Footsie an hour before Wednesday trading starts following falls overnight in the US, though a rally on Asian markets towards their close might change the mood.
Monthly consumer price numbers (CPI) from the US come out today and will be the main focus of attention, especially on how they will affect the US Federal Reserve’s interest-rate strategy ahead of its next meeting on 27 July.
US CPI inflation was 8.6% in May, the highest figure since the 8.9% seen in December 1981, and is forecast to climb to 8.8% in June.
Two other central banks reacted to the inflation situation in their countries overnight with the Bank of Korea and Reserve Bank of New Zealand hiking rates by 0.50%, while the Bank of Canada is tipped to raise by 0.75% this evening.
Eurozone inflation numbers are also due led by Germany, where prices in June are forecast to be up by around 7.6%.
Elsewhere, Elon Musk is being sued by Twitter in an attempt to force him to buy the social media giant after he dropped his US$44bn bid at the weekend.
The writ says Musk’s actions have cast “a pall over Twitter and its business”.
The billionaire retorted with another mocking tweet.
Oh the irony lol
— Elon Musk (@elonmusk) July 12, 2022
Company news in the UK today sees updates from pub group JD Wetherspoon, oiler Tullow, bar owner Loungers and recruiter Page Group. (read more).