- FTSE 100 closes 1.63% down
- Insurers on the slide
- US bank earnings in focus
4.55pm: FTSE closes firmly in red
FTSE 100 closed firmly lower on Thursday as traders flee risk amid disappointing big US bank earnings.
Footsie finished down around 116 points, or 1.63%, at 7,039.
"Traders were in for a rude awakening today, as Jamie Dimon brought home the reality of how earnings season is likely to play out," said Joshua Mahony, senior market analyst, at trading firm IG.
"Despite being well aware of the ongoing risks, markets appeared shocked as the JP Morgan chief laid out the risks posed by inflation, monetary tightening, and Russian influences on food and energy flows.
"Underperformance from both the bottom-and-top line bank earnings does highlight risks that businesses are already suffering as we seemingly head towards a recession," added the analyst.
3.52pm: Footsie almost falls below 7000
Heading into the close, leading shares are firmly in negative territory.
Fears of a recession are growing as central banks aggressively raise interest rates to try and curb inflation, at the same time as a cost of living crisis is denting demand.
The latest rise in the US producer price index to 11.3%, following Wednesday's higher than expected consumer price figures, is merely the latest sign of surging inflation.
At the same time US weekly jobless figures were higher than expected, while the European Commission cut its forecasts for eurozone growth.
And poor results from US banking giants JP Morgan Chase & Co and Morgan Stanley (NYSE:MS) have added to the gloomy mood.
Michael Hewson at CMC Markets said: "JPMorgan Chase and Morgan Stanley (NYSE:MS) posted second quarter numbers that showed up worrying signs of stress starting to build in the US economy, as both missed expectations on revenues and profits.
"US PPI for June also came in hotter than expected rising sharply to 11.3%, but in a repetition of yesterday, core prices slipped back from 8.3% to 8.2%.
"It is now becoming clear that while core prices are cooling, the area which most affects consumers, namely food and energy, is starting to cause real pain, and will increase the pressure for central banks to act more aggressively, lest higher inflation expectations become embedded."
All in all there is little comfort for investors.
So with the Dow Jones Industrial Average down 1.87%, the FTSE 100 has dropped 132.48 points or 1.85% to 7023.89 having earlier almost fallen below 7000, hitting 7007.
Mining shares are among the main fallers on fears of falling demand.
Fresnillo PLC (LSE:FRES) has fallen 5.64%, Anglo American PLC (LSE:AAL) is down 5.4% and Rio Tinto PLC (LSE:RIO) is off 5.14%.
But the biggest faller in the blue chip index is Admiral Group Plc (LSE:ADM), down 18.72% after Sabre Insurance Group PLC (LSE:SBRE) - down 38.18% - rattled the sector after it warned that inflation would have a bigger effect on the underwriting margins of its core motor business than it had previously expected.
On the brighter side, consumer credit group Experian (LSE:EXPN) is up 3.04% after its latest update.
2.58pm: US markets on the slide
US stocks have opened lower after red hot inflation data and disappointing earnings prompted a wave of selling.
Just after the open, the Dow Jones Industrial Average had shed 467 points or 1.6% at 30,306 points.
The S&P 500 had dipped 48 points or 1.4% at 3,754 points while the Nasdaq Composite was down 91 points or 1% at 11,156 points.
JPMorgan Chase & Co (NYSE:JPM) (JPMorgan Chase & Co (NYSE:JPM)) had fallen about 4.3% at the open after the bank released its second quarter report where it slashed its guidance for the year and cancelled its share buybacks because it now forecasts a mild US recession in the second half of the year.
After reporting an earnings and revenue miss, financial services provider Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)) also opened lower, down about 1.5%.
On the economic front, Wednesday's higher than expected CPI number was followed today by forecast-beating producer price figures.
Forex.com market analyst Fawad Razaqzada said that inflation worries along with the fact that Europe was possibly already in a recession had raised worries over an economic slowdown in the US.
“The US could follow suit [into a recession] with all these aggressive rate hikes and surging inflationary pressures weighing on consumer sentiment and spending,” he said.
He noted that the ongoing re-pricing higher in Fed rate expectations was likely to keep the dollar supported and may lead to another break below parity in the coming days, after the euro and US dollar hit parity for the first time in 20 years earlier this week.
“We are very close to reaching a low on the EUR/USD,” he said. “Whether parity breaks again or not, I think the downside risks are limited for the euro going forward.”
In the UK, the FTSE 100 has dropped even further and is currently close to its low for the day, down 118.81 points or 1.66% at 7037.56.
1.45pm: US producer prices soar
More forecast-beating inflation figures from the US.
After Wednesday's jump in the consumer price index to 9.1%, June producer prices are up 11.3% year on year, up from 10.9% and well ahead of the forecast 10.7%.
United States Producer Price Index #PPI MoM 1.1% vs. 0.8% forecast #MarketUpdate #MarketWatch pic.twitter.com/DA1t9X4ZsP
— Jadid Herrera ???? (@jadid) July 14, 2022
Meanwhile weekly jobless claims have climbed unexpectedly.
The number of Americans seeking unemployment benefit for the first time rose from 235,000 the previous week to 244,000. Analysts had been expecting an unchanged figure.
Wall Street is expected to open lower after the figures and the disappointing US bank numbers, while the FTSE 100 has fallen further.
The UK blue chip index is now down 98.52 points or 1.38% at 7057.85.
12.42pm: Morgan Stanley (NYSE:MS) sees earnings drop
Morgan Stanley (NYSE:MS) has also missed expectations after poor results from its investment banking business, which does not bode well for the US reporting season as a whole.
The bank's earnings per share fell from US$1.56 to US$1.89, below expectations and it warned of market volatility.
???????????????? $MS | Morgan Stanley (NYSE:MS) Q2 22 Earnings:
- Revenue: $13.1B (exp $13.33B)
- Adj EPS: $1.44 (exp $1.57)
- Equities Trading Revenue: $2.96B (exp $2.94B)
- More Market Volatile Environment Than Seen For Some Time
— Michael Goodwell (@MichaelGoodwell) July 14, 2022
12.15pm: Wall Street set for lower start on inflation woes and JP Morgan miss
US stocks are expected to open lower as investors brace for the possibility of a 100-basis point interest rate hike in the world’s biggest economy after inflation hit a 41-year high in June, beating forecasts.
Runaway inflation and the Fed’s response to it by raising interest rates aggressively are stoking fears of a recession, keeping investors wary. Trading is expected to remain choppy as the earnings season continues to unfold.
Futures for the Dow Jones Industrial Average were trading 1.35% lower pre-market, while those for the broader S&P 500 index were down 1.27% and futures for the tech-laden Nasdaq-100 shed 0.87%.
Sentiment has not been helped by disappointing second quarter results from JPMorgan Chase & Co (NYSE:JPM) (JPMorgan Chase & Co (NYSE:JPM)) as it kicks off the bank reporting season. Its shares are indicated down 3% ahead of the open after it reported a 28% drop in profits to US8.65bn, gave a cautious outlook and suspended share buybacks.
$JPM | JPMorgan Q2 22 Earnings:
- EPS: $2.76 (exp $2.88)
- Revenue: $31.63B (exp $31.98B)
- Temporarily Suspended Share Buybacks
- Investment Banking Revenue: $1.35B (exp $1.92B)
— LiveSquawk (@LiveSquawk) July 14, 2022
Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)) is set to report shortly, while results from Citigroup and Wells Fargo follow on Friday.
“It is widely anticipated that higher volatility in the market in the past quarter should have helped the banks to post more strong numbers in their trading unit,” said Naeem Aslam, chief market analyst at Avatrade, adding that “fees in the investment banking section may have declined as there wasn't enough action because easy money has left the town.“
12.03pm: Sterling slips against dollar and euro
The pound has weakened against the dollar, which is no surprise given that Wednesday's surging US inflation figures could well mean the Federal Reserve hikes rates more aggressively than previously anticipated.
Sterling is down 0.2137% at US$1.1834 and it is also lower against the single currency, despite the gloom around the eurozone economy from the European Commission.
It is down 0.0799% at €1.1811.
Meanwhile the FTSE 100 remains resolutely in the red, down 59.56 points or 0.83% at 7096.81.
11.00am: Insurers and miners drop back
Leading shares have slipped further into the red.
The FTSE 100 is now down 51.65 points or 0.72% at 7104.72 as economic woes continue.
Insurers are among the leading fallers.
A disappointing trading update from Sabre Insurance Group PLC (LSE:SBRE) has seen its shares slump 32.98%.
The firm warned inflation would have a bigger effect on the underwriting margins of its core motor business than it had previously expected, comments which have helped to send the whole sector lower.
Admiral Group Plc (LSE:ADM) is currently the biggest faller in the blue chip index, off 13.38% while in the FTSE 250 Direct Line Insurance Group PLC (LSE:DLG) is down 8.21%.
Commodity companies are being hit again by fears of a slowdown in demand, with Anglo American PLC (LSE:AAL) losing 2.94%, Rio Tinto PLC (LSE:RIO) down 2.88% and Glencore PLC (LSE:GLEN) 1.98% lower.
Brent crude has dropped 1.9% to US$97.68 a barrel - its lowest level since April - which has helped to push Shell PLC (LSE:SHEL, NYSE:SHEL) down 2.02% and BP PLC (LSE:BP.) 1.41% lower.
But a positive update from consumer credit group Experian (LSE:EXPN) has seen its shares add 2.61%
10.32am: Fewer firms expect to raise prices in August - ONS
Perhaps a hopeful sign for inflation?
Fewer firms said in June they expected to raise prices compared to May, according to the latest business insights survey from the Office for National Statistics.
Some 26% say they will raise prices in August, compared to 31% who said that the previous month.
Half of currently trading businesses reported an increase in the prices of goods or services bought in June 2022, broadly stable with May, said the ONS.
In comparison, the percentage of businesses who reported an increase in the prices of goods or services sold (20%) continued to steadily decrease, down from 24% in March.
Among currently trading businesses, 26% expect to increase the price of goods or services they sell in August 2022.
Energy prices continued to be reported as the main factor for considering doing so, at 37%. pic.twitter.com/SBFcbAwVG3
— Office for National Statistics (ONS) (@ONS) July 14, 2022
Meanwhile the European Commission has confirmed it has cut its eurozone growth forecasts from the 2.7% for this year it predicted in May to 2.6%.
For next year it predicts 1.4% growth, down from the May figure of 2.3%.
9.46am: UK housing market may be cooling - RICS
UK house prices are continuing to rise, but the market may be cooling, according to the Royal Institution of Chartered Surveyors.
In its latest residential survey, the balance of surveyors reporting a price rise and those seeing a fall came in at +65%, down from +72 in May.
It pointed to a lack of stock as well as a recent dip in demand.
RICS chief economist, Simon Rubinsohn, said: “Pricing across much of the housing market remains resilient for now with a shortage of stock continuing to be a feature highlighted by many respondents to the survey. Although buyer enquiries have predictably slipped a little of late, this needs to be placed in the context of the healthy level of demand in previous months."
9.33am: Italian government faces confidence vote
Over in Italy, shares are falling and bond yields are rising ahead of a confidence vote that could lead to the resignation of prime minister Mario Draghi.
The populist 5-Star Movement has said it would vote against a cost of living package, putting the government's survival on the brink.
The FTSE MIB index is down 1.56% while the spread between Italian and German bonds could cause problems for the European Central Bank.
Neil Wilson at Markets.com said: "This is a big headache for the ECB as it looks to deal with fragmentation risks from its gentle tightening. The yield on Italian 10yr BTPs jumped to almost 3.35% from a little above 3.1% earlier.
"The political uncertainty means Italy’s spread with German bunds has moved to a month high. This is exactly what the ECB is seeking to avoid and makes the job of raising interest rates harder."
8.48am: Gambling shares on the rise
Gambling group shares are bucking the downward trend, on talk that the government's white paper on the sector could be delayed until after the Tory leadership contest and possibly watered down under a new prime minister.
Whether that is the case or not, Entain PLC (LSE:ENT) is up 3.65% and Flutter Entertainment PLC (LSE:FLTR) has climbed 1.6%.
But the fall in Barratt Developments PLC (LSE:BDEV) shares - now down 3.25% - has sent other housebuilders lower.
Berkeley Group Holdings PLC (LSE:BKG) is off 1.07% and Taylor Wimpey PLC (LSE:TW.) has lost 0.96%.
Overall the FTSE 100 is now down 23.15 points or 0.32% at 7133.22.
8.19am: Footsie falters again
Leading shares are under pressure again as investors continue to worry about stagflation.
The higher than expected US inflation figure of 9.1% released on Wednesday is just the latest sign of surging prices, prompting talk of a more aggressive rate hiking programme from the Federal Reserve.
A surprise 100 basis point rate rise from the Bank of Canada shortly afterwards could well see the Fed following suit at the end of this month.
Later come updated economic forecasts from the European Commission, and if a Bloomberg report is correct, they do not look pretty.
Eurozone inflation is expected to jump to 7.6% this year, up from the 6.1% predicted in May.
The region's GDP is now forecast to grow by 2.6% this year and 1.4% next, compared to the 2.7% and 2.3% respectively which the Commission expected last time round.
Adding to the downbeat mood, the head of the International Monetary Fund Kristalina Georgieva has said in a blog post that the outlook for the global economy had "darkened significantly" in recent months.
She said the world faced a growing risk of recession in the next twelve months, in the wake of soaring inflation and the commodity price rise shock from Russia's invasion of Ukraine.
With all that, the FTSE 100 is unsurprisingly heading lower, down 20.17 points or 0.28% at 7136.2 in early dealings.
Barratt Developments PLC (LSE:BDEV) has fallen 3.44% despite some positive signs in its latest update.
Richard Hunter, head of markets at interactive investor, said: “Barratt has provided further proof, if it were needed, of the growing chasm between the actual trading performances and the depressed share price performances within the sector...
"Barratt expects to report full-year adjusted pre-tax profit of between £1.05bn and £1.06bn, which is slightly ahead of current market expectations, and with its forward sales in a healthy position, the group hopes to cement its position as the country’s leading housebuilder....
"However, the clouds which overhang the sector have had a fairly severe impact. The end of the stamp duty holiday, the wind down of the Help to Buy programme, supply chain blockages and the cladding issue have all weighed heavily. For Barratt, legacy property costs associated with building safety remediation has resulted in a cost of £412 million, which will be spread over the next three to five years. In addition, recent surveys are giving mixed messages on whether house price growth may be slowing and, inevitably, there are affordability concerns given the escalating cost of living crisis which have added to the industry’s woes."
6.50am: Inflation fears continue to weigh
The FTSE 100 has been tipped to make a slow start on Thursday, with attention continuing to be focused on US inflation and what it means for interest rates.
London's blue-chip index had been expected to make an early rise of around 24 points, but indications on spread-betting platforms pointed towards a potential start in the red, after finishing 53.4 points lower at 7,156.37 yesterday.
After a fairly volatile session overnight, US markets closed lower but well above their earlier lows.
The Nasdaq index finished just 0.15% in the red, while the S&P 500 dropped 0.45% and the Dow Jones lost 0.67%.
This was despite a decline in US 10-year yields and a surge in US 2-year yields, prompting the biggest inversion in this spread since 2000, pointed out market analyst Michael Hewson at CMC Markets.
"With bond markets increasingly pricing economic slowdown equity markets are struggling to make sense of what comes next when it comes to valuations, with the first test coming later today," he said, with JPMorgan Chase and Morgan Stanley (NYSE:MS) quarterly earnings.
"The second puzzle to navigate is how many more rate hikes are coming down the pipe before we see central banks cutting rates again," said Hewson.
Following higher-than-expected consumer prices yesterday, which shifted the odds towards the Federal Reserve hiking rates by 100 basis points when it meets at the end of this month, the US producer price index is due today and is expected to stabilize a touch below the 11% mark.
Naeem Aslam at AvaTrade said: "After the eye-popping US inflation reading, which blew past all expectations, everything is in play for the Fed, and this means even an interest rate hike of 100 basis points."
He added: "Traders have been expecting for a while now that they will get to see a peak in the US inflation data, but it seems like there is still a bit more pain left. Although many do believe that yesterday's US inflation reading may have marked a peak in inflation reading and from here onwards, the path of the least resistance is more likely to be consolidation with a minor tilt to the downside. This means that inflation readings aren't likely to go near the Fed's current target, or at least it will take a lot of pain and time for inflation numbers to come down."
In London there are results today from Barratt Developments, Dr Martens, Experian (LSE:EXPN) and Severn Trent.
6.50am: Early Markets - Asia / Australia
Asian shares were mixed on Thursday as the Monetary Authority of Singapore tightened its monetary policy in an off-cycle move to fight inflation.
The central bank in Philippines also increased interest rates by 75 basis points in a surprise move.
The Shanghai Composite in China fell 0.15% while Hong Kong’s Hang Seng index slipped 0.73%.
Japan's Nikkei 225 was trading 0.62% higher but South Korea’s Kospi was on the back foot, albeit by only 0.09%.
Australia’s S&P/ASX200 advanced 0.4% in afternoon trade after government data revealed better-than-expected unemployment data for June.