FTSE 100 slouches as BoE ups inflation forecast, memestocks do their thing

  • FTSE 100 sheds 3 points
  • Bank of England stands pat on rates and QE
  • Wall Street pushes higher after jobless claims

5.00pm: Weak showing as pound rises

The FTSE 100 index closed modestly lower on Thursday as the Bank of England warned of a potential tightening in the face of rising inflation sending the pound higher.

At the close, the UK blue-chip index was 3.43 points, or 0.05% lower at 7,120.43, below the day’s peak of 7,130.35 but above the session low of 7,099.03.

Joshua Mahony, senior market analyst at IG, a global leader in online trading said: “The rise in sterling highlights how we are seeing a shift from the expectations that the Bank of England remain dovish despite rising prices. Instead, the BoE sees inflation peaking at a higher level than previously anticipated, with the MPC seeing CPI peaking out at 4%.

“While the BoE see above-target inflation as largely transitory, there was a strong possibility that some monetary tightening would be required to bring price growth back down towards 2%. With the pound gaining ground off the back of todays BoE meeting, it should come as no surprise to see the FTSE 100 lose traction due to the damaging impact a stronger pound has upon international earnings.”

Meanwhile, on Wall Street, stronger than expected US jobless claims data eased fears around Friday’s US payrolls report and hoisted US stocks higher.

Around London’s close, the Dow Jones Industrials Average was up 199 points, or 0.6% at 34,992, while the broader S&P 500 gained 0.6%, and the tech-laden Nasdaq Composite added 0.4%.

Mahoney commented: “Improved jobless claims data released today provided a more positive outlook in the wake of yesterday’s sharp decline in the ADP payrolls figure. With initial jobless claims back down to 385k, we are now looking at a welcome second consecutive weekly decline in this key leading employment report. However, despite a welcome improvement, we are still looking at highly elevated initial claims compared with the average 2019 figure of around 200k.

“Perhaps more impressive was the slump in continuing claims, with the figure of 2.9 million representing the first decline below three-million claims since the pandemic began. All eyes now turn to tomorrows US jobs report, with traders left questioning how the improved jobless claims and PMI employment surveys tally up with yesterday’s ADP payrolls collapse.”

4.05pm: Biden sets 2030 EV target

With things trundling along in London, there’s a few interesting stories making waves across the Atlantic, including President Biden signing an executive order to force half of all new vehicles sold in 2030 electric or other zero-emissions technology.

General Motors Co, Ford Motor Co and Stellantis NV (NYSE:STLA, EPA:STLA) put out a joint statement saying they aimed “to achieve sales of 40-50% of annual US volumes of electric vehicles” by that point.

GM and Ford shares both rose more than 3%, while shares in Tesla, amid rising competition, were up less than 1%.

Shares in ‘memestock’ favourite AMC Entertainment Holdings (NYSE:AMC) were also rising in New York following reports City of London hedge fund manager Crispin Odey has taken a short position against the firm, sparking the diamond-handed warriors on Reddit in action.

The newest and possibly memey of memestocks, Robinhood Markets Inc (NASDAQ:HOOD), suffered a setback in early trading as it tumbled backwards after rocketing higher earlier in the week.

In London, the LSE is making a tweak to listing rules, looking to attract more unicorns and other mystical corporate beasts, so that entrepreneurs can retain more control when they float their companies on the market.

In the other big story this week in London, entrepreneur Mike Ashley, the not-universally-popular boss of Frasers Group PLC (LSE:FRAS), is actually handing over more control of his empire.

READ: Mike Ashley, a maverick who ruffles feathers and puts noses out of joint

Meanwhile, the Footsie is grinding down its losses for the day, currently down nine points at just under 7115 – and it’s the only European index in the red.

The FTSE 250 is going from strength to strength, up 143 points or 0.6% to 23,491.

Leading the mid caps is Cairn Energy PLC (LSE:CNE), surging 25% as it put out a short statement flagging the introduction to the Indian parliament of the Taxation Laws (Amendment) Bill 2021, which proposes certain amendments to the retrospective taxation measures that were introduced by the Finance Act 2012 .

“We are monitoring the situation and will provide a further update in due course.”

Cairn has been in a tax dispute with the Indian government for several years. Cairn sold most of its stake in its Indian business to Vedanta in 2011, but the outstanding 10% was seized by the government there in 2014 along with dividends owed to the FTSE 250 company via its holding in Vedanta.

2.55pm: Same old story

The FTSE is not going anywhere, quite content to slouch just below the flatline, while its exuberant cousins across the pond all get off to a bright and breezy start.

“Why can’t you be more like your cousins?” bemoan the Footsie’s long-suffering mother followers, with the index down 13 points at 7111.

Older cousin Dow Jones is up 0.4%, while bigger cousin S&P 500 is up 0.3% along with tech-obsessed cousin Nasdaq.

Focusing on the Bank of England, economist Kallum Pickering at Berenberg has read the report and followed the press conference.

There is plenty for markets to digest “to put it mildly”, he says, but overall he still expects the BoE to begin to normalise its policy by the end of the year.

“Today, the BoE also set out its plans for the sequencing of any future tightening cycle – the bank will likely reduce its balance sheet at an earlier stage in any forthcoming tightening cycle than previously signalled.”

After ending asset purchases in December, Pickering continues to expect the first rate hike of 0.15% to come in August next year.

“Today’s meeting suggests the risk to this call are for a rate hike somewhat sooner than we project. If, as we expect, the BoE hikes the bank rate to 0.5% by end 2022 (following a 25bps hike in December), the newly outlined exit strategy opens the door for the start of a passive balance sheet reduction beginning in 2023.”

Here’s a useful thread with more on the BoE press conference:

12.58: Wall Street seen rising

London’s blue-chip share index remains modestly in the red but US stocks look set for a slightly higher open.

While FTSE traders are mulling the fine print of Bank of England‘s latest policy decision, those on Wall Street are looking ahead to trade data and weekly unemployment claims and tomorrow’s key July non-farm payrolls, all of which could provide further clues to the path of economic recovery from the coronavirus (COVID-19) pandemic.

Futures for the Dow Jones Industrial Average were up 0.1%, S&P 500 index futures rose 0.2%, while Nasdaq-100 futures also gained 0.2%.

Major US stock indexes have wobbled in recent days amid concerns that the economic rebound may be slowing and the COVID-19 Delta variant is leading to a surge in cases. ADP data on Wednesday showed that the private sector added half as many jobs in July than forecast.

Despite the volatility, the S&P 500 is still hovering near its all-time high, boosted by strong quarterly earnings from some of the US’s biggest companies.

Electronic Arts Inc, the computer games designer, is expected to jump higher after earnings fell less than forecast. EA hailed new games launches, including ‘Apex Legends’ and ‘Battlefield 2042’.

However, not all the numbers have been good. Uber Technologies Inc (NYSE:UBER) shares dropped in after-hours trading overnight after the company reported a bigger loss than analysts expected and said it had to spend on incentives for drivers amid a shortage.

And online marketplace Etsy (NASDAQ:ETSY) Inc. slumped after its results showed a slowdown in buyer growth.

Back in Blighty, the BoE’s monetary policy committee has “broadly endorsed” the market’s expectations for a 50 basis point increase in interest rates over the next three years, according to Samuel Tombs, chief economist at Pantheon Macroeconomics.

This is because the MPC is now forecasting that CPI inflation “will return to the 2% target in the medium term if it acts as investors’ expect, having peaked at 4.0% in Q4 2021”, he says.

Two years from now inflation is forecast to ease off to 2.07%, only marginally above its long-term 2% target, while the MPC’s three-year ahead forecast of 1.88% – the lowest since late 2012.

“The committee believes that a combination of well-anchored inflation expectations and medium-term fiscal tightening will ensure that CPI inflation falls back to and then slightly below the target, even if monetary policy remains historically very loose,” said Tombs.

Tombs said the minutes of the meeting supported this view, with the committee stating that its central expectation is “that current elevated global and domestic cost pressure will prove transitory”, while also emphasising that it “will not put undue weight on capacity pressures that are frictional in nature and likely to be temporary”.

There was a split in the committee about whether the necessary conditions for future policy tightening have been met, so this guidance has been changed in favour of simply stating that “some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term.”

Tombs said this use of ‘modest’ implies the committee “collectively sees little need to hike sooner or further than markets’ currently expect”.

12.33: BoE mood music changing

Inflation is now expected to rise to 4% in the fourth quarter of this year compared to a previous forecast of 3%, according to the new MPC forecasts.

This suggests the mood music at the Bank of England is changing, albeit slowly, said Ed Monk, Fidelity International‘s associate director for personal investing.

Monk said the new inflation forecasts are “yet to translate into any change in monetary policy”, though he noted the minutes from the August meeting reveal that some members now believe the conditions for some tightening have been met.

“The labour market remains key with recent wage rise and unemployment data turning out stronger than expected. That points to a broad-based rise in demand that may not recede as the economy recovers from the pandemic.

“While the Bank rate is still likely to remain at its current 0.1% this year, expectations of a future rise have come in somewhat and markets may have to process a quicker return to more normal monetary policy.

“The Bank may soon have to balance the need to control inflation with the potential for instability created by imposing higher borrowing costs. Younger generations in particular have never experienced high inflation and rising rates, and will be unused to feeling the effects of a rise in the mortgage payments.”

Bank governor Andrew Bailey will be speaking at the press conference from 1pm BST (hopefully visible on the live BoE video link below).

Markets are mulling the bank’s decision, with the FTSE down 14 points or 0.2% at 7110 as the pound perked up.

Lloyds Banking Group PLC (LSE:LLOY) is one of the biggest blue chip fallers, on the back of a downgrade from Goldman Sachs (NYSE:GS) to ‘sell’ and with its target price snipped to 45p from 50p. Goldman put out a note overnight raising its worries about mortgage pricing.

Mid-cap watchers will be pleased to see the FTSE 250 up 0.3% at 23,426.

12.09: MPC votes unchanged

The Bank of England monetary policy committee (MPC) again voted unanimously to keep interest rates at 0.1%, and was also unchanged in voting 7-1 to make no changes to monthly asset purchases (also known as quantitative easing or QE).

This was as expected, as we outlined below, with slight changes in the voting numbers as the BoE’s chief economist Andy Haldane has left.

“Modest tightening” is likely to be necessary over the coming years, the MPC said in its report.

Sterling has popped higher, up 0.3% to 1.3931 against the US dollar, adding pressure to the FTSE 100, which is now down 19 point to just over 7104.

“Sterling has experienced massive volatility on the back of the BOE’s meeting even though nothing was changed,” says market analyst Naeem Aslam at AvaTrade.

“However, the message isn’t fully digested in the market, and this is bringing significant whipsaw move for the currency. The bank has made it clear that the case of negative interest rate is still on the table but if we look at the sterling’s price action, traders aren’t buying that stance.”

11.42am: Stocks mixed

The FTSE has nervously retreated a few more points, down 13 at 7111 ahead of the Bank of England decision at midday.

Let’s get a few quick previews in. First up is economist Kallum Pickeing at Berenberg says: “Since the previous Bank of England (BoE) Monetary Policy Report in May, UK economic data have remained robust, inflation has surprised to the upside, financial conditions have become easier and the risks from the Delta wave of SARS-CoV-2 infections have faded somewhat. Furthermore, two policymakers (Sir Dave Ramsden and Michael Saunders) have signalled in speeches that they see growing reason for a withdrawal of some stimulus soon.

“Although the most likely outcome remains that the BoE will keep its main policies unchanged at this week’s monetary policy meeting (which would already imply a further reduction in weekly asset purchases), we think there is an outside chance that policymakers could surprise markets by announcing an early end to net asset purchases.”

Fawad Razaqzada, market analyst at ThinkMarkets, says: “The need for emergency stimulus measures is receding but the BoE is unlikely to taper QE at this meeting. Still, the BoE may be unable to prevent the pound from appreciating, especially if there are a couple of dissenters at MPC meeting or if the Bank unexpectedly provides hints about when tapering will begin.

“Indeed, Britain’s respected independent economic research institute, NIESR, expects inflation to climb to 3.9% in early 2022. But like central bankers elsewhere in the developed world, Governor Andrew Bailey and his MPC colleagues are still seen calling for patience on scaling back QE on Thursday.”

Rabobank’s BoE watcher says: “There will be no change to the base rate and this will be a unanimous decision. We also do not expect the MPC to offer any clues regarding the conditions under which a first rate hike would come. This is because the growth and inflation outlook beyond this year is too uncertain.

“Rabo currently do not expect a rate hike in 2021 or 2022. This compares to the market pricing of 20.7bp of rate hikes by September 2022 (i.e. one rate hike of 15bp is fully priced).

“There will be an 8-1 vote in favour of maintaining the year-end target for gilt purchases at GBP 875bn. A change in the current pace of purchases does also not seem to be imminent.”

“We may see some outcomes with regards to the Bank staff work on the appropriate sequencing of monetary policy tightening.”

11.18am: Stocks search for direction

Stocks are searching for direction amid some mixed data out this morning, including fresh news that fewer people have been ‘pinged’ in the past week, signalling either the tailing off the dreaded pingdemic or just widespread uninstalling the app.

Almost 396,000 alerts were sent on the NHS Covid-19 app in England and Wales last week, down 43% on the previous week.

Elsewhere, July’s construction PMI survey came in at 58.7, which is still above the 50 level that indicates an industry in growth but a significant fall from the previous month’s 24-year high of 66.3.

The loss of momentum “looks to be more an issue of supply-side constraints, related to a lack of transport availability, port congestion, and trade frictions, than weaker demand,” said Martin Beck, senior economic advisor to the EY Item Club.

Earlier, car sales were reported to have lost momentum in July, with private new car registrations of 59.8K down on last year and the year before, with a combination of factory shutdowns caused by key component shortages and staff absences brought about by the “pingdemic” were said to be largely behind the weakness.

READ: Car dealers bouncing back fast as Britain’s love affair with the motor car resumes

Private car registrations were 14% below their average level from the four Julys prior to the pandemic, worse than June’s equivalent 9.8% shortfall, noted economists at Pantheon Macroeconomics.

“Google Trends data show that the number of people searching online for one of the top five bestselling cars appears to have edged down in July, ending the month around 15% below its 2016-to-2019 average level,” Pantheon‘s Gabriella Dickens said.

“Further ahead, though, the outlook is brighter. Households’ excess savings have surged over the past 15 months or so, equivalent to around 8% of GDP; some of that money will be spent on a new vehicle in time. And some consumers may be waiting for cheaper electric models to be released by major manufacturers later in the year. As such, we expect car registrations to return to their pre-Covid levels in 2022.”

On the stock exchange, blue chips are undecided what to make of it all, while the upcoming BoE decision creates further indecision.

The FTSE 100 is back in the red, but down two points at just under 7122.

The more domestically focused FTSE 250 is, however, still striding higher, up 79 points or 0.3% to 23,427.

10.08am: Footsie flips into green

London’s blue chips have battled their way into positive territory, while the mid-caps on the FTSE 250 are pushing further into record territory.

The Footsie index is up five points to almost 7129, led by paper and box-maker Mondi PLC (LSE:MNDI) and Rolls-Royce PLC on the back of positive results statements.

A similar break into the green has taken place with the FTSE 250, pushing above the 23,400 mark for the first time.

Estate agent Savills (LSE:SVS) PLC is in top spot after reporting a near doubling in UK residential business and expecting full year results to be “meaningfully” ahead of previous expectations.

Spirent Communications (LSE:SPT) PLC also posted encouraging numbers, with the telecoms tech provider saying further increases in its orderbook was improving “visibility” for the rest of the year and next.

8.48am: FTSE opens lower

The FTSE 100 has started in the red, as predicted, with miners and banks leading the retreat ahead of the Bank of England decision later.

However, London’s blue chip index is down just five points at just over 7118.

Lloyds Banking Group PLC (LSE:LLOY) is the biggest faller, down 2.8%, while NatWest Group PLC (LSE:NWG) is down less than 1%.

“No policy surprises are expected from the BoE today and we expect a message expressing patience for the most part; however, the main focus may well be the publication of the Bank’s policy tightening review, should it be released today,” said Deutsche Bank (NYSE:DB)’s macro strategy team.

DB’s economists predict the Bank’s focus will be on “unwinding its bloated balance sheet more so than on hiking rates”.

But they said the main story from the last 24 hours has been some strong signals from senior Fed officials about the US central bank’s own tapering, which sent Treasury yields ricocheting lower then higher.

Prominent among the big FTSE fallers are the miners, with Anglo American PLC (LSE:AAL) followed closely behind by Rio Tinto PLC (LSE:RIO), BHP Group PLC (LSE:BHP) and Antofagasta plc.

Risers are led by WPP PLC (LSE:WPP) as it hiked its dividend and full-year guidance after a strong second quarter helped it swing back into the black as the advertising industry returns to health.

A popular riser among retail investors will be Rolls-Royce Holdings PLC, up over 1% as it also returned to profit at the half-year and confirmed it is near to a sale of its ITP Aero division.

6.45am: London called lower

The FTSE 100 looks practically flat ahead of Thursday’s open as attentions focus on the Bank of England, with almost everyone questioning when the central bankers will make a move.

In London, CFD firm IG Markets makes the City’s blue-chip benchmark only 3 points lower at 7,107 to 7,110 with just over an hour to go until the open.

Today’s Bank of England meeting will be closely watched, albeit with small expectations, as economists, bankers and investors look down the road at possible timelines – for the curtailment of bond-buying stimulus and ultimately the path to rate rises.

First, though, there’s the not-so-small matter of Covid-19.

“The UK economy is still in the grip of the so called “pingdemic” which in itself is a brake on economy activity, particularly on services, which is something that the Bank of England may be concerned about, however with vaccination rates so high, and the removal of isolation requirements on August 16th, it’s something the central bank won’t have to worry about for much longer,” said Michael Hewson, analyst at CMC Markets.

“While there is little likelihood of a change in policy at the meeting this week, it will still be noteworthy if there is dissent on the pace of the bond buying program, and whether the bank will look at slowing the pace.

“Anything more or less than a 7-1 or 6-2 split on the asset purchase program would therefore be a surprise, with 8-0 on keeping rates unchanged.”

Over the pond, it is a somewhat similar story. Last night Federal Reserve vice chair Richard Clarida put markets on notice as he commented that its stimulus measures could begin tapering down during the current year, though naturally its subject to prevailing economic conditions.

On Wall Street, the Dow Jones was down 323 points or 0.9% to 34,792.

The S&P 500 slipped 0.46% to 4,402 whilst the Nasdaq ended the session in positive territory, up0.13% at 14.780. Elsewhere, the small-cap centred Russell 2000 index was down 1.23% at 2,196.

In Asia, Japan’s Nikkei climbed 112 points or 0.4% to trade at 27,697 whilst Hong Kong’s Hang Seng was marked 0.36% lower at 26,331. The Shanghai Composite meanwhile was only down 0.1% at 3,474.

Around the markets

The pound: US$1.3893, up 0.03%

Gold: US$1,809 per ounce, down 0.14%

Silver: US$25.38 per ounce, up 0.04%

Brent crude: US$70.56 per barrel, down 2.5%

WTI crude: US$68.38 per barrel, down 3.09%

Bitcoin: US$39,363, up 3.3%

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region struggled for gains on Thursday as Australia recorded a trade surplus of ~A10.5 billion in July, according to data released by the country’s Bureau of Statistics.

That was higher than forecasts for a A$10.45 billion trade surplus, according to a Reuters poll.

The Shanghai Composite in China fell 0.05% and Hong Kong’s Hang Seng index dipped 0.38%

In Japan, the Nikkei 225 gained 0.43% while South Korea’s Kospi slipped 0.05%.

Shares in Australia lifted, with the S&P/ASX 200 trading 0.19% higher.


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