- FTSE 100 ends 60 points lower
- IAG up by over 10%
- US indices in the red
5.10pm: FTSE weighed down by Evergrande, rising energy prices
The FTSE 100 index ended lower on Monday as the fallout from embattled Chinese property giant Evergrande added to concerns about rising energy prices and inflation ahead of the US Federal Open Market Committee meeting on Wednesday. Airline stocks were lifted by a relaxation in US travel restrictions from November.
At the close, the UK blue-chip index was 60 points, or 0.86% lower at 6,904, above the session low of 6,828.
The more UK plc focused FTSE 250 shed 257 points, or 1.09% to 23,402.
“Growth stocks of all kinds have been hard hit today, and those with any kind of connection to China have been at the forefront of the declines,” Chris Beauchamp, chief market analyst at IG said.
“Fortunately there was some good news for airlines, which have seen a sudden and impressive rebound thanks to the US decision to relax the rules arounds vaccinated travellers from the UK.
“IAG has been the big beneficiary, but easyJet has posted a 3.5% rise on hopes that this move will prompt an additional easing of restrictions in due course for other nations.”
On Wall Street by London’s close, the Dow Jones Industrials Average was 673, or 1.9% lower at 33,912, with the broader S&P 500 index down 2.1%. The tech-laden Nasdaq Composite lost 2.6%.
3.45pm: British Airways owner IAG jumps after US relaxes travel restrictions
The FTSE 100 managed to claw back some losses before close, but was still down 59 points to 6,904.
British Airways owner International Consolidated Airlines Group (LSE:IAG) SA jumped by a tenth to 164.62p after the US relaxed restrictions on travel into the country.
Washington dropped the current ban and allow fully vaccinated passengers coming from the UK and other countries including China and Brazil.
US citizens who haven’t been jabbed will face tougher testing requirements.
“IAG is a clear winner from this as its transatlantic business has been all but mothballed since the grounding of its jets due to the US policy,” said Neil Wilson at Markets.com.
“Big pop but only its highest since late August, though the move higher speaks of a more positive outlook. Lots of caveats and reason to be cautious still – getting bums on seats and filling those planes again will take much longer – who’s going to wear a mask for 9 hours? And what vaccines will be acceptable? Will children need to have a vaccine passport, too? A step in the right direction for sure nonetheless.”
2.50pm: Wall Street starts in the red
The Footsie nearly halved its losses when trading started on Wall Street, dropping 69 points to 6,894.
However, US indices still plunged at open as expected, with investors taking flight from risk assets.
The Dow Jones tanked over 507 points at 34,077, the S&P 500 fell over 63 points at 4,3698 and the tech-heavy Nasdaq index dropped over 255 points at 14,789.
“Given the huge uncertainty, investors are unwilling to take any risks and we have seen the impact of that on the markets already so far today,” said Fawad Razaqzada, analyst at Thinmarkets.com
He noted there will be a few major Central Bank statements this week as the “US Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank all decide on monetary policy.
“We will also have a few potential market-moving data, including the latest manufacturing and services PMIs,” he added.
1.45pm: Carbon dioxide shortage hits UK food industry
The FTSE 100 dove further at lunchtime, down 126 points to 7,836.
Britain could face empty shelves at supermarkets and a shortage of turkeys for Christmas after government talks to secure carbon dioxide supplies stalled.
CO2 is used to stun animals before slaughter and by supermarkets in chilled food deliveries, but several suppliers have shut factories down as a result of the rising price of natural gas.
The UK’s largest CO2 supplier, CF Industries, which makes the gas as by-product of its fertiliser production, closed two of its plants in northern England last week due to the rising price of natural gas.
Scotland’s favourite drink Irn Bru is also at threat, with producer AG Barr (LSE:BAG) plc investing in additional storage to cope with the shortage.
12.45pm: Wall Street to open in the red ahead of Fed policy meeting
The Footsie held its losses at noon, plunging 117 points to 6,846.
US benchmarks are seen plunging at the open on Monday as traders eye the Fed policy meet, which starts on Wednesday, to look for clues as to when tapering of stimulus measures will start, as well as manufacturing and services data.
Futures for the Dow Jones Industrial Average are down 537 points, or 1.59%, while the S&P 500 futures are down over 58 points, or 1.33%. Contracts for the Nasdaq exchange are off more than 164 points or 1,07%.
On Friday, US stocks finished lower – the third ‘down week’ in a row – with the DJIA shedding 166 points or 0.48% at 34,584. The Nasdaq dropped 137 points to 15,043. The S&P 500 experienced a smaller decrease though losing 41 points to end at 4,432
“The Federal Open Market Committee could easily justify backing away from its indication in July that it might be appropriate to begin reducing its asset purchases this year,” said Michael Moran, analyst at Daiwa Capital Markets.
“The acceleration in the number of Covid cases has created downside risks for the economy, with the August employment report raising the possibility of an abrupt slowdown. In addition, the August CPI provided support for the Fed view that the recent pickup in inflation will be transitory. One could easily argue for patience in making important decisions.”
11.50am: Prudential disappoints with fundraise plans in choppy Hong Kong market
The Footsie was firmly in the red before lunchtime, down 117 points to 6,846.
Prudential PLC (LSE:PRU) was the second-worst faller among the big caps, sliding 8% to 1,328p.
The market didn’t welcome plans to raise HK$22.5bn (GBP2bn) through a listing of new shares on the Hong Kong stock market.
The insurer is braving a choppy few weeks for shares in Hong Kong by going ahead with its fundraising at this time.
The Hang Seng index fell 3% overnight on concerns that property group Evergrande might be about to collapse with potential knock-on effects across banks in China, while political relations have soured with the West following the clampdown on protests against changes to democracy laws in Hong Kong.
Prudential said the fundraise would give it more flexibility over its finances and has earmarked a big chunk of the new money to redeem existing high-coupon debt.
“Activist investor Third Point, supportive of Prudential’s demerger of its US business Jackson Life, has also pushed for the group to eliminate its London office,” said AJ Bell investment director Russ Mould.
“While Prudential has rebuffed this suggestion for now you could certainly envisage a scenario where its increasing footprint in Africa and Asia, something the newly raised funds are intended to augment, leads to questions about just where it should have its primary share listing. In forging ahead with the Hong Kong fundraising it feels like Prudential has cleared a plane for take-off in the middle of a raging storm given the current volatility in the market.”
10.35am: Vectura barred from pharma conferences after Philip Morris takeover
The FTSE 100 extended its losses in late morning, slumping 112 points to 6,851.
Former FTSE 250 constituent Vectura has been barred from pharmaceutical industry conferences after being acquired by cigarette maker Philip Morris International.
The Drug Delivery to the Lungs conference (DDL) terminated its sponsorship and Vectura’s representative stepped down from the committee.
“In light of the recent acquisition of Vectura by PMI, the DDL committee have sadly decided that they can no longer accept support from Vectura,” a memo seen by The Times said.
“The committee would like to stress that they recognise and greatly appreciate the past support provided, and in particular the great contributions made to the field by the scientists working within Vectura. However, the primary purpose of DDL is to support the science behind pulmonary delivery of drugs to treat respiratory diseases and we do not wish to be associated with PMI and the tobacco industry.”
The GBP1bn takeover was met with controversy as Vectura produces treatment for respiratory diseases, which many health experts deemed incompatible with joining a tobacco producer.
9.30am: UK government mulls emergency loans to struggling energy suppliers
The FTSE 100 continued its descent in mid-morning, dropping 103 points to 6,859.
Business Secretary Kwasi Kwarteng is holding crisis talks with energy companies on Monday to issues potential emergency loans to those facing collapse.
Small suppliers are struggling to meet the prices promised to customers as wholesale gas prices are rocketing to record highs.
Four of these have folded recently and more may follow as the UK grapples with shortages of energy generation.
The Energy Price Cap is in place to protect millions of customers from the sudden increases in global gas prices this winter.
Initiatives such as the Warm Home Discount, Winter Fuel Payments and Cold Weather Payments will help further (4/7)
— Kwasi Kwarteng (@KwasiKwarteng) September 19, 2021
“If a supplier fails, Ofgem will ensure customers’ gas and electricity supply will continue uninterrupted,” Kwarteng tweeted on Sunday night.
“If a Supplier of Last Resort is not possible, a special administrator would be appointed by Ofgem and the Govt. The objective is to continue supply to customers until the company can be rescued or customers moved to new suppliers.”
8.25am: FTSE 100 hit by stagflation, gas and China worries
The FTSE 100 took a further lurch lower amid global worries about stagflation and local gas prices.
The latter could affect millions of households and thousands of companies as well as the wider supply chain.
The corporate solidity seen earlier in the year also looks set to dissipate.
“With the third-quarter reporting season edging ever closer, it seems increasingly unlikely that companies will able to match the strength displayed in the previous quarter,” said Richard Hunter, head of markets at Interactive Investor.
“With economic data in the US still painting a mixed picture, extra focus will be placed this week on a whole host of central bank meetings, with the Federal Reserve topping the bill.
“Although the expectation remains that tapering of its stimulus programme will not begin until November or December, it is likely that the Federal Reserve will need to address its current thinking on the state of the nation by laying a firmer timeline for the scaling back of stimulus to assuage increasingly skittish investors.”
The miners were the hardest hit with less-than-veiled-threats from China to curb their power using “market tools”.
Leading the losers early on was Anglo American (down 5%) followed by Glencore (off 3.8%) and platinum specialist Johnson Matthew, which fell 3.4%. Anglo’s cause wasn’t helped by a Barclays Capital downgrade to ‘equal weight’.
AstraZeneca, up 2.3%, was boosted by some stunning results from its latest breast cancer trial.
Rolls-Royce, meanwhile, bucked the generally bearish trend to open up 2.5% higher as it continued to respond to a potential easing of Britain’s international travel restrictions.
FTSE 100 called lower
The FTSE 100 looks unlikely to clamber back above the 7,000-mark on Monday with the spread betting firms suggesting it will open in the red.
In the absence of Tokyo and Shanghai, which were closed for public holidays, it was left to Hong Kong to set the scene for London’s traders.
The Hang Seng fell 3% in a brutal first session back after the weekend break amid concerns about stagflation – that cocktail of rising prices and sluggish economic growth.
If the signs are starting to emerge in the UK with steepling gas costs and higher shopping bills, so they are also apparent around the world.
Economists and analysts are now asking just when the US Federal Reserve will intervene.
That question has added relevance ahead of a meeting of the rate-setting Federal Open Markets Committee on Wednesday.
Miners in for a bashing?
Expect the miners to be hit early after Chinese premier Li Keqiang said he would use “market tools” to stabilise commodity prices.
“I am assuming that means releasing more commodities onto domestic markets from China’s strategic reserves,” said Jeffrey Halley, analyst at OANDA.
“As a price taker, and not a price maker, there is only so much China can do to impact prices in the medium term.
“But coming on a day where liquidity is lower because of holidays, markets are nervous about a disorderly Evergrande collapse and US yields and the dollar have risen ahead of the FOMC, there is an outsized impact.”
Evergrande, a Chinese property group, looked to be teetering on the brink as its shares fell a further 15% in Hong Kong on Monday.
Last week hundreds of retail investors protested after management said it needed more time to pay the interest and principal on debt bundled as high-yield investment products. Suppliers who haven’t been paid also joined the fun.
Around the markets
- Pound US$1.3710 (-0.23%)
- Bitcoin US$$45,757.24 (-4.55%)
- Gold US$1,749.90 (flat)
- Crude oil US$74.81 (-0.70%)
6.50am: Early Markets – Asia / Australia
Stock markets in mainland China, Japan and South Korea are closed on Monday for holidays.
Hong Kong’s Hang Seng index slumped 3.24% with shares of embattled Chinese developer China Evergrande Group continuing to drop.
The world’s most indebted real estate developer with liabilities of around US$300 billion plummeted 15% as its faces huge cash flow issues and might not be able to service its liabilities.
Australia’s S&P/ASX200 fell 1.94% in the last hour of trading, as iron ore declined another 4.9% to US$101.95 a tonne.