FTSE 100 dips despite oil price rise lifting BP and Shell, while Wall Street set for opening fall

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  • FTSE 100 ends 35 points lower
  • BP and Shell lifted as Brent hits US$80
  • Dow Jones Industrial Average falls 535 points around midsession

5:05pm: Down day for Footsie


The FTSE 100 was unable to maintain a positive foothold on the second trading day of the week with global markets continuing to decline as inflation and interest rate concerns eroded investor confidence.


By the close, the UK blue-chip index was 35.30 points or 0.5% lower at 7,028.10. The headwinds were also felt by the FTSE 250 which lost 479 points or 2% to end the day at 23,129.


Chris Beauchamp, chief market analyst at IG noted in a Tuesday statement, that higher energy prices, rising bond-yields and concern over tightening monetary policy have led to “widespread selling across global stock markets.”


“It is the highly-valued growth stocks that have taken the brunt of the selling, as investors fret that a lower growth, tighter policy environment will hurt these previous star performers, but overall, there are few safe havens in stock markets this afternoon,” he added.


The analyst warned that more volatility could be on the horizon as 3Q comes to a close and fund managers move to book profits.


3.50pm: Oil companies give some support to UK market


Wall Street continues to take a bit of a tumble after the latest US confidence figures showed a surprise drop, with the Dow Jones Industrial Average down around 1%.


Meanwhile, US Federal Reserve chair Jerome Powell is telling Congress that “we have all but met the test for taper.”


So with growing signs that central banks will act to try and curb pricing pressures and a subsequent rise in US bond yields, not to mention Brent crude hitting US$80 a barrel amid an energy crisis and the pound at a nine-month low against the dollar, and it is no wonder investors are nervous.


Michael Hewson at CMC Markets UK said: “European markets have slipped back sharply today, with all sectors lower, except for energy, which is being buoyed by the surge in energy prices, as oil prices nudge above $80 a barrel and natural gas prices in Europe hit new record highs. The rise in energy prices isn’t just affecting Europe and the US, with China having to impose power cuts to preserve inventory levels.


“Having been told for months that inflation is transitory it is becoming increasingly apparent that the rise in energy prices, along with associated supply chain problems is acting as a headwind to growth and will likely prompt a sharp slowdown in economic activity, as well as an element of demand destruction.”


Under the circumstances the FTSE 100 is holding up remarkably well.


The UK blue chip index is currently 23.78 points or 0.34% lower at 7039.62.


It is getting some support from the oil companies, which are not surprisingly among the risers given the strong crude prices.


Royal Dutch Shell PLC (LSE:RDSB) has seen its A shares add 2.37% while BP PLC (LSE:BP.) is 1.95% better.


Smiths Group (LSE:SMIN) PLC has climbed 4.07% as it confirmed the sale of its medical business.


But Sage Group is down 4.16% after a downgrade from Goldman Sachs (NYSE:GS), while Rolls-Royce PLC has lost 4.57% after its recent gains.


The mid-cap FTSE 250 is underperforming the leading index, falling 1.98%.


The losers continue to be a mixed bunch and include cyber security group Darktrace PLC (LSE:DARK), down 7.93% and transport business FirstGroup (LSE:FGP) PLC, 5.27% lower.


But Cineworld PLC has climbed 1.85% on hopes that James Bond will ride to the rescue of the beleaguered sector with the much delayed release of No Time To Die this week.


3.12pm: Surprise drop in US confidence


US consumer confidence dropped unexpectedly in September after a sharp fall in August.


Instead of a rise from August’s 113.8 figure to around 115, the consumer confidence index fell to 109.3, the lowest since Februaryi.


Lynn Franco, senior director of economic indicators at the Conference Board, said: “Consumer confidence dropped in September as the spread of the Delta variant continued to dampen optimism


“Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos, and major appliances all retreated again.


“Short-term inflation concerns eased somewhat, but remain elevated. Consumer confidence is still high by historical levels-enough to support further growth in the near-term-but the Index has now fallen 19.6 points from the recent peak of 128.9 reached in June.


“These back-to-back declines suggest consumers have grown more cautious and are likely to curtail spending going forward.”


The news has sent US markets even lower.


The Dow Jones Industrial Average is now down 1.06% or 368 points, the S&P 500 has lost 1.44% and the Nasdaq Composite has fallen 2.06%.


For its part, the FTSE 100 is now down 31.71 points or 0.45% at 7031.69.


2.50pm: Inflation fears hit markets


As predicted, US markets have opened on the back foot.


The Dow Jones Industrial Average is down 84 points or 0.24% at 34,785.37 while the S&P 500 has dropped 0.92% and the Nasdaq Composite has fallen 1.64%.


US bond yields have been rising and have been given a further lift after Federal Reserve chair Jerome Powell issued a prepared statement on Monday ahead of testimony in Congress today.


He made clear the Fed was ready to act to curb price pressures building in the economy. He warned: “Inflation is elevated and will likely remain so in coming months before moderating.”


Back in the UK, the FTSE 100 is down 20.31 points or 0.29% at 7043.09 in the wake of the Wall Street decline.


1.54pm: Pound drops against the dollar to lowest since January


You would think that with the Bank of England governor hinting at interest rate rises the pound would strengthen.


After all, as Michael Hewson at CMC Markets UK said: “His remarks that the MPC was ready to raise rates before Christmas if needed to prevent higher inflation becoming more persistent were a significant departure, and reinforced market expectations that a modest rise in bank rate could come in the first quarter of next year.”


But it seems investors believe the US Federal Reserve is even more bullish on plans to reduce support to try and tame inflation.


So US government bond yields are at a three month high, and it is the dollar which is heading higher.


As a result, sterling is down 1.17% at US$1.3539, its lowest since January.


“It is all about U.S. Treasuries today as yields climb higher in early trading, placing the whole G10 under pressure,” Simon Harvey, senior FX market analyst at Monex Europe told Reuters.


“Amid this backdrop, hawkish commentary from governor Bailey has been a blunt instrument,” Harvey added.


Meanwhile the FTSE 100 is recovering again, down just 9.57 points or 0.14% at 7053.83.


12.07pm: Bond yield rise set to send US market lower


US stocks are expected to start lower on Tuesday after US government bond yields hit their highest level in three months leading investors to switch out of interest-rate sensitive technology stocks.


Futures for the tech-laden Nasdaq-100 dropped 1.6%, while Dow Jones Industrial Average futures shed 0.5%, and those for the broader S&P 500 index fell 0.9%.


Expectations of tighter monetary policy and concerns about inflation pressures have pushed bond yields higher making them more attractive than equities. It has also boosted the US dollar, with the ICE Dollar Index reaching its highest level since November.


Stronger energy prices are also compounding concerns about inflationary pressures, with Brent crude near its highest level since October 2018.


Federal Reserve chairman Jerome Powell and US Treasury Secretary Janet Yellen are set to appear before a Senate panel later on Tuesday to discuss the state of the economic recovery.


Also due are US consumer confidence figures for September, after a sharp fall from 125.10 in July to 113.8 in August.


The latest figures are expected to show a recovery to around 115.


Michael Hewson at CMC Markets said: “The extent of the fall [in August] was a little unexpected; however it became apparent that concern about the rise in the Delta variant, along with rising energy and food prices was starting to make people more cautious, as the summer season started to draw to a close.


“There is also the possibility that the remaining unemployment stimulus top-up measures were also coming up for expiry at the beginning of September, thus removing the remaining fiscal buffers afforded by the US government that had been in place since the start of the year. Expectations are for a modest improvement … however I wouldn’t bank on it given the current uncertain climate.”


Meanwhile, back in the UK, the FTSE 100 is off its worst levels, but still down 23.27 points or 0.33% at 7040.13.


11.42am: Mid-cap index underperforms


Leading shares remain under pressure, with the FTSE 100 down 37.6 points or 0.53% at 7025.80.


But the more domestically focused FTSE 250 is performing even worse, down 1.59% or 376.38 points to 23,232.25, its lowest level since the start of August.


The fallers are a mixed bunch.


Pennon PLC has slid 4.41% despite the water company saying in a trading statement that its results would be in line with management expectations.


It said: “The high current inflationary environment is anticipated to increase certain costs during 2021/22 and whilst finance costs for 2021/22 will increase above 2020/21 levels, Pennon has relatively lower rates of index-linked debt in its debt portfolio.


“However, this impact on the group’s operating and finance costs is expected to be outweighed by the increase in Regulated Capital Value (RCV) driving future years revenues.”


Also lower is FirstGroup (LSE:FGP) PLC, down 4.21%.


Rival Go-Ahead Group PLC has lost 21.32% after the government stripped it of the Southeastern rail franchise.


Cyber security group Darktrace PLC (LSE:DARK) is down 5.79%.


10.38am: Oil company gains fail to help leading shares


Brent crude continues to move higher, and is now up 0.88% at US$80.23 a barrel.


Joshua Mahony, senior market analyst at IG, said: “The ongoing squeeze on energy supply has helped drive fuels sharply higher across the board. While many investors have spent their time diversifying towards green energy and away from fossil fuels, we are instead seeing that lack of production and persistent demand drive up the likes of crude, coal, and gasoline in recent weeks.”


So BP PLC (LSE:BP.) and Royal Dutch Shell PLC (LSE:RDSB) continue to give some support to the market, but not enough to stop leading shares from heading south.


Comments from central bankers this week – including Bank of England governor Andrew Bailey – have raised concerns among investors that interest rate rises might be needed to curb inflationary pressures.


So the negative is outweighing the positive as far as the market is concerned, with the FTSE 100 down 30.29 points or 0.43% at 7033.11.






10.09am: Smiths Group (LSE:SMIN) heads risers


Things seem to have stabilised as far as leading shares are concerned, with the FTSE 100 now down 24.68 points or 0.35% at 7038.72.


Sage Group PLC continues to be the biggest faller, with the software specialist down 4.29% at 709p as Goldman Sachs (NYSE:GS) cut its recommendation from neutral to sell with a 700p target.


Rolls-Royce PLC is suffering some profit taking after its recent gains, and is down 3.38% at 142.5p.


Heading the risers, Smiths Group (LSE:SMIN) PLC has put on 3.23% after it signed a binding agreement to sell its medical division to US group ICU Medical for US$2.7bn gross and confirmed it would return GBP737mln or 55% of the proceeds to shareholders through a share buyback.


It also increased its dividend by 8% after full year operating profits rose 35% to GBP326mln.


Richard Hunter, head of markets at Interactive Investor, said: “Mixed trading in the first part of the year has dragged on a share price which has fallen 13% in the last six months.


“Over the last year, however, the shares have gained 5%, as compared to a jump of 19% for the wider FTSE100, with investors remaining convinced by the wisdom of the sale of the medical devices unit.


“With clear operating momentum and a brisk order book in place, the market consensus of the shares as a strong buy reflects solid optimism on prospects.”


Also edging higher was Fergusson PLC, up 0.9% after a 46% jump in full year profits.


9.19am: Brent crude hits three year high


Petrol is a theme for the day as people continue queuing at forecourts and the exhortation not to panic buy seemingly falls on deaf ears.


Meanwhile Brent crude continues to climb and is now up 0.72% at $80.10 a barrel, a level not seen since 2018. West Texas Intermediate, the US benchmark, is 0.85% higher at $76.09.


Naeem Aslam, chief market analyst at AvaTrade, said: “Fears of an energy crisis in Europe are supporting oil prices….


“The surge in gas prices has made oil a relatively cheaper subsitute for power generation and hence its appeal has increased.”


It is not just Europe which is seeing energy problems: China is suffering power cuts after a fall in coal imports and actions taken to cut emissions.


The jump in oil prices has helped lifte Royal Dutch Shell PLC (LSE:RDSB) by 2.65% (for its A shares) and BP PLC (LSE:BP.) by 1.87%.


This has done little to inspire leading shares, with the FTSE 100 now down 22.67 points or 0.32% at 7040.73.


Inflation fears continue to unsettle investors, with the Bank of England governor hinting on Monday about possible rises and US Federal Reserve chiefs seemingly increasingly prepared to act to curb inflationary pressures.


Michael Hewson, chief market analyst at CMC Markets UK, said: “It certainly feels like central bankers are becoming much more nervous about what is happening with the global economy, particularly when it comes to prices, and while some inflation is welcome, it is becoming increasingly apparent, that even with rising vacancies there are fewer workers available to fill them, potentially creating the perfect conditions for a wage price surge.”


8.40am: Interest rate woes dog FTSE 100


The FTSE 100 made a lacklustre start to proceedings amid niggling worries the UK may have to start raising interest rates sooner rather than later.


In a set-piece speech, Bank of England governor Andrew Bailey warned of the “hard yards ahead” for the economy as it continued the slow recovery from lockdown.


“The switch of demand from goods to services, as Covid has faded in terms of its economic impact, has not taken place to date on the scale expected,” Bailey said.


“Meanwhile, supply bottlenecks and labour shortages have weighed on output, and are continuing.”


As if to underline the point, the oilers Shell and BP, whose petrol forecourts provide a prime example of Bailey’s bottlenecks, were early movers.


There have been accusations of profiteering at the pumps amid shortages of petrol and diesel.


However, Tuesday’s nudge higher in the value of shares in the two super-majors of c1.2% was more reflective of a rise in crude oil prices, than the anticipation of super-profits from filling stations, analysts said.


Indeed, these retail outlets tend to be barely profitable/loss-making to the extent that they used to be treated as marketing expenditure by BP and Shell.


Elsewhere, there was some speculative interest in packaging group DS Smith PLC (LSE:SMDS), which opened 4% higher.


Newcastle-based accounting software specialist Sage Group PLC led the Footsie fallers with a 3.5% decline after Goldman Sachs (NYSE:GS) downgraded the shares to ‘sell’.


Topping the FTSE 250 risers column was Moonpig, up 5.2% after it raised its full-year earnings guidance.


6.50 am: Slow start predicted


The FTSE 100 has been predicted to continue its half-hearted progress on Tuesday after Bank of England governor Andrew Bailey said an interest rate rise is becoming more likely.


London’s blue-chip index is expected to rise around six points, according to spread-betting platforms, having started the previous session at a canter but finished at a walk, gaining 12 points to close at 7,063.4.


Wall Street had a mixed session with gains for the blue chips of the Dow Jones and the small caps of the Russell 2000, but with the Nasdaq and S&P 500 closing down 0.5% and 0.3% lower.


“The weakness in tech shares appeared to be driven by the continued resilience in bond yields, which look to be being driven by higher inflation concerns, with the US 10-year yield nudging above 1.5%, and Brent Crude Oil (LSE:BRENT) prices now above $80 a barrel,” said market analyst Michael Hewson at CMC Markets.


“While some are arguing that the move higher in yields is being driven by economic optimism, that seems hard to square with the reality that consumer confidence is falling back at a time when energy prices are surging, supply chains are buckling, and winter is on the horizon.


“This concern about more persistent inflation also appears to be becoming a much more consistent theme of central bankers’ discourse, with a number of Fed speakers yesterday coming across a little more forcefully when it comes to the start of tapering.”


Adding to some usually dovish US central bankers, Fed John Williams and Lael Brainard, appearing to lean towards some tapering of quantitative easing, Bank of England chief Bailey said yesterday evening that the bank’s monetary policy committee is ready to raise rates before Christmas if needed to prevent higher inflation becoming more persistent.


“Recent evidence appears to have strengthened that case but there remain substantial uncertainties and we are monitoring the situation closely,” he told the Society of Professional Economists.


6.50am: Early Markets – Asia / Australia


Stocks in Asia-Pacific were mixed on Tuesday as various firms slashed China’s GDP forecasts.


Goldman Sachs (NYSE:GS) downgraded its China GDP growth expectations to 7.8% from 8.2% while Nomura cut growth to 7.7% this year, down from a previous forecast of 8.2%.


In Japan, the Nikkei 225 slipped 0.28% while South Korea’s Kospi dropped 1.01%.


China’s Shanghai Composite gained 0.56% and Hong Kong’s Hang Seng index surged 1.63%


Australia’s S&P/ASX200 slumped 1.45% to 7,277 after Singapore iron ore futures fell as much as 7.1% to US$110.60 a tonne in early trading.


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