- FTSE 100 slides 25 points
- Shares dip as BoE governor issues hawkish comments on interest rates
Markets are overestimating the Bank of England‘s inflation challenge, according to ING’s James Smith, who covers developed markets.
Markets are probably right to price an earlier 15 basis point (100 basis points equals one percentage point) rate hike in the UK than the US, Smith said, reacting to Bank of England governor Andrew Bailey’s hawkish comments over the weekend about the need for the bank to get cracking on reining in inflation.
“December’s meeting lacks a news conference and monetary policy report – and don’t forget policymakers put great emphasis on being able to explain their decisions to the public. It’s therefore hard to escape the feeling that a November rate rise is a strong possibility now,” Smith suggested.
“That’s certainly the view of investors, who have also taken Bailey’s comments as a vindication that rates will need to rise several times over the next year. Financial markets are now pricing the Bank rate at 1% by September next year,” Smith continued.
Smith believes that investors are probably wrong to think the UK is more vulnerable to a longer-lasting inflation problem than the US.
“In short, the outlook for interest rates for the next year comes back to wage growth, and whether it stays elevated for a sustained period, akin to what’s starting to happen in the US.
The data is unfortunately not much help right now, though the ONS reckons the underlying trend in pay is consistent with pre-virus levels. There are indeed plenty of stories of worker shortages across the UK economy. Hiring is bouncing back rapidly in sectors hit hard by the Covid-19 crisis,” Smith added.
The FTSE 100 was down 25 points (0.4%) at 7,209.
11.15am: Utilities seen as sexy (yes, it is that dull)
It remains all quiet on the western front, with blue-chip equities lower on balance.
The FTSE 100 was down 15 points (0.2%) after disappointing growth numbers for the Chinese economy.
“The problems facing the Chinese economy are familiar ones of supply chain issues and power shortages,” opined Russ Mould.
Talking of power shortages, boring old utility companies are among the few sectors to make headway today.
Beyond the moribund blue-chip part of the market, some minnows are making a splash today.
Benchmark Holdings PLC (AIM:BMK) was 14% firmer after an upbeat trading statement. The aquaculture biotechnology business said results for the year to September just ended will be significantly ahead of market forecasts after all three arms performed ahead of target.
Ethernity Networks Limited, meanwhile, jumped 11% to 38p after landing a US$3mln order from a Chinese company, with the prospect of follow-on orders.
10.00am: Playtech shareholders hit the jackpot
Once again, investors are hitting the refresh screen button to see whether the FTSE 100 value has updated.
Nope, the page hasn’t frozen; it is just the index doing its usual thing of settling into a rut – its down 10 points (0.1%) at 7,224.
Matthew Moulding, the founder of the Hut Group (THG), is dropping his golden share in an overhaul of corporate governance at the online retailer.
The shares were 8.1% at 312.8p; just another 177.2p to go and they will be back at their flotation price.
The consolidation of the gambling sector continues with Playtech PLC (AIM:PTEC) shooting 56% higher to 668p after the board of the supplier of gaming content and technology recommended shareholders accept a 680p per share cash offer from Aristocrat Leisure Limited (ASX:ALL).
8.45am: Miners constrain the size of the Footsie’s fall
Despite mining stocks remaining flavour of the month, the FTSE 100 has got off to a drab start.
London’s index of leading shares was down 11 points (0.2%) at 7,223, with British Airways owner International Consolidated Airlines Group (LSE:IAG) SA, down 2.3% at 178.72p leading the retreat, as traders grow more alarmed at rising Covid-19 infection rates in the UK.
Aerospace engineer Rolls-Royce Holdings PLC (LSE:RR.) is 1.6% lower at 143.3p for much the same reason while hotel groups Whitbread PLC (LSE:WTB) (down 1.6%) and InterContinental Hotels Group PLC (down 1.2%) plus contract caterer Compass Group (LSE:CPG) PLC (down 1.2%) and exhibitions organiser Informa PLC (LSE:INF) (down 1.8%) are also getting the cold shoulder.
“At the beginning of this year, it was widely expected that the Chinese economy would see annual GDP growth of around 6%, a number at the time which was thought to be somewhat on the pessimistic side.,” wrote Michael Hewson of CMC Markets, setting the scene.
“As it turns out this now looks a little too optimistic, given the sharp slowdown we’ve seen in this morning’s Q3 numbers.
“In Q1 the Chinese economy grew by 0.4%, and 18.3% on an annual basis. On an annual basis, this slowed sharply in Q2, to 7.9% although on the quarter we did see a modest improvement to 1.3%. This morning’s latest numbers saw the Chinese economy almost grind to a halt on a quarterly basis, with a rise of 0.2%, below expectations of 0.4%,” he reported.
The September Coffer CGA business tracker reported “a significant bounce in sales in September” for the UK’s hard-pressed restaurants and pubs sector.
Total sales were 8% up on the pre-pandemic levels of September 2019 and were 42% higher than in September 2020, when businesses were operating under strict COVID restrictions.
Bars were again the best performing segment, following the easing of restrictions on the late-night sector in July.
(See earlier comments about rising Covid-19 infections in the UK).
“These figures demonstrate the resilience of managed restaurants, pubs and bars in the face of strong headwinds, and show consumers’ appetite for eating and drinking out remains high. It’s especially pleasing to see revitalised sales for bars after enduring restricted trading for so long; however, difficulties for London and a 10% shortfall in rolling 12-month sales are reminders that we are not yet out of the woods. Many businesses remain under severe pressure from operational issues and debts, and they deserve targeted and sustained government support to sustain their recovery,” said Karl Chessell, a director at CGA.
6.40am: Subdued start expected as inflation fears weigh on sentiment
FTSE 100 is set for a cautious start on concerns over the delta plus variant of coronavirus, the health of the Chinese economy and inflation.
Having ended last week at an eighteen-month high of 7,234, financial spread betters were calling Footsie to open around five points lower when Monday’s trading gets underway.
Inflation will again be firmly in traders’ minds. UK retail price data on Wednesday will likely reflect rising fuel costs and shortages with views on an interest rate hike before the year-end shifting more towards probable than possible, traders suggest.
Bank of England governor Andrew Bailey did nothing to dampen the speculation over the weekend, warning the central bank would have to act to curb the pressures.
The FT meanwhile is reporting that Rishi Sunak is mulling a reduction in VAT to help ease some of the gas price pain for households.
Britain’s surge in coronavirus infections is also causing concern, not least in the US where former FDA Commissioner Scott Gottlieb has called for “urgent research” into the delta plus variation.
The news will concern the flagship airlines after the US finally named November 8 as the date for flights to resume across the Atlantic.
Markets will also be mulling a disappointing set of economic numbers out of China this morning,
GDP grew by 4.9% in the third quarter, the slowest for a year, with output hit by power shortages, supply chain bottlenecks and property worries caused by the Evergrande crisis.
On a quarterly basis, growth eased to 0.2% between July-September from a downwardly revised 1.2% in the second quarter.
On a lighter note, word of the week is likely to be metaverse and if you don’t know what that means it is a virtual-reality space in which users can interact with a computer-generated environment and other users – got it?
If not, chances are you will have by the end of the week as Facebook has announced that having allocated US$50mln to set up its own, it will hire 10,000 people in the European Union over the next five years to help build it.
Sotheby’s meanwhile is hosting an eight-day long sale of digital art comprising 53 lots entitled Natively Digital 1.2: The Collector. It is the auction house’s first digital art ‘metaverse’ auction
Monday 18 October:
Finals: Tristel PLC (AIM:TSTL)
Trading announcements: Schroders (LSE:SDR)
Economic data: US industrial production