- FTSE 100 hits flatline
- UK signs investment deal with Bill Gates
- Asda looks for 15,000 temporary staff
2.25pm: UK signs GBP400mln green tech deal with Bill Gates
The FTSE 100 was flatlining in the early afternoon and was unmoved at 7,203.
News that the UK has partnered with Bill Gates in a GBP400mln deal to invest in technologies tackling climate change is not the sort that moves markets.
The government and the billionaire’s fund Breakthrough Energy Ventures will each contribute GBP200mln or GBP400mln each over the next ten years, depending on who you listened to.
The initiative was announced at the Global Investment Summit on Tuesday morning.
It was not clear how much the exact investment will be as Gates reportedly said it amounts to GBP400mln for each party.
Weirdly the prime minister’s official spokesman just repeated that the investment is just GBP200m each. But Gates repeatedly said at 9.30 in front of business leaders at the government’s Global Investment Summit that it was GBP400m each. When it comes to backing green hydrogen…
— Robert Peston (@Peston) October 19, 2021
1.10pm: Asda seeks 15,000 Christmas staff
The FTSE 100 held its gains at lunchtime, rising 4 points to 7,208 as various companies announce their Christmas hiring plans.
Grocery giant Asda today said it is looking for 15,000 extra staff for the festive period.
Some 500 would be working for depots, 1,500 for home delivery but everyone else would be based in the stores.
The news comes as several large UK companies look for temporary employees while others struggle with labour shortages.
12pm: US stocks called higher
Futures for the Dow Jones Industrial Average futures gained 0.28% in Tuesday pre-market trading, while the broader S&P 500 index rose 0.36% and those for the tech-heavy Nasdaq 100 added 0.26%.
Stocks closed mostly higher on Monday, albeit with a small pullback by the blue-chip Dow, with excitement about Apple’s new product launches boosting tech shares.
At the close, the Dow yesterday had declined by 0.1% to 35,259, while the S&P 500 rose 0.34% to 4,486 and the Nasdaq Composite gained 0.84% to 15,022.
“This will a big week for equity markets as the third-quarter earnings season gets in full swing.”
“It seems like solid corporate earnings have soothed concerns around inflationary pressures, with the improving risk sentiment elevating equity markets,” said Lukman Otunuga, senior research analyst at FXTM.
“This will a big week for equity markets as the third-quarter earnings season gets in full swing. Since corporate results officially kicked off last week, the reports have painted a positive picture with major US banks smashing analyst forecasts. Big names like Netflix, Tesla and Intel among many others will be under the spotlight this week as investors pay close attention to their earnings.”
The key questions on the minds of investors will be what impact higher inflation, supply chain disruptions and labour shortages have on third-quarter numbers, Otunuga added.
“Should we have another solid week of results, this may inject S&P 500 bulls with enough confidence to venture into uncharted territory beyond its all-time high.”
Meanwhile, the FTSE 100 stayed in green territory and added 6 points to 7,210.
11am: Interest rate hike questioned
With lots of talk yesterday about a Bank of England interest rate hike now potentially coming in just a couple of weeks, several people are questioning the logic of this potential change of heart.
The market has dramatically repriced the expected path of UK rates, following BoE governor Andrew Bailey’s comments over the weekend, with an 86% chance of a rate hike now seen at the 4 November meeting of the rate-setting Monetary Policy Committee and four hikes total over the next year, compared to only three just a week ago.
“I think the market might be getting a bit ahead of itself,” says market analyst Marshall Gittler at BDSwiss.
Looking at the nine members of the BoE’s rate-setting monetary policy committee (MPC), he notes that three are ‘doves’ who want to keep rates stable and two are ‘hawks’ who’ve already been agitating for higher rates.
“Looking at the four in the middle, it appears to me that two – Gov. Bailey and the new chief economist, Huw Pill – are likely to shift over into the ‘hawk’ column as well, but two others – Deputy Gov. Jon Cunliffe and Deputy Gov. Ben Broadbent – will probably remain neutral.”
Therefore Gittler expects a 4-5 vote on tightening rates in November, with four in favour and five against.
“There is an increasingly wide divergence between what economists think the Bank of England should do, which is nothing, and what the Bank has increasingly committed itself to do, which is to lift interest rates a bit.”
Rabobank’s BoE watcher Stefan Koopman has noted that there is an increasingly wide divergence between what economists think that the BoE should do, which is nothing, and what the BoE has increasingly committed itself to do, which is to lift interest rates a bit. Many others are also arguing that central banks shouldn’t be hiking rates with economies entering a supply-side inflation crunch.
“That may be so,” says Neil Wilson at Markets.com, but with inflation at 5% or more, he questions whether central banks should really be “trying to grease the wheels” as much as zero interest rate policies and quantitative easing are doing now.
The yield curve has flattened, with near-term UK 2yr gilt yields jumping to a two-and-a-half year high on Monday, but 10yr not keeping pace.
“It shows the BoE’s boss, Andrew Bailey, is believed when he says the bank will act to curb inflation, but it also shows markets don’t think it’s necessarily the best step for achieving growth in the long run. Both markets and central banks have been wrong in the past.”
Economists at Capital Economics note that the BoE is acting as the UK economy experiences a taste of stagflation, which “won’t be anywhere near as severe or as persistent as in the 1970s” but is expected to last several months into 2022.
“For the next six months, the worsening product and labour shortages will put the brakes on the economic recovery at the same time as higher energy prices drive up CPI inflation from 3.2% in August to a peak of around 5.0% in April next year.
“The Bank of England‘s growing fear that some of this rise in inflation is becoming embedded within wage growth and inflation expectations means it is on the cusp of raising interest rates from 0.10% for the first time since the pandemic.”
But Capital Economics forecasts that economic activity will be weaker than the Bank expects over the next six months, with inflation falling back to the 2% target in late 2022 and in 2023, which “suggests that interest rates won’t rise that far that fast”.
The FTSE’s gains have been cut to 4 points, leaving it at 7,208.06.
9.55am: Covid cases weigh on some sectors
With Covid-19 cases in the UK almost reaching 50,000 a day, aerospace and hospitality stocks are understandably out of favour.
Despite this, the FTSE 100 has eked out a 14 point (0.2%) rise to 7,217.
British Airways owner International Consolidated Airlines Group (LSE:IAG), down 2.9% at 170.64p, is the worst blue-chip performer, while aerospace engineer Rolls-Royce Holdings PLC (LSE:RR.) is off 0.9% at 141.32p, as traders wonder whether travel restrictions might have to be ramped up again.
Of all deaths in the UK in week ending 8 October, 820 involved #COVID19, down 15.8% from the previous week.
— Office for National Statistics (ONS) (@ONS) October 19, 2021
The prime minister has yet to categorically deny it, so it is not certain it will happen but with the likes of hotels group InterContinental Hotels Group PLC also on the slide – the shares are down 0.8% at 5,006p – the market is clearly a bit twitchy.
The mid-cap FTSE 250 is a bit more effervescent, up 92 points (0.4%) at 23,061, helped by some upbeat corporate news flow.
“The relatively modest-sized acquisition of cashback firm Quidco could have an outsized impact on Moneysupermarket,” suggested AJ Bell’s investment director, Russ Mould.
“Quidco adds a new string to the bow for the company and Moneysupermarket should be able to use its own considerable skills and expertise to accelerate growth,” he added.
8.35am: Lukewarm start for FTSE 100
The FTSE 100 had a lukewarm start after a mixed performance of US stocks overnight, while investors remain concerned about inflation and expectations central banks will tighten the screw.
London’s main index shed 6 points to 7,197 in early trading.
Looking at the FTSE 250 index, Bellway PLC (LSE:BWY) rose 3% after full-year profits more than doubled, even though the housebuilder set aside a further GBP52mln for removing cladding from high rise developments.
Meanwhile, the GBP6.7bn takeover of defence contractor Meggitt PLC (LSE:MGGT) by Parker-Hannifin Corporation (NYSE:PH) will be investigated by the City watchdog on the grounds of national security after being referred by the UK government.
6.50am: FTSE 100 heading for rebound as focus turns to corporate results season
After pulling back from last week’s post-pandemic high at the start of the week, the FTSE 100 is predicted to resume its ascent on Tuesday.
London’s main equity benchmark has been called four-to-six points higher by spread betters in the City, following the 30-point drop to 7,203.83 the day before.
Overnight, Wall Street had a mixed time, with the Dow Jones dipping 0.1% but the S&P 500 and Nasdaq gaining 0.3% and 0.8% as most of the big tech stocks climbed.
The biggest drag on the Dow was Walt Disney Co, which delayed the release of three Marvel Studios sequels and the next in the Indiana Jones series, while Apple and Facebook were among the tech names driving the gains as they respectively announced news about new laptops and metaverse plans.
“The big question now is whether the markets are back to chopping and changing, or whether we sustain the positive momentum.”
“Not a particularly great start to a new week yesterday for markets in Europe, but having just come off the back of three days of strong gains at the end of last week, we were probably overdue a bit of a pullback,” said market analyst Michael Hewson at CMC Markets.
“The big question now is whether that means we are back to chopping and changing in the same broad range we’ve been in since the beginning of July, or whether we sustain the positive momentum of the last couple of weeks?”
He said that yesterday’s disappointing China GDP numbers were the perfect excuse for a bit of a pullback, while the focus will be on corporate results for the next few days.
“Thus far we’ve seen companies post some fairly decent beats on the earnings front, and while it’s been notable that most have cited concerns about rising costs, as well as supply chain disruptions, we haven’t seen many significant profit downgrades yet,” Hewson said.
“That could change over the course of the next few days, and while the risks from rising energy prices are now starting to make themselves felt, for airlines in particular who having only just been given the all-clear to start flying again, are now facing spiralling fuel costs, probably feel like they are lurching from one crisis to another.”
The company focus in London will be on the likes of BHP Group PLC (LSE:BHP), Bellway PLC (LSE:BWY) and 888 Holdings (LSE:888) PLC, while later in the latest edition of US earnings season will include updates from Netflix, Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG) (read the Day Ahead report for more).
Around the markets
Pound: up 0.3% to US$1.3776
Oil: Brent barrel up 0.3% to US$84.57
Gold: up 0.8% to US$1,777.28
Bitcoin: up 0.2% (over 24 hrs) to US$62,469.97
6.50am: Early Markets – Asia / Australia
Stocks in the Asia-Pacific region were mostly higher on Tuesday as minutes from RBA’s October monetary policy meeting showed the RBA expects the Australian economy to “return to growth in the December quarter and to its pre-Delta path in the second half of 2022”.
China’s Shanghai Composite gained 0.68% while Hong Kong’s Hang Seng index surged 1.22%
In Japan, the Nikkei 225 rose 0.55% and South Korea’s Kospi gained 0.63%.
Australia’s S&P/ASX200 slipped 0.08% to 7,375, dragged down by banks and mining stocks.