FTSE 100 looking more likely to hit 7,300 than 7,400

  • FTSE 100 closes 36 points lower
  • Miners a drag as gold price weakens
  • Wall Street continues to post good gains

5.00pm: Friday proves a flop

The FTSE 100 ended lower on Friday, in spite of solid progress on Wall Street, with heavyweight miners taking a tumble as gold prices retreated on inflation concerns.

At the close, the UK blue-chip index was down 36.27 points, or 0.5% at 7,347.91, just above the session low of 7,340.49, and well below the day’s peak of 7,402.68

However, on Wall Street around London’s close, the Dow Jones Industrials Average was up 173 points, or 0.5% at 36,094, with the broader S&P 500 index gaining 0.7%, and the tech-laden Nasdaq Composite adding 0.9%.

Craig Erlam, senior market analyst, UK & EMEA, at OANDA commented: “It’s impossible not to look at everything this week through the lens of inflation, most notably in the US. In many ways, stock markets have performed remarkably against the backdrop of high inflation and higher rates to come. Central banks and low inflation have been a backstop for years, the next year is going to look very different.

“Stocks have been on a strong run thanks to a knockout earnings season but with that winding down, investors will have to look elsewhere for positive catalysts. The economic data may offer some cause for optimism, like last weeks jobs report, but even that comes at a cost. Still, better than stagflation.

Erlam added: “The data on the labour market in the US continues to point to the same issues which will only stoke further inflationary pressures. Plenty of openings, not enough people to fill them. JOLTS job openings fell to 10.44 million last week, above expectations and near its highs. A good problem to have, no doubt, but a problem nonetheless. Higher participation in the coming months may help but another red flag for the Fed in the interim.

“Inflation expectations also ticked higher again last month to 4.9% which is another concern for the Fed, with the current levels not seen since 2008. Whether that will translate through to higher wage pressures and more prolonged inflation isn’t clear. But again, it will make the Fed very uncomfortable.”

4.00pm: Momentum on the downside

The Footsie seems to have given up trying for the day but is still likely to finish up for the week, while Wall Street has opened on the front foot but is still going to finish down for the week.

US stocks started in positive territory, with the Dow Jones adding over 80 points to climb back over 36,007, led by the news that Johnson & Johnson (NYSE:JNJ) is splitting itself in two.

The pharmaceutical conglomerate is reported to be breaking off its consumer health division into a separate publicly-traded company.

Meanwhile, the S&P 500 and Nasdaq are stronger, up 0.2% and 0.3%.

Inflation is the big concern stateside, following this week’s data revealing a 30-year high, and today the University of Michigan’s consumer sentiment gauge showed that households are at their least buoyant since 2011 as the index fell to 66.8 in November from 71.7 a month ago.

Data on US job openings also reached an all-time high, with the number of Americans quitting their jobs climbing to 4.4mln in September, marking a record for the BLS Job Openings and Labor Turnover – aka JOLTS – up from 4.3mln in August.

Here’s Chris Beauchamp at IG to sum up the financial markets situation: “A mixed week seems to be ending on a rather more downbeat note, as the FTSE 100 sheds 40 points and Wall Street ekes out a small gain for the day.

“The Michigan confidence survey provides another reminder that the debate on inflation has a real-world impact, as US consumers become more cautious thanks to rising prices.

“At the same time, job openings remain near record highs as Americans continue to look for pay rises to combat rising prices, providing further upward pressure on inflation.

“The inflation issue has many moving parts, and only some of these elements will actually be addressed by rate increases, a point that has surely not escaped the Fed and other central banks.

“Stocks nonetheless seem relatively calm about the situation, showing little desire to give back much of the recent rally, and looking forward to further gains in the final weeks of the year.”

The FTSE is down 37 points or 0.6%, with British Airways owner IAG (International Consolidated Airlines Group (LSE:IAG)) and engine maker Rolls-Royce (Rolls-Royce Holdings PLC (LSE:RR.)) recently joining the big fallers list.

2.28pm: UK Covid infections remain high but declining

Although still underwater, London’s blue chips are paring their losses, while in the US futures market, the Dow, S&P 500 and Nasdaq indices are trending higher than earlier.

Data for UK weekly Covid-19 infections has been published, showing a 15% decline to 1.08 million, with levels in England falling 16% to the lowest levels since the spring, just over 925,000, while Scotland, Wales and Northern Ireland also improved.

“There has been a welcome decline in infection rates across both England and Wales, though rates across the UK remain high overall,” said the ONS survey chief Sarah Crofts.

There has been a marked decrease in infections among secondary school children in England, possibly helped by the half-term break. “Over the next few weeks we will see if this decline continues.”

The FTSE is down 21 points at 7,363. AstraZeneca remains bottom of the list, accompanied by precious metals miners Fresnillo PLC (LSE:FRES) and Polymetal International PLC (LSE:POLY), and consumer plays Entain PLC (LSE:ENT) and Whitbread PLC (LSE:WTB).

Younger sibling FTSE 250, meanwhile, is up nine points at 23,583.97. It is being led by financial services group JTC PLC, telecoms player Helios Towers PLC (LSE:HTWS) and equipment supplier Oxford Instruments PLC (AIM:OXIG).

1.21pm: Avon calling

Far from making the expected assault on 7,400 and a return to pre-pandemic levels, the Footsie is heading in the opposite direction.

London’s index of heavyweight shares was down 35 points at 7,350, with mining stocks acting as a drag on the index.

Gold has fallen from a five-month high and is off 0.3% (US$6.10) at US$1,857.80 an ounce.

Avon Protection PLC (LSE:AVON), formerly known as Avon Rubber, is one of the day’s major casualties, plunging 46% to 1,036p after announcing delays to receiving approval for products designed by its body armour business.

The company announced a strategic review of the body armour division and issued a profit warning.

Noon: US stocks to open higher

The Footsie has pared some of its losses, now down 22 points to just under 7,359, as traders begin to look across to the Wall Street open, where stocks are expected to edge higher.

But US stocks are still likely to break a five-week winning streak, as sentiment has been hit by concerns about stronger than expected inflation and the Federal Reserve’s likely reaction.

Futures for the Dow Jones Industrial Average, S&P 500 index and Nasdaq are all pointing towards a 0.1% decline for Friday’s open, following a mixed session the day before, with the US bond market today reopening after a break for Veterans Day.

The Dow and S&P 500 have fallen 1.4% so far this week and the Nasdaq Composite 2%, breaking a series of gains that kicked off when US companies began to report strong earnings in mid-October.

Falls in recent sessions came after CPI data showed inflation rose to a three-decade high in October. Worries that inflation will last longer than central bankers had forecast prompted fears the Fed will raise borrowing costs by next summer.

The market is assigning more than a 70% probability to the central bank hiking interest rates by June 2022, according to CME Group, up from just over 50% a week ago.

Investors will have some data to ponder on Friday with the Labor Department publishing its latest JOLT job openings at 3pm London time, following the University of Michigan’s consumer sentiment index released 15 minutes earlier.

Turning back to the UK, economists are expecting the Bank of England to be the first major central bank to raise interest rates, according to a poll by Reuters taken this week.

Threadneedle Street surprised markets when it left rates unchanged last week, heaping expectations on a hike at the December 16 meeting.

Reuters’ poll finds the median forecast is for a 15 basis point increase in December’s meeting, though 21 of the 47 economists polled predict the BoE will continue to hold fire.

Meanwhile, market analysts Joshua Mahony at IG sees today’s activity in European markets as “somewhat uninspiring” start, with indices largely treading water, apart from a new record high for the CAC index in Paris.

“On a morning largely devoid of major economic releases, we have seen a fresh reminder of the underlying inflationary pressure on businesses and consumers after German wholesale selling prices reached 15.2% year-on-year,” he said.

“Recent Chinese and US inflation readings have brought concern from investors, with the dollar gaining ground as a result. The fact that German wholesale prices have reached the highest level since 1974 highlights that European businesses are clearly under the same price pressures experienced in the US and China.

“This morning has seen some of the recent price action reverse, with sharp gains in precious metals and the dollar easing back in early trade. The upside seen for the dollar has brought the likes of EURUSD and GBPUSD into long-term multi-month lows. However, with the weekend approaching we appear to be seeing some profit taking off the back of some big moves.”

10.36am: Want a new job?

The cautious sentiment in London is perhaps reflecting the jobs report earlier, which showed active job adverts from UK firms reached almost 2.7mln last week.

This is a record and comes despite rising costs of living.

Burgeoning numbers of unfilled jobs are showing “no signs of slowing down”, the Recruitment and Employment Confederation (REC) said, with another 221,000 job ads posted during the first week of November – one of the highest since in the past two years.

Market analyst Walid Koudmani at XTB said: “The labour market in the UK continues to struggle with the post-pandemic recovery”.

He said the REC data “highlights the ongoing labour market issues which many businesses are being impacted by and which has forced a number of companies to relocate in order to adapt. While there are several factors which have led to this situation, it remains a key issue in need of resolution as it will undoubtedly impact growth prospects moving forward since it is showing no sign of slowing down.

“Despite the fact that the situation in the UK was exacerbated by Brexit, this issue has not been excluse to the UK, as many other countries also contend with similar circumstances and as governments and central banks attempt to maintain the pace of the economic recovery.”

9.25am: London falling but European markets are up

London’s blue chips are retreating further from the shortlived 20-month highs reached in the first couple of minutes’ trading.

“Mixed start for stocks following a solid performance in the prior session and a mixed one in the US,” summed up market analyst Neil Wilson at Markets.com.

As he noted, while the Footsie is down the rest of the major bourses are trading a little firmer.

“No sign yet of any major drawdown or volatility, but it seems too quiet.”

UK investors are weighing up the conflicting signals from higher inflation and strong company earnings, says Richard Hunter, head of markets at Interactive Investor.

Looking at the third quarter reporting season, Hunter says, “on the whole, [it has been] been a roaring success which has confounded the bears. It appears that the effects of supply chain bottlenecks, rising raw material prices and a tightening labour market have done little to derail the recovery of companies on the ground, although those concerns are likely to persist over the coming months.

“Indeed, inflation remains the major concern after the surprisingly high number earlier in the week, and this in turn has put further pressure on the Federal Reserve to reconsider its stance on the need for interest rate hikes. Currently, two hikes are being priced into markets for next year, with the worst scenario being that the Fed alters its outlook and raises rates faster and further than is currently anticipated.”

8.30am: AstraZeneca top faller after missing profit expectations

The FTSE 100 is on course to end the week on a sour note despite flattering to decieve by starting the day with a spike above the 7,400.

But it quickly beat a bashful retreat with a 22-point slide to 7,361.

AstraZeneca PLC (LSE:AZN) was the top faller, dropping 5.5% to 8,927.5p after its quarterly operating profit of US$2.2bn missed consensus by 14%.

The pharma giant still reiterated guidance for the full year and investors will be happy to see that the COVID-19 vaccine is moving to profitability.

“The higher operational expenditure in the third quarter will raise some concerns, and it means the fourth quarter must deliver, but at least the reiteration of guidance gives some reassurance the core investment thesis of best in class sales growth combined with operating leverage is intact,” analysts at Liberum commented.

6.35am: FTSE 100 to edge close to the 7,400 level

UK stocks are set to modestly extend yeterday’s 20-month highs following an indecisive session on Wall Street overnight as many traders were away for a public holiday.

Spread betting quotes suggest the FTSE 100 will crawl 7 points higher to open at around 7,391.

“As we come to the end of the week it’s been a solid week for European stocks with the FTSE100 getting to within touching distance of the 7,400 level, and its third successive weekly gain,” said CMC analyst Michael Hewson.

In the US, the Dow Jones dived 159 points to close at 35,921 overnight but the S&P 500 put on 3 points at 4,649. US bond markets were closed to honour Veterans Day.

Traders will be keeping an eye out today for news on job openings – JOLTS in the argot – in September.

“In August job openings fell to 10.44mln from 11.1mln; however, the lack of a payroll advance in the September numbers suggests that vacancies may well have increased.

“Expectations are for a fall to just over 10m; however, it wouldn’t be a surprise to see a move in the other direction, higher given the lacklustre employment reports during that month,” Hewson suggested.

Asian markets have been buoyant this morning with Japan’s Nikkei 225 up 340 points at 29,618 and Hong Kong’s Hang Seng 54 points to the good at 25,302.

In London, there are no economic indicators to generate a change in trading sentiment but two housebuilders – Galliford Try Holdings PLC (LSE:GFRD) and Redrow PLC (LSE:RDW) – have their annual general meetings today while drugs giant AstraZeneca PLC (LSE:AZN) issues its third-quarter results.

The company recently raised full-year guidance for sales and core earnings per share.

Around the markets

  • Sterling: US$1.3367, u/c
  • 10-year gilt: 0.925%, down 0,25 basis points
  • Gold: US$1,862.20 an ounce, down US$1.80
  • Oil: US$82.25 a barrel, down 62 cents
  • Bitcoin: US$64,772, down US$265

6.50am: Early Markets – Asia / Australia

Asia-Pacific shares were higher on Friday after JD.com and Alibaba set new sales records across their platforms on Singles Day.

Customer spending on Alibaba rose 8.5% compared to last year, hitting a record high of 540.3 billion yuan (US$84.5 billion).

China’s Shanghai Composite gained 0.20% while Hong Kong’s Hang Seng index rose 0.22%

In Japan, the Nikkei 225 surged 1.13% and South Korea’s Kospi jumped 1.50%.

Australia’s S&P/ASX200 lifted 0.83% to close at 7,443 points, clinching its first gain for the week.



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