FTSE 100 ends lower as inflation fears weigh

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5:05pm: FTSE 100 ends lower, US stocks mixed midday


The FTSE 100 finished the day on a down note, falling 36 points, or 0.5%, to 7,291, as British consumer prices posted a larger-than-expected annual 4.2% jump in October due to climbing consumer energy bills.


“We are getting to a high pay, low unemployment and high price situation. Stagflation is a real concern,” AJ Bell financial analyst Danni Hewson said in statement.


“Consumers are in a lot of pain and beginning to realize that it is not just going away anytime soon, there is not going to be some magic pill, not even an interest rate hike,” Hewson added.


Notable movers included SSE PLC (LSE:SSE), which sank more than 4% after the renewable power generator and network operator reported a 25% drop in renewable power output.


3:58pm: FTSE 100 headed for a lower close


For news of the Footsie’s whereabouts, see any previous update of the last eight hours.


Oh well, if you insist.


The FTSE 100 is down 23 points (0.3%) at 7,304.


Smiths Group (LSE:SMIN) PLC, up 3.4% at 1,514.5p, was doing its bit to keep the FTSE 100 above 7,300.


It held an online capital markets event today in which the company’s senior executives sought to outline how the group will “accelerate growth and deliver better execution through a focused approach”.


2.55pm: US indices on the back foot


US indices have opened in the red, as expected.


The Dow Jones industrial average was down 151 points (0.4%) at 35,991 and the S&P 500 was 14 points lower at 4,686. The tech-heavy Nasdaq Composite slipped 37 points (0.3%) to 15,937.


Macroeconomic data was not conducive to sentiment. US housing starts in October fell to 1.52mln from 1.53mln the month before, below the consensus forecast of 1.58mln.


Building permits rose to 1.65mln from September’s 1.59mln but this was also below the consensus forecast, which was 1.63mln.


“Total starts fell because a rebound in multi-family activity – reversing the September dip – was not quite enough to offset a decline in the single-family sector, to a 14-month low but the permits data are more useful because they lead, and are less volatile than starts. In October, most of the increase in permits was in the wild multi-family sector, up 6.6%, but single-family permits rose too, up 2.7% to a five-month high,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.


“For most of this year permits and starts have run hotter than implied by the new home sales numbers, as homebuilders sought to add inventory, but the numbers have moved suddenly back into line, thanks to the jump in sales. We expect this to lead to another leg higher in construction activity over the next few months,” Shepherdson revealed.


In equities, retailer Target Corp dived 4.9% despite the company beating analysts’ estimates with its third-quarter results and raising its full-year guidance.


Sector peer Lowe’s Cos went the other way, rising 2.5% as it also beat market expectations with its third-quarter numbers. The home improvement retailer surprised the market by posting a like-for-like improvement in sales and like Target, raised its full-year guidance.


In London, the Footsie has battled – probably not the right word – its way back above 7,300 to 7,302 but it remains 25 points (0.3%) in the hole.


Leading the index lower is Spirax-Sarco Engineering (LSE:SPX) PLC after its underwhelming trading update.


Shares in the thermal energy management and niche pumping specialist fell 4.8% to 16,190p after it said disruptions in the supply chain in the third quarter led to material shortages and rising costs.


2.35pm: SSE out of favour after it accelerates renewables programme


Hold the front page! The FTSE 100 has fallen below 7,300.


It is not exactly a plunge, however; the index is down 39 points (0.4%) at 7,298.


Utility company SSE PLC (LSE:SSE) is weighing a tad on the index after its half-year report, which prompted the shares to move 3.9% lower to 1,593.5p.


“The company’s first-half results saw the company double down on its commitment to clean energy as it outlined plans for a multi-billion pound investment funded by the sale of a 25% stake in its network distribution arm.


“This is unlikely to be sufficient to get activist investor Elliott off its back, which having joined the shareholder register earlier this year has been reportedly pushing for SSE to take more radical action and separate the renewables assets from the grid business,” said Russ Mould, the investment director at AJ Bell.


“The rationale for such a move is that it could see SSE lifted to the more elevated market valuations enjoyed by other firms which concentrate purely on renewables.


READ SSE rejects activist break-up call and increases renewable spending by GBP1bn a year


“However, today’s first-half results perhaps offered an indication why SSE is resisting such a move, at least for the time being.


“Renewable output dropped sharply due to unfavourable weather conditions – essentially it just wasn’t windy enough – but the company benefited from higher volumes through its regulated networks division.


“The unpredictability associated with renewables has also affected their role in providing baseload power and perhaps SSE might be tempted to revisit a more dramatic shake-up of the business once the storage technology needed to smooth out the contribution of renewables has developed further,” Mould added.


1.10pm: Drab morning becomes drab afternoon


A drab morning has turned into a drab afternoon for London’s index of leading shares.


The FTSE 100 is down 23 points (0.3%) at 7,304, bobbing above the 7,300 level like a fearful swimmer.


In the absence of much excitement, pundits continue to pick over the bones of this morning’s inflation data.


“Rising energy prices were the biggest contributor to the [4.2% annual increase] increase after the Ofgem’s price cap increase last month. The annual inflation rate for electricity is now close to 19% and 28% for gas. Incredibly input prices (what companies pay for raw materials, parts, labour and over costs) surged by 13% year-on-year in October, up from 11.9% a month earlier, and the highest rate since September 2008. This will increase pressure on the Bank to raise rates at their meeting next month,” suggested Toby Sturgeon, the global head of Fiduciary Investment Services at ZEDRA.


Chris Beauchamp, the chief market analyst at spread betting firm IG, said although traders might be a bit leery of smoke signals from the Bank of England re interest rate increases, “today’s inflation data and recent comments from the governor (apparently we do still listen to hum) have once again raised hopes of a change in UK policy.”


Fawad Razaqzada was less equivocal in his assessment. “Today’s very hot inflation numbers from the UK reaffirms expectations that the Bank of England will hike interest rates in December,” he said.


“Following the publication of the UK inflation data this morning, the pound responded in the way you would expect – rising across the board. The key question is whether it will hold onto those gains. While I am not so sure it would be able to against the US dollar, owing to an improving US economy and where inflation is even hotter than in the UK, sterling is likely to remain supported against her weaker rivals i.e. currencies where the central bank is likely to remain more dovish or less hawkish than the BoE. Among others, these include the euro, yen and franc,” he said.


11.45am: US stocks set for cautious start – except maybe for Tesla


US stocks were expected to make a cautious start again on Wednesday as investors await more corporate earnings and data amid inflation and interest rate uncertainties.


Futures for the blue-chip Dow Jones Industrial Average, the broader S&P 500 index, and the tech-laden Nasdaq-100 were all trading pretty flat on Tuesday’s closes.


A strong earnings season has propelled stocks to fresh highs in recent weeks, offsetting investors’ concerns that higher-than-anticipated inflation would weigh on profits.


Retailers Lowe’s and Target are among the companies set to report earnings ahead of the New York opening bell. Tech firms Cisco Systems and Nvidia are due to release earnings after the market closes.


Among the pre-markets movers, Tesla Inc rose 1% after the electric vehicles maker’s chief executive Elon Musk sold another 934,000 shares Tuesday for roughly $973 million, according to forms filed with the Securities and Exchange Commission, continuing a recent selling spree.


Rival Lucid Group Inc is seen jumping another 10% after surging over 20% yesterday after revealing the growing list of customer reservations for its electric cars.


On the data front, economists are forecasting a slight pick-up in US housing starts for October when figures are released at 8.30am ET.


Meanwhile, Bitcoin’s dollar value fell 2.5%, adding to a recent decline as the cryptocurrency comes off record highs.


In London, the market remains subdued, with the FTSE 100 down 19 points (0.3%) at 7,308


10.40am: Housebuilders little changed despite latest house price data


UK average house prices increased by 11.8% over the year to September 2021, up from 10.2% in August, the Office for National Statistics (ONS) reported.


The unadjusted official house price index rose by 2.5% month-on-month in September while on a seasonally adjusted basis, prices increased by 2.6%.


The average UK house price was at a record high of GBP270,000 in September 2021, which is GBP28,000 higher than this time last year.


London continues to be the region with the lowest annual growth (2.8%) for the tenth consecutive month, the ONS said.


“House price growth picked up further in September, largely because buyers rushed to complete purchases ahead of the return of the Stamp Duty Land Tax threshold to GBP125K at the start of October, from GBP250K. Housing demand, however, also remains strong due to Covid-19, which has prompted people to seek larger homes away from the main cities,” asserted Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.


“The likely upcoming rise in mortgage rates on the back of the recent rise in markets’ expectations for Bank Rate, however, will dampen house price growth. The two-year overnight index swap rate has soared to 0.98%, from 0.27% at the end of August. As a result, the interest rate on a 75% LTV [loan-to-value] ratio, likely will jump to about 1.8% early next year, from 1.3% in October, given that spreads over risk-free rates already are very low by past standards. In addition, higher inflation will weigh on households’ real incomes and confidence over the next 12 months. Accordingly, we expect house prices to broadly stagnate in the first half of 2022, before edging up in the second half of the year,” she revealed.


The ONS’s data does not seem to have had much impact on the housebuilders, most of which are hovering around last night’s levels.


The FTSE 100 was down 24 points at 7,302 and has barely moved since adopting a lower position at the outset.


Experian (LSE:EXPN) PLC, down 2.2% at 3,434p, is lower despite raising guidance for the current year.


The global information services company said it now expects revenue for the financial year to end-March 2022 to show organic growth of 11%-13%, up from its previous forecast of 9%-11%. Total revenue is predicted to rise 15%-17%.


9.50am: Warm reception for Sage’s results


The Footsie has yet to break out of its midweek lethargy, although accountancy software giant Sage Group PLC is providing a bit of oomph.


The stock, up 2.7% at 749p, was the best performing stock on the FTSE 100, which nevertheless was down 22 points (0.3%) at 7,305.


Sage’s full-year results revealed year-on-year revenue growth of 5.4%, up from 5% in the first nine months of the fiscal year.


“The focus from CEO, Steve Hare, is now to grow the business in absolute terms, following significant investment into the group over the last three years. As a result, the firm’s cloud-native ARR [annualised recurring revenue] increased by 44% to GBP347mln, driven by growth from new customers and supported by migrations from cloud-connected and desktop products,” said Edison Group’s Dan Risdale.


The research house thinks Sage’s business “is positioned to continue to support its stakeholders with sustainable growth in profits.”


8.45am: Banks defy the trend as market bets on interest rate increase


London’s leading shares have opened lower on balance as the inflation genie continues to work its way out of the bottle.


The FTSE 100 was down 18 points (0.2%) at 7,309, despite decent demand for banking stocks such as Lloyds Banking Group PLC (LSE:LLOY) and NatWest Group PLC (LSE:NWG), both of which are up 1% and both of which are likely to benefit from an environment in which interest rates are trending higher.


The inflation data may not be a deciding factor in whether the Bank of England‘s policy committee increases interest rates soon but it is unlikely to have made an interest rate hike less probable.


Sterling has nudged up to US$1.3448 against the greenback, up almost one-fifth of a cent, which is not helping the FTSE 100 much as many of its big names earn a lot of their revenues in dollars.


“CPI [consumer price index] inflation accelerated from 3.1% in September to 4.2% in October, the highest rate since December 2011. Three factors were largely responsible for October’s large rise – the over 12% increase in the energy price cap, petrol prices rising by 3% between September and October following a significant increase in oil prices, and the VAT rate for the hospitality sector increasing from 5% to 12.5%,” reported Martin Beck, the senior economic advisor to the EY ITEM Club.


“Although October’s outturn was higher than the Bank of England‘s forecast of 3.9% in November’s Monetary Policy Report, this is unlikely to make much difference to its next policy decision. Whether or not the Monetary Policy Committee moves in December will be determined predominately by whether they’re satisfied that the end of the furlough scheme had a benign impact on the jobs market,” Beck added.


Dan Boardman-Weston, the chief investment officer at BRI Wealth Management, said the 4.2% reading was ahead of market expectations of a figure around 3.9%.


” The level of inflation is going to keep getting worse over the coming months as supply stays stretched, demand stays robust and base effects technically push the rate of inflation higher. This is undoubtedly going to put pressure on the Bank of England to raise rates, which we suspect they will have to do in the next few months given the high levels of inflation and robust labour market. Nothing we see leads us to believe that this inflation is permanent and as we start heading into Spring next year the figures will start falling rapidly. The Bank of England needs to be careful that they’re not too hasty in tightening monetary policy as a policy misstep could do more harm to the economy than this transitory inflation we are witnessing,” Boardman advised.


7.30am: Inflation jumps to its highest level in almost 10 years


Sterling is on the front foot and the FTSE 100 is expected to fall after UK inflation numbers jumped to their highest level in almost 10 years.


The consumer price index rose to 4.2% in October from 3.1% in September, higher than the 3.9% the market was expecting and above the “around 4.0%” level the Bank of England was anticipating when it left interest rates alone earlier this month.


The bulk of the increase in CPI inflation was due to an 11.9% month-on-month rise in utility prices, while food inflation and fuel inflation also rose.


Core inflation, which excludes fuel and food, also rose from 2.9% to 3.4%, which was more than the 3.1% expected.


ONS chief economist Grant Fitzner said: “Inflation rose steeply in October to its highest rate in nearly a decade. This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels.


“Costs of goods produced by factories and the price of raw materials have also risen substantially, and are now at their highest rates for at least 10 years.”


Coming after yesterday’s decent labour market numbers, Paul Dales at Capital Economics said, “this makes an interest rate hike in December even more likely”.


Spread-betting indexes now point to the Footsie dropping around 26 points, while the pound is up 0.2% against the dollar and 0.3% versus the euro to $1.3455 and EUR1.1896.


6.44am: FTSE seen dropping 29 points


The FTSE 100 is seen lower ahead of Wednesday’s open, with attention fixed on the macroeconomic picture and inflation.


CFD firm IG Markets marks the London benchmark down around 29 points making a price of 7,303 to 7,306 with just over an hour to go until the open.


The current round of corporate reporting continues today – with SSE and CMC Markets among the notable names in the diary – but it’s the economic stats that will be the main focus as the day progresses. It’s all about inflation today with UK Producer Price Index, Retail Price Index, Consumer Price Index data due.


It comes as the market is slowly pricing in expectations of a December interest rate rise, according to CMC Markets analyst Michael Hewson.


“We look set for a weaker start on the back of a softer Asia markets session, as a stronger US dollar, and higher yields weighed on wider risk sentiment, as we look towards today’s latest inflation numbers from the UK,” the analyst said in a note.


“If Bank of England governor Andrew Bailey was serious when he said he was looking at UK labour market data for clues as to whether to raise rates, then yesterday’s unemployment data such as it is has given him less wriggle room if he decides not to act with a modest rate increase next month. This of course assumes you can believe anything he and the MPC say on the matter.”


Over the pond, last night, the Dow Jones notched a slight gain rising 54 points or 0.15% to close at 36,142.


The S&P 500 similarly added 0.39% to finish the session at 4,700 whilst the Nasdaq strengthened 0.76% to 15,973. Small-cap focussed Russell 2,000 was up 0.17% as it closed at 2,405.


In Asia, Japan’s Nikkei was down 0.4% at 29,688 and Hong Kong’s Hang Seng was similarly off by 0.44% at 25,599. The Shanghai Composite was slightly higher, up 0.37% at 3,535.


Around the markets


  • The pound: US$1.3436, up 0.04%
  • Gold: US$1,855 per ounce, up 0.25%
  • Silver: US$24.98 per ounce, up 0.58%
  • Brent crude: US$81.66 per barrel, down 0.47%
  • WTI crude:US$79.92 per barrel, down 1.18%
  • Bitcoin: US$59,642, down 10%
  • Ethereum: US$4,173, down 3.26%

6.50am: Early Markets – Asia / Australia


Stocks in the Asia-Pacific region were mostly lower on Wednesday as New Zealand’s largest city Auckland decided to reopen its domestic borders from Dec. 15 for fully vaccinated people and those with negative COVID-19 test results.


In Japan, the Nikkei 225 fell 0.44% and South Korea’s Kospi slumped 1.13%.


China’s Shanghai Composite gained 0.35% while Hong Kong’s Hang Seng index slipped 0.50%


Australia’s S&P/ASX200 dropped 0.68% to 7,369.90 as financial stocks declined, with the Commonwealth Bank of Australia (ASX:CBA) leading losses as its shares slumped 8%.


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