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London open: FTSE falls as inflation surges to highest since 1992
London stocks fell in early trade on Wednesday as data showed that UK inflation jumped to its highest level in nearly three decades in December, making a February rate hike increasingly likely.
At 0830 GMT, the FTSE 100 was down 0.3% at 7,544.48, while sterling was flat against the dollar at 1.3596.
Figures released earlier by the Office for National Statistics showed that consumer price inflation rose to 5.4% from 5.1% in November, coming in above consensus expectations of 5.2% and well above the Bank of England’s 2% target. The last time inflation was higher was in March 1992, when it was 7.1%.
Core CPI inflation – which strips out volatile elements such as food and fuel – increased to 4.2% in December from 4.0% the month before, coming in above consensus expectations of 3.9%.
Meanwhile, the retail price index rose to 7.5% from 7.1% in November – its highest level since 1991. Analysts had been expecting 7.1%.
Grant Fitzner, chief economist at the ONS, said: “Food prices again grew strongly while increases in furniture and clothing also pushed up annual inflation.
“These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year.
“The closures in the economy last year have impacted some items but, overall, this effect on the headline rate of inflation is negligible.”
The BoE’s next policy meeting is on 3 February. At the last meeting in December, the Bank raised rates for the first time since the onset of the Covid pandemic, by 15 basis points.
Capital Economics said: “It’s no secret that inflation is going to rise even further. The increases in producer prices already seen have yet to fully filter through into consumer prices. And the surge in wholesale gas and electricity prices could result in an increase in utility prices on 1st April in the region of 50%. Those effects would be enough to push up CPI inflation to 7.0% in April. That would be higher than the peak of 6% that the Bank of England was forecasting when it raised rates in December.
“And although inflation will fall back thereafter, we think it will stay above 4% for all of this year and won’t drop to the 2% target until April 2023. That’s why we think the MPC will raise interest rates faster than most expect this year, from 0.25% to 1.25%, with the next hike to 0.50% coming on 3rd February.”
In equity markers, fashion retailer Burberry rallied after it reported a 5% rise in third-quarter revenues driven by an acceleration in full price sales. The company said revenue for the 13 weeks to December 25 came in at £723m compared with £688m.
Educational publisher Pearson also gained as it raised annual profits guidance, driven by its assessment and qualification business.
Housebuilder Crest Nicholson and WH Smith were higher after well-received trading updates, while pub chain JD Wetherspoon ticked up despite warning it would swing to an interim loss.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Pearson Plc | +5.15% | +32.60 | 665.00 |
| 2 |  |
Burberry Group Plc | +4.67% | +82.00 | 1,837.50 |
| 3 |  |
Marks And Spencer Group Plc | +2.79% | +6.20 | 228.30 |
| 4 |  |
Segro Plc | +2.24% | +29.00 | 1,323.50 |
| 5 |  |
Kingfisher Plc | +2.19% | +7.30 | 341.30 |
| 6 |  |
Flutter Entertainment Plc | +1.70% | +185.00 | 11,055.00 |
| 7 |  |
Johnson Matthey Plc | +1.65% | +32.00 | 1,970.50 |
| 8 |  |
Next Plc | +1.49% | +112.00 | 7,632.00 |
| 9 |  |
Informa Plc | +1.48% | +8.40 | 576.00 |
| 10 |  |
Bt Group Plc | +1.47% | +2.75 | 189.35 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ashtead Group Plc | -4.22% | -230.00 | 5,224.00 |
| 2 |  |
Antofagasta Plc | -2.22% | -32.00 | 1,407.00 |
| 3 |  |
Scottish Mortgage Investment Trust Plc | -2.10% | -23.50 | 1,095.00 |
| 4 |  |
Ferguson Plc | -1.86% | -225.00 | 11,900.00 |
| 5 |  |
Halma Plc | -1.81% | -47.00 | 2,546.00 |
| 6 |  |
Legal & General Group Plc | -1.68% | -5.10 | 297.60 |
| 7 |  |
Spirax-sarco Engineering Plc | -1.52% | -200.00 | 12,985.00 |
| 8 |  |
Rolls-royce Holdings Plc | -1.34% | -1.68 | 123.98 |
| 9 |  |
Diageo Plc | -1.31% | -48.50 | 3,654.50 |
| 10 |  |
Croda International Plc | -1.26% | -104.00 | 8,164.00 |
Europe open: Shares lower as rate hike worries heighten
European shares were slightly lower at the open on Wednesday as higher US Treasury yields weighed on investors.
The pan-European Stoxx 600 index was 0.06% lower after sharper falls in the previous session Tuesday. US 10-year and five-year Treasury yields held near two-year highs overnight, while global tech stocks were sold off again as inflationary pressures hit sentiment.
The benchmark German 10-year bond yield also rose above 0% for the first time since May 2019.
In the UK, the FTSE 100 was down 0.3% on rate hike fears after figures from the Office for National Statistics showed that consumer price inflation rose to 5.4% from 5.1% in November, coming in above consensus expectations of 5.2% and well above the Bank of England’s 2% target.
Core CPI inflation – which strips out volatile elements such as food and fuel – increased to 4.2% in December from 4.0% the month before, coming in above consensus expectations of 3.9%.
Meanwhile, the retail price index rose to 7.5% from 7.1% in November – its highest level since 1991. Analysts had been expecting 7.1%.
The BoE’s next policy meeting is on 3 February. At the last meeting in December, the Bank raised rates for the first time since the onset of the Covid pandemic, by 15 basis points.
In equity news, luxury stocks were in demand after Cartier owner Richemont said strong demand for its jewellery and watches in the Americas and Europe helped quarterly sales rise by nearly a third.
UK fashion retailer Burberry rallied after it reported a 5% rise in third-quarter revenues and lifted annual profits guidance driven by an acceleration in full price sales. The company said revenue for the 13 weeks to December 25 came in at £723m compared with £688m.
Educational publisher Pearson also gained as it raised annual profits guidance, driven by its assessment and qualification business.
Housebuilder Crest Nicholson and travel retailer WH Smith were higher after well-received trading updates, while pub chain JD Wetherspoon ticked up despite warning it would swing to an interim loss.
US close: Stocks sharply lower amid rising bond yields, bank earnings
Wall Street stocks closed sharply lower on Tuesday as market participants digested more corporate earnings and kept one eye on government bond yields that were now at pandemic-era highs.
At the close, the Dow Jones Industrial Average was down 1.51% at 35,368.47, while the S&P 500 was 1.84% weaker at 4,577.11 and the Nasdaq Composite saw out the session 2.60% softer at 14,506.90.
The Dow opened 543.34 points lower on Tuesday, extending losses recorded on Friday before major indices took a one-day break for the Dr Martin Luther King Jr holiday yesterday.
Bond yields were firmly in focus, with the yield on the benchmark 10-year Treasury note hitting 1.875% on Tuesday, the highest level seen since January 2020, while the 2-year yield broke above 1% for the first time since February 2020.
The Covid-19 Omicron variant was also in focus, with questions now being raised regarding the state of the global economic recovery, with a number of countries and regions reinstating lockdowns and other social distancing measures as part of an effort to curb the spread of the variant.
In the corporate space, investment bank Bank of New York Mellon beat quarterly earnings estimates on Tuesday after assets under management increased during the period thanks to higher market values and net inflows, while Goldman Sachs posted quarterly earnings per share of $10.81, down from $12.08 in the fourth quarter of 2020 and missing expectations of $11.76.
Elsewhere in company headlines, Microsoft agreed to buy video game company Activision Blizzard in a $68.7bn deal. Under the terms of the deal, Microsoft will pay $95.00 per share in cash for the Call of Duty and World of Warcraft publisher. When the transaction closes, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent and Sony.
On the macro front, the New York Empire State Manufacturing Index turned negative for the first time in a year as the Covid-19 omicron strain weighed on the index, tumbling to -0.7 in January following December’s print of 31.9.
Finally, the National Association of Housebuilders‘ Housing Market Index came in at 83,000 in January, down from the previous month’s reading of 84,000.
“The solid market for home building continued in November despite ongoing supply-side challenges,” said NAHB Chairman Chuck Fowke. “Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.”
Wednesday newspaper round-up: Unilever, Together Energy, Royal Mail
Unilever has been warned that buying GlaxoSmithKline’s consumer products arm is likely to substantially swell its debt pile and could trigger a “multi-notch downgrade” to its credit rating. Ratings agency Fitch said Unilever would not be able to keep hold of its current A rating with a stable outlook beyond 2024-2025, and would be cut to BBB, if it were to acquire GSK’s consumer products division or another large business. – Guardian
Together Energy has become the latest supplier to go bust weeks after the struggling council-owned company assured its customers that the business was stable despite record-high gas market prices. The energy regulator, Ofgem, will appoint a new supplier to take on the 176,000 households affected by the collapse of Together Energy, and its subsidiary Bristol Energy, which are part-owned by Warrington borough council. – Guardian
A data intelligence firm partly owned by an influential Tory backbencher has won a government contract to monitor foreign takeovers of British companies, under new laws to curb Chinese and Russian influence. Tom Tugendhat, the chairman of the foreign affairs select committee, is a shareholder in Business Funding Research Ltd, which trades as Beauhurst. – Telegraph
Letters and parcel deliveries are subject to unprecedented delays as Royal Mail struggles with thousands of staff absences, demand for Covid-19 tests and a deluge of Christmas returns. Around 15,000 – or one in seven – of the postal service’s workers were sick or isolating as the omicron variant spread in the first week of January. The figure still stood at 13,000 last week, double the normal level for this time of year. – Telegraph
A luxury penthouse flat on the edge of Regent’s Park in London is at the centre of a $131 million legal battle between Barclays and the tycoon behind two FTSE 350 companies that collapsed amid a fraud scandal. The property off Prince Albert Road is among assets belonging to Bavaguthu Raghuram Shetty, the founder of NMC Health and Finablr, over which the bank has been granted a worldwide freezing and asset disclosure order. – The Times
