ADVFN Morning London Market Report: Thursday 16 June 2022

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London open: Stocks fall ahead of BoE rate announcement

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London stocks fell in early trade on Thursday ahead of the latest policy announcement from the Bank of England, and after the US Federal Reserve lifted interest rates by 75 basis points – its biggest hike since 1994.

At 0845 BST, the FTSE 100 was down 0.9% at 7,205.67.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The biggest interest rate rise by the Fed in almost three decades of 0.75% didn’t come as much of a surprise, given just how red hot consumer prices still are, but it’s a drift higher from the bank’s widely flagged ‘dot plot’, and a sign that inflation has been roaring higher at a higher pace than policymakers expected just a few months ago.

“There is a growing expectation that this hike will be followed by another 0.75% rise in an attempt to front load efforts and bring down demand more quickly, even though this is expected to dent growth and see unemployment rise. Risks that there will be an uncomfortably hard landing for the US economy remain but it seems policymakers feel this may be a price to pay given the inflation shock the world is facing.

“The focus now is sharply trained on the Bank of England’s decision later. Worries have been rising that inflation could become too hot to handle for the Bank of England, given that the UK economy is already shrinking and is sorely lacking the insulation needed to protect itself from the impact of rate rises. There overall expectation is that it’ll keep the rate rise to 0.25% but given the harder line stance taken by the Federal Reserve, some policymakers may decide to swallow the bitter pill sooner rather than later and vote for a steeper hike of 0.5%.”

In equity markets, PersimmonIntermediate Capital3i GroupFerrexpo and Pets at Home all lost ground as they traded without entitlement to the dividend.

Shaftesbury slumped after it and Capital & Counties agreed the terms of a £3.5bn all-share merger that will create a combined group with a portfolio valued at around £5bn.

On the upside, Informa rallied after it said trading in the first five months of the year had been “robust” and backed its guidance for FY22.

Harbour Energy rose as it announced a $200m share buyback programme.

Car dealership Inchcape also racked up strong gains after saying that full-year pre-tax profit was set to be ahead of market expectations as it has continued to trade strongly since its first-quarter update at the end of April.

 

Top 10 FTSE 100 Risers

# Name Change Pct Change Cur Price
1 Informa Plc +2.97% +15.20 527.80
2 Bae Systems Plc +0.03% +0.20 763.80
3 Morrison (wm) Supermarkets Plc +0.00% +0.00 286.40
4 Evraz Plc +0.00% +0.00 82.68
5 Rsa Insurance Group Ld +0.00% +0.00 684.20
6 London Stock Exchange Group Plc +0.00% +0.00 8,620.00
7 Standard Life Aberdeen Plc +0.00% +0.00 274.10
8 Reckitt Benckiser Group Plc +0.00% +0.00 6,498.00
9 Royal Bank Of Scotland Group Plc +0.00% +0.00 120.90

 

Top 10 FTSE 100 Fallers

# Name Change Pct Change Cur Price
1 Persimmon Plc -9.18% -201.50 1,993.50
2 Next Plc -6.49% -392.00 5,650.00
3 Tui Ag -5.99% -9.45 148.30
4 Halma Plc -5.88% -117.00 1,873.00
5 Marks And Spencer Group Plc -5.75% -8.00 131.05
6 3i Group Plc -5.47% -61.50 1,063.50
7 Whitbread Plc -5.28% -144.00 2,583.00
8 Prudential Plc -4.95% -49.20 945.20
9 Itv Plc -4.71% -3.30 66.72
10 Carnival Plc -4.64% -33.80 694.40

 

US close: Stocks maintain gains as Fed adds 75bps to rates

Wall Street stocks snapped their five-day losing streak by the close on Wednesday, as the Federal Reserve made its biggest single interest rate hike in 28 years.

At the close, the Dow Jones Industrial Average was up 1% at 30,668.53, as the S&P 500 added 1.46% to 3,789.99 and the Nasdaq Composite gained 2.5% to 11,099.15.

The Dow closed 303.7 points higher on Wednesday, reversing losses recorded in the previous session after the Bureau of Labor Statistics revealed the PPI for final demand rose 0.8% in May, in line with analysts’ expectations, up from 0.4% in April but down 1.6% on March.

“Having essentially telegraphed a 75-basis point rise by an impressive series of leaks, nods and winks, the Fed delivered on these expectations,” said IG chief market analyst Chris Beauchamp.

“But the accompanying statement reveals the deepening conundrum facing Powell and the team – higher inflation, weaker GDP forecasts and the potential for a slower pace of hikes this year and even rate cuts next year.”

Beauchamp said that as a result, investors could be excused for feeling “rather dazed and confused”, although the market was in confusing times.

“Everything still seems to be teetering on a precipice – today’s gains in stocks are holding, if only just, but could vanish in an instant should Powell display his more-hawkish plumage later on.”

Hogging the headlines was the Federal Reserve, which hiked interest rates by more than expected late in the session, and left the door open to another such move in July.

The target range for the Fed funds rate was raised by 75 basis points to between 1.5% and 1.75%, against broad expectations for a 50-basis point increase.

Speculation around a more aggressive move had been rife, however, since fresh data last week painted a dire picture for consumer inflation.

In its policy statement, the Federal Open Market Committee said that inflation remained “elevated” reflecting supply and demand imbalances linked to the pandemic, higher energy quotes and broader price pressures.

It also noted that Russia’s invasion of Ukraine was creating additional upward pressure on prices and dragging on economic growth globally.

During his press conference, Fed chair Jerome Powell did say that he did not expect 75-basis point hikes to become “common”.

“I’d like to think that our guidance is going to be credible, but we are always going to act with flexibility”, he added.

On the economic front, US mortgage applications increased by 6.60% week-on-week in the seven days ended 10 June, according to the Mortgage Bankers Association.

Elsewhere, US retail sales fell unexpectedly last month on the back of a steep decline in auto sales and a drop in furniture sales.

According to the Department of Commerce, in seasonally adjusted terms, US retail sales volumes slipped at a month-on-month pace of 0.3% to reach $672.87bn.

Economists had anticipated a rise of 0.3%.

On another note, manufacturing activity in the state of New York and part of New Jersey improved by a tad less than expected in June, the results of a closely-followed survey revealed.

The so-called Empire State index increased from a reading of -11.6 for May to -1.2 for June.

Still on data, US business inventories increased 1.20% month-on-month in April, according to the Census Bureau, easing from an upwardly revised 2.4% gain in March and in line with market expectations

Finally, the National Association of Homebuilders‘ housing market index fell to 67 in June, down from 69 in the previous month to fall short of expectations for a print of 68 and hit its lowest level since June 2020.

In equities, Robinhood Markets slid 2.49% after Atlantic Equities lowered its rating on the retail brokerage to ‘underweight’ from ‘neutral’.

Real estate giant Redfin slipped 1.23% after its chief executive blogged that he was asking 8% of the firm’s workforce to leave amid a cooling housing market.

On the upside, Apple added 2.01% after it struck a 10-year broadcasting deal to bring Major League Soccer to its Apple TV platform, while car rental behemoth Hertz Global jumped 5.1% after it announced a share buyback worth $2bn.

 

Thursday newspaper round-up: Business start-up funding, food prices, Royal Mail

Labour has launched a review of business startup funding driven by a group of industry leaders including the former Goldman Sachs chief economist and Conservative Treasury minister Jim O’Neill as it attempts to improve its credentials with business. Announcing the review amid concern over the strength of the British economy, Rachel Reeves, the shadow chancellor, said Labour wanted to make Britain the best place in the world to start and grow a business. – Guardian

Food price rises in the UK could hit 15% this summer – the highest level in more than 20 years – with inflation lasting into the middle of next year, according to a report. Meat, cereals, dairy, fruit and vegetables are likely to be the worst affected as the war in Ukraine combines with production lockdowns in China and export bans on key food stuffs such as palm oil from Indonesia and wheat from India, the grocery trade body IGD warns. – Guardian

Regent Street faces a rise in empty shops as the work-from-home revolution continues to damage high streets, The Crown Estate has warned. The commercial landlord responsible for the Queen’s land has warned footfall in central London remained significantly below pre-pandemic levels last year as home workers made fewer trips to top retail destinations. – Telegraph

Gas prices in Britain and Europe surged for a second consecutive day yesterday as Russia said it was further curtailing supplies to the Continent. Gazprom, the Kremlin-controlled gas group, said it was limiting volumes through the Nord Stream 1 pipeline to Germany, while Eni, of Italy, said that its supplies from Russia also had been reduced. UK wholesale gas prices jumped by 30 per cent to more than 257p a therm. – The Times

Some Royal Mail managers are working dozens of hours of unpaid overtime every month, their trade union has claimed, amid a fight over staffing levels that could lead to strike action. The postal network is heading toward industrial strife this summer as Royal Mail battles with its unions. The Communication Workers Union, which represents the bulk of its 100,000 staff, is to notify the company of a ballot for industrial action next week over demands for a cost of living pay increase. The company could have a national strike on its hands in August. – The Times

 

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