ADVFN Morning London Market Report: Thursday 3 November 2022

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London open: FTSE falls on hawkish Fed, ahead of BoE announcement

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London stocks fell in early trade on Thursday, taking their cue from a weak US session after the Federal Reserve lifted rates by 75 basis points overnight and struck a hawkish note on the outlook.

At 0825 GMT, the FTSE 100 was down 0.8% at 7,085.71, while sterling was 0.5% lower versus the dollar at 1.1335, with the Bank of England’s latest rate announcement due at midday.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “A fresh bout of volatility has reared up on indices after the chair of the Federal Reserve chair told investors to hold their horses when it comes to expectations about lower rate rises.

“There was an initial jump of optimism when the Fed stayed on the expected course and raised rates by 0.75%, hinting the end of super-size hikes could be in sight. But the S&P 500 galloped 2.5% lower as Jerome Powell warned that higher rates are set to hang around. The tech heavy Nasdaq took fright, plunging by 3.3% and worries have spilled over into trade in Asia, pulling stocks lower.

“Although it is clear the Fed is still desperate to kick inflation into touch, and the more aggressive moves in its playbook appear to be coming to an end with a gentler strategy on the way in the months to come. However, investors have been left wondering exactly when this softer approach will take effect -and anxious that higher rates are now going to linger for longer. This will have a negative effect on the future value of earnings, which high growth tech companies in particular have relied on for valuations.”

On home shores, the BoE is widely expected to announced a 75-basis point hike later in the day – the biggest since Black Wednesday in 1992 and taking the base rate to 3%. This would be the highest level since the financial crisis in 2008.

Oanda market analyst Craig Erlam said: “The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty. In recent months the country has had three Prime Ministers, three very different economic agendas, and no budgets outlining them. Not ideal for a central bank that’s fighting double-digit inflation.

“It hasn’t handled things perfectly this year either, that’s clear. It’s taken a far more cautious approach than others leaving it in the situation now that it must raise rates aggressively and publish economic forecasts with little insight into government spending and tax plans. The outlook is uncertain enough without that.”

In equity markets, BT Group slumped as it confirmed it is seeking a further £500m of savings after being hit by surging inflation, including higher energy prices.

Rolls-Royce lost ground after the engine maker held annual guidance as the rebound in post-pandemic air travel continued and said recent market turmoil and inflation had not impacted cash flow.

Ashmore and Renishaw both fell sharply as they traded without entitlement to the dividend.

On the upside, supermarket chain Sainsbury’s was in the black even as it posted a dip in first-half profits amid the cost-of-living crisis.

Trade kitchen supplier Howden Joinery rallied after saying it now expects FY2022 pre-tax profit to be “marginally” ahead of consensus forecasts as it hailed strong revenue growth.

 

Top 10 FTSE 100 Risers

# Name Change Pct Change Cur Price
1 Hikma Pharmaceuticals Plc +5.69% +73.00 1,356.00
2 Sainsbury (j) Plc +3.11% +6.15 204.00
3 Smith & Nephew Plc +2.14% +21.50 1,027.00
4 Tesco Plc +1.71% +3.70 220.50
5 Admiral Group Plc +1.10% +22.00 2,015.00
6 Hiscox Ltd +1.09% +10.40 962.00
7 British American Tobacco Plc +0.93% +30.50 3,304.50
8 Direct Line Insurance Group Plc +0.75% +1.50 200.20
9 Imperial Brands Plc +0.43% +9.00 2,082.00
10 Unilever Plc +0.33% +13.00 3,962.00

 

Top 10 FTSE 100 Fallers

# Name Change Pct Change Cur Price
1 Bt Group Plc -7.01% -8.95 118.80
2 Rolls-royce Holdings Plc -3.70% -3.07 79.99
3 Flutter Entertainment Plc -3.17% -370.00 11,320.00
4 Segro Plc -2.49% -19.60 769.00
5 Experian Plc -2.38% -64.00 2,622.00
6 Halma Plc -2.08% -44.00 2,074.00
7 Ashtead Group Plc -1.95% -92.00 4,628.00
8 Hargreaves Lansdown Plc -1.89% -15.00 779.40
9 Ocado Group Plc -1.78% -11.60 638.80
10 Spirax-sarco Engineering Plc -1.76% -190.00 10,625.00

 

US close: Dow loses 500 points after another Fed hike

Wall Street stocks closed well below the waterline on Wednesday, as investors digested another 75-basis point rate hike from the Federal Reserve, while opening the door to some flexibility in future decisions.

At the close, the Dow Jones Industrial Average was down 1.55% at 32,147.76, as the S&P 500 lost 2.54% to 3,759.69 and the Nasdaq Composite was off 3.36% at 10,524.80.

The Dow closed 505.44 points lower on Wednesday, significantly extending the losses it recorded on Tuesday.

“Despite this being the fourth consecutive 75-basis point hike, investors had already priced in the slowdown of the aggressive monetary policies,” said ADSS head of strategy and trading services, Srijan Katyal.

“However, looking at recent hikes and price reactions, some muted price movements may be seen.

“Investors and traders will need to keep an eye on the further economic and jobs market data in the coming months to take a view on whether this slower pace of rate hikes will come to fruition.”

Policymakers at the Fed unanimously nodded through their fourth consecutive outsized rate hike late in the day, adding 75 basis points to its interest rate target.

That took it to a range of 3.75% and 4% – the highest Federal Reserve target in 15 years.

The central bank did, however, indicate that it would monitor any possible economic damage the rate rises could have in what it termed a “lag”.

Chair Jerome Powell said it was still “very premature” to discuss a pause in rate hikes, but said given there were often long lags for the effects of monetary policy changes to be seen, the Fed might not wait for inflation to normalise completely before pausing its tightening.

“A new sentence in the statement explicitly indicated that when calibrating the pace of future rate increases, the Fed will be mindful of the ‘cumulative tightening of monetary policy’ and acknowledge the long and variable lags with which monetary policy affects the economy and inflation,” said Mickey Levy at Berenberg.

“That this was explicitly included in the policy statement, and not left to chair Powell’s press conference, is indicative of the growing number of Fed members, including vice-chair Lael Brainard, who in recent weeks have indicated they feel the balance of risks around the economic outlook has become more two-sided as rates have moved up.

“During his press conference, chair Powell suggested it could be appropriate to slow the pace of rate hikes as soon as the December or January-February meetings, but stressed the Fed will remain data dependent.”

On the economic front, US mortgage applications dipped 0.5% on a seasonally-adjusted basis in the week ended 28 October – a sixth consecutive weekly decline.

According to the Mortgage Bankers Association of America, the purchase index fell 0.8%, while the refinancing index increased by 0.2%.

Elsewhere, US companies added 239,000 jobs in October, according to ADP, beating estimates for a print of 195,000 and September’s downwardly revised 192,000 reading.

Wages rose 7.7% year-on-year, down 0.1% month-on-month.

In equities, Estee Lauder Companies closed down 8.13% after the cosmetics conglomerate lowered its full-year guidance.

Casino operator Caesars Entertainment was off 0.7%, despite beating estimates on both the top and bottom lines.

Ford Motor lost 2.54% after it reported a 10% drop in sales during October as a result of ongoing supply chain issues, while media group Paramount Global tumbled 12.42% after it missed top and bottom line expectations for the third quarter.

On the upside, Match Group was ahead 4.19% after the operator of dating platforms including Tinder and Hinge beat quarterly revenue expectations.

Pharmacy chain CVS Health was 2.3% higher after it blasted past third-quarter earnings estimates and announced a $5bn opioid claims settlement, while Boeing Company added 2.81% after its chief executive said it could be generating an annual $10bn in cash by the middle of the decade.

 

Thursday newspaper round-up: Diesel, Glencore, HBOS

Drivers experienced a “severe shock” after the price of diesel shot up in October amid the fallout from the Opec+ oil cartel’s decision to cut production, the RAC has said. The price of diesel rose by 10p a litre to 190.5p on average – the third worst monthly increase on record, behind previous increases this year, data from the motoring group showed. – Guardian

Glencore flew cash bribes to officials in Africa via private jet amid “endemic” corruption within the mining company, a London court has heard, in sentencing of the first ever UK corporate conviction on charges of bribing another person. Third-party agents used Glencore’s money to bribe officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea and South Sudan, causing harms worth $128m, a sentencing hearing at Southwark crown court heard. – Guardian

Apollo Global Management acquired assets worth $1.1 billion from British pension funds during the fire sale in the wake of September’s mini-budget. The American investment group’s Athene business raced to acquire collateralised loan obligations — securities backed by debt, also known as CLOs — as pension funds scrambled to raise cash. – The Times

A review into whether executives at Lloyds Banking Group covered up a fraud has been held up yet again, with a witness to the inquiry calling the series of delays an “ongoing scandal”. Dame Linda Dobbs, who is leading an investigation into the bank’s handling of the HBOS Reading scam, said yesterday that she had experienced “significant delays in concluding interviews with a number of important witnesses”, which was having a “material impact” on the completion of her review. – The Times

The cost of capping Britain’s energy bills is expected to be slashed by an expected 30pc slide in gas prices this winter, as mild weather and full storage eases fears of shortages across Europe. City economists said the slump in gas prices in recent months will provide a £5bn boost to Chancellor Jeremy Hunt as he mulls options to help families with energy bills beyond next spring. – Telegraph

 

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