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London open: Stocks fall ahead of BoE, ECB rate announcements
London stocks fell in early trade on Thursday as investors mulled a hawkish policy announcement form the US Federal Reserve and looked ahead to rate decisions from the Bank of England and European Central Bank.
At 0830 GMT, the FTSE 100 was down 0.5% at 7,455.43.
Overnight, the Fed hiked rates by 50 basis points, as expected, in a bid to tackle surging inflation. Although this marked a slowdown in hikes, with the Fed having lifted rates by 75 basis points at each of its last four policy meetings, the central bank also adjusted up its expectations for rate rises next year.
Chair Jerome Powell said: “Over the course of the year, we have taken forceful actions to tighten the stance of monetary policy.
“We have covered a lot of ground, and the full effects of our rapid tightening so far are yet to be felt. Even so, we have more work to do.”
Oanda market analyst Craig Erlam said: “Safe to say, investors simply didn’t see that coming. Two months of better-than-expected inflation data were enough to convince them that the Fed would not only ease off the brake but signal it would do so more in the coming months.”
Closer to home, rate announcements are due from the BoE at midday and from the ECB at 1215 GMT. Both are expected to lift rates by 50 basis points.
Erlam said: “The question now becomes whether other central banks will take a similarly hawkish position against the markets and ruin any hope of a Santa rally this year. Of course, that very much depends on the individual circumstances. Take the BoE for example, it has already been pushing back against market expectations but in a very different way, with the message from the MPC being that it doesn’t expect to tighten as aggressively as the economy falters.
“The ECB faces other challenges, most notably the fact that inflation is still 10% and it was very late to the party when it comes to raising interest rates. At the same time, the bloc faces a period of huge economic and energy uncertainty and probably recession. The central bank is expected to slow the pace of tightening today following two consecutive 75 basis point hikes but the economic projections are what will likely get the most attention as traders try to determine just how far the central bank plans to push rates.”
In equity markets, DS Smith, AB Foods and Burberry all fell as they traded without entitlement to the dividend.
Electricals retailer Currys tumbled as it cut its full-year profit outlook and said it swung to a loss in the first half after its international business took a hit due to heavy discounting from competitors.
In an update for the half to 29 October, the company said it now expects 2023 adjusted pre-tax profit of between £100m and £125m, down from previous guidance of £125m to £145m on a like-for-like basis.
Government outsourcer Serco was in the red even as it lifted 2022 revenue guidance slightly, adding that revenue the following year would increase.
On the upside, Great Portland, Land Securities and Big Yellow all gained after rating upgrades at Goldman Sachs.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
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| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
International Consolidated Airlines Group S.a. | +1.05% | +1.38 | 132.66 |
| 2 |  |
Land Securities Group Plc | +0.50% | +3.20 | 638.80 |
| 3 |  |
Whitbread Plc | +0.19% | +5.00 | 2,680.00 |
| 4 |  |
British American Tobacco Plc | +0.18% | +6.00 | 3,274.00 |
| 5 |  |
Ashtead Group Plc | +0.10% | +5.00 | 4,998.00 |
| 6 |  |
Imperial Brands Plc | +0.10% | +2.00 | 2,036.00 |
| 7 |  |
Direct Line Insurance Group Plc | +0.09% | +0.20 | 216.70 |
| 8 |  |
Micro Focus International Plc | +0.08% | +0.40 | 523.60 |
| 9 |  |
Bhp Group Limited | +0.06% | +1.50 | 2,508.00 |
| 10 |  |
Berkeley Group Holdings (the) Plc | +0.05% | +2.00 | 3,816.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
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| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Smith (ds) Plc | -3.31% | -10.80 | 315.50 |
| 2 |  |
Associated British Foods Plc | -3.13% | -51.00 | 1,578.00 |
| 3 |  |
Burberry Group Plc | -2.43% | -52.00 | 2,084.00 |
| 4 |  |
Carnival Plc | -2.11% | -13.40 | 622.60 |
| 5 |  |
Hsbc Holdings Plc | -1.97% | -9.80 | 487.90 |
| 6 |  |
Melrose Industries Plc | -1.81% | -2.35 | 127.50 |
| 7 |  |
Croda International Plc | -1.80% | -126.00 | 6,890.00 |
| 8 |  |
Anglo American Plc | -1.79% | -56.00 | 3,076.50 |
| 9 |  |
Tui Ag | -1.69% | -2.30 | 133.55 |
| 10 |  |
Fresnillo Plc | -1.68% | -14.40 | 840.40 |
US close: Stocks turn southwards after Fed rate hike
Wall Street stocks reversed their earlier gains to close weaker on Wednesday, as market participants digested a 50-basis point interest rate hike from the Federal Reserve.
At the close, the Dow Jones Industrial Average was down 0.42% at 33,966.35, as the S&P 500 lost 0.61% to 3,995.32 and the Nasdaq Composite was off 0.76% at 11,170.89.
The Dow closed 142.29 points lower on Wednesday, reversing the gains it recorded on Tuesday after November’s all-important inflation report seemed to indicate that inflation could be peaking.
“Powell and the FOMC have raised rates by the expected 50-basis points, but what has caught markets on the hop has been the downgrade to GDP forecasts for 2023 and a higher rate of inflation by the end of 2023,” said IG chief market analyst Chris Beauchamp.
“Two officials see negative GDP growth in 2023, and the overall expectation has been cut 0.5%, which is dangerously close to a consensus recession call.
“Meanwhile, price growth is forecast to be 3.5% compared to 3.1% in September, suggesting that the Fed will have to push on with more rate hikes than currently expected.”
Indeed, rate-setters in Washington shifted down their pace of interest rate hikes as expected late in the day, even as they pushed back on expectations that monetary policy could start to be loosened in the back half of 2023.
In its policy statement, the Federal Open Market Committee again described job gains over recent months as “robust” while prices were said to still be “elevated”.
Furthermore, in his post-meeting press conference, Fed chairman Jerome Powell said the central bank would not be looking at cutting rates until it was “confident” that inflation was headed down towards 2% “in a sustained way”.
Powell added that the Fed wanted strong wage growth, but at a level consistent with 2% inflation.
The projections from the Fed’s top officials, as per the new Summary of Economic Projections, were more hawkish than those submitted in September.
Changes to their forecasts for the Fed funds rate had been anticipated by financial markets for some weeks now.
The median projection for the Fed funds rate in 2023 was now at 5.1%, half a percentage point more than in September, yet the Fed’s target inflation gauge was now seen falling by less over the course of the following year.
“We are baffled – the inflation forecasts suggest either that the Fed has lost faith in the idea that margin compression will drive down inflation – even though vice chair Brainard made this point forcefully just a few weeks ago – or that it is less confident that higher unemployment will reduce wage inflation, or both,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics0.
“We see no reason to make these judgments in light of the data released since the September forecast round, and we are strongly of the view that inflation will substantially undershoot the Fed’s forecasts next year.”
In economic news, US mortgage applications rose 3.2% in the week ended 9 December, the first increase in three weeks and the highest gain in three months.
According to the Mortgage Bankers Association of America, the purchase index increased 4% month-on-month, while the refinancing one jumped 2.8%.
On equity markets, Delta Air Lines ascended 2.79% after it revealed that 2023 earnings looked set to roughly double amid “robust” travel demand.
Thursday newspaper round-up: Goldman bankers, train strikes, Uber
Goldman Sachs bankers are reportedly at risk of having their bonus pool slashed by up to 40%, in what could be the lender’s largest cut to payouts since the 2008 financial crisis. The bank is still in the process of deciding the size of its bonus pools for 2022, but the prospective cut could mean its 3,000 investment bankers endure the most significant drop in variable pay among their peers, according to the Financial Times, which first reported the news. – Guardian
Germany has snubbed British-backed Eurofighter jets in favour of a €10bn deal for US-made F-35 aircraft as it orders a fleet capable of carrying a nuclear arsenal. The 35 planes will carry American atomic weapons based in Germany, replacing ageing Tornado warplanes. – Telegraph
Train strikes are almost guaranteed to ruin the rest of Christmas and return to work in the New Year as warring bosses and union leaders enter a “cooling off period”. Mick Lynch, general secretary of the Rail, Maritime and Transport workers union (RMT), will on Thursday be warned by ministers and rail chiefs that they will not back down in the response to his union’s hardline tactics. – Telegraph
More than a million households and businesses have signed up to a National Grid scheme that pays them to reduce their electricity usage at peak times to help avoid blackouts. However, the fall in demand that can be achieved from these consumers is still significantly lower than the level that may be required to avert power cuts in a crisis, the company admitted. – The Times
Profits at Uber’s London arm rose by 96 per cent last year as the easing of Covid-19 restrictions allowed it to charge more for taxi rides. Uber London, the licensed operator for the ride-hailing group in the capital, said profit margins had improved in 2021 compared with the previous year, filings show. This was because it had not made any profit on certain rides during a larger portion of 2020 because of lockdowns. – The Times
