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London open: Stocks drop after hawkish Fed minutes
London stocks slid in early trade on Thursday following hawkish Federal Reserve minutes.
At 0830 GMT, the FTSE 100 was down 1.1% at 7,435.72.
Overnight, the latest minutes form the Fed revealed that it may raise rates sooner than expected to tackle rising inflation.
CMC Markets analyst Michael Hewson said: “What appears to have spooked markets is talk about balance sheet reduction, and it is this that has prompted a quite a bit of anxiety with some on the FOMC talking about the probability of when it might be appropriate to reduce the size of the balance sheet, thus pulling liquidity out of the market.
“This appears to have caught markets off guard, prompting concerns over tighter liquidity conditions. While this might be a valid concern, speculation that the Fed might start doing this seems a little premature given that the Fed hasn’t stopped adding to its balance sheet yet, let alone reducing it.
“A number of Fed officials seemed quite keen to start discussions about how to go about reducing the size of the balance sheet after rate rises began, prompting concern that the Fed might start to go too quickly in normalising policy. This appears to have spooked investors, however talking about a policy change remains some way away from implementing it. It would be surprising if the Fed were to start reducing the size of its balance sheet so soon after ending its bond buying program. That would suggest a degree of panic at a time when inflation pressures are starting to show some early signs of easing if this week’s prices paid numbers, are any guide.”
In equity markets, clothing retailer Next was on the back foot despite lifting full-year profits guidance and announcing a special dividend after Christmas sales exceeded expectations, driven by people buying more formalwear.
The company, which habitually under-promises and over-delivers, said full price sales in the two months to December 25 were up 20% compared with pre-pandemic 2019 – £70m ahead of previous guidance. It increased annual pre-tax profit guidance by £22m to £822m.
Bakery chain Greggs was also in the red as it said the full-year outcome looked set to be “slightly ahead” of its previous expectations, and announced that retail and property director Roisin Currie will succeed long-serving chief executive Roger Whiteside.
Dr Martens tumbled after private equity firm Permira sold 65m shares in the iconic bootmaker in a placing.
On the upside, discount retailer B&M European Value Retail gained after it said full-year profits were set to be above analyst expectations following a “strong” performance over the Christmas period.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Sainsbury (j) Plc | +2.07% | +5.80 | 285.60 |
| 2 |  |
Easyjet Plc | +1.30% | +8.00 | 624.60 |
| 3 |  |
International Consolidated Airlines Group S.a. | +1.16% | +1.86 | 162.68 |
| 4 |  |
Standard Chartered Plc | +0.89% | +4.10 | 464.30 |
| 5 |  |
Vodafone Group Plc | +0.73% | +0.84 | 115.14 |
| 6 |  |
Lloyds Banking Group Plc | +0.71% | +0.36 | 51.04 |
| 7 |  |
Marks And Spencer Group Plc | +0.68% | +1.70 | 251.40 |
| 8 |  |
Kingfisher Plc | +0.56% | +2.00 | 358.00 |
| 9 |  |
Wpp Plc | +0.47% | +5.50 | 1,165.50 |
| 10 |  |
Admiral Group Plc | +0.39% | +12.00 | 3,084.00 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Scottish Mortgage Investment Trust Plc | -3.72% | -46.50 | 1,203.00 |
| 2 |  |
Experian Plc | -3.56% | -127.00 | 3,445.00 |
| 3 |  |
Relx Plc | -3.07% | -72.00 | 2,277.00 |
| 4 |  |
Fresnillo Plc | -2.83% | -24.20 | 831.40 |
| 5 |  |
Halma Plc | -2.71% | -85.00 | 3,050.00 |
| 6 |  |
Spirax-sarco Engineering Plc | -2.61% | -420.00 | 15,675.00 |
| 7 |  |
Auto Trader Group Plc | -2.50% | -18.40 | 717.20 |
| 8 |  |
Croda International Plc | -2.28% | -224.00 | 9,584.00 |
| 9 |  |
Burberry Group Plc | -2.28% | -42.50 | 1,818.50 |
| 10 |  |
Johnson Matthey Plc | -2.27% | -47.00 | 2,019.00 |
Europe open: Shares slump after hawkish Fed minutes
European stocks slumped by 1.25% at the open on Thursday after hawkish comments in US Federal Reserve meeting minutes hit US shares overnight.
The pan-European Stoxx 600 slid in early deals with all major regional bourses followed suit.
Minutes from the Federal Reserve meeting revealed a tightening job market and persistent inflation that could lead to higher interest rates sooner than expected. The news also hits Asian markets overnight.
“Investors should note that the biggest factor behind yesterday’s massive sell off and today’s risk off mode is that the Fed is likely to cut down its holdings of Treasuries and mortgage-backed securities, worth about $8.3trln, off its balance sheet,” said Avatrade analyst Naeem Aslam.
“The FOMC minutes indicated that it could begin as soon as the beginning of the second quarter of 2022, after the Fed executes its first interest rate hike. This news came as a surprise to investors because the Fed has already sped up its winding down of quantitative easing measures and brought forward its timeline for raising interest rates.”
“The discussion of Fed officials regarding reducing treasuries would further withdraw liquidity from markets and add to uncertainty related to the performance of financial markets in coming months.”
In equity news, shares in Dr Martens tumbled after private equity firm Permira sold 65m shares in the iconic bootmaker in a placing.
Discount retailer B&M European Value Retail gained after it said full-year profits were set to be above analyst expectations following a “strong” performance over the Christmas period.
Carrefour shares rose on news grocer Auchan is exploring a fresh attempt at a takeover of its domestic French rival.
US close: Markets sink as Fed minutes sound hawkish tone
Wall Street stocks closed in the red on Wednesday, with the Nasdaq turning in its worst performance in 11 months, after the latest Federal Reserve minutes suggested the central bank could move to shrink its balance sheet and raise rates faster than previously thought.
At the close, the Dow Jones Industrial Average was down 1.07% at 36,407.11, the S&P 500 lost 1.94% to 4,700.58, and the Nasdaq Composite was 3.34% weaker at 15,100.17.
The minutes from the latest Fed meeting revealed a more hawkish tone than previously communicated by the central bank, with some officials looking to raise interest rates faster and trim its $8.8trn balance sheet to combat spiralling costs of living.
“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” the summary of the minutes read.
Fed policymakers agreed to hasten the tapering of its monthly asset purchases at the meeting in mid-December.
“The FOMC’s December discussions focussed on the danger posed by inflation running higher than expected for long enough to raise expectations, thereby threatening the medium-term price stability objective,” said Ian Shepherdson at Pantheon Macroeconomics.
“The Omicron Covid wave, just beginning at the time of the meeting, was not considered a big deal.
Shepherson noted that the Fed saw the inflation threat as coming from supply chain problems, alongside slower improvements in labour force participation than previously expected..
“FOMC members expect inflation to fall this year, but most have revised up their forecasts and believe the risks are mostly ‘weighted to the upside’.
Elsewhere on the economic front, the latest data from ADP showed a 807,000 jump in payrolls, roughly double the consensus forecast for an increase of 410,000, despite expectations that the spread of the Omicron variant of Covid-19 could keep a lid on hiring in December.
IHS Markit‘s services purchasing managers’ index (PMI) for December, meanwhile, was revised up from a preliminary print of 57.5 to 57.6.
In equities, the motor manufacturing sector remained in focus, with Tesla falling 5.35% and Ford losing 2.67% after both saw successive gains in the prior two sessions.
It was the turn of General Motors to take the wraps off a new electric car, however, as the Detroit stalwart unveiled the plug-in Chevrolet Silverado pick-up truck – set to compete with the Ford F150 Lightning.
GM still followed its peers below the waterline, however, closing down 4.56%.
Elsewhere, Boeing slipped 0.26% even after major domestic ultra-low cost airline Allegiant confirmed an order for 50 of the company’s embattled 737 MAX narrowbody, with options for 50 more airframes.
Animal-free protein producer Beyond Meat slid 5.08% and fast food operator Yum! Brands was off 1.27%, despite the pair announcing a partnership that will see plant-based fried chicken rolled out to KFC restaurants in the US beginning next week.
Thursday newspaper round-up: Economic recovery, electric car sales, NatWest
Britain’s economic recovery stalled before the arrival of the Omicron variant of Covid and the dampening effect of the government’s plan B restrictions on consumer spending in the Christmas shopping period, a wide-ranging company survey has found. Businesses blamed spiralling inflation and shortages of imported goods for a decline in sales in the fourth quarter, which meant that an expansion during the spring and summer ground to a halt. – Guardian
Booming electric car sales were a bright spot in a tough car market last year amid disruption to global supply chains hitting manufacturers, according to fresh data. In its annual sales snapshot for 2021, the Society of Motor Manufacturers and Traders (SMMT) said carmakers sold 190,000 battery electric cars across the country last year, accounting for about 11.6% of total sales. – Guardian
NatWest is in talks with ministers over a rescue scheme for struggling energy companies as part of efforts to avoid a Treasury bailout. The taxpayer-owned bank has been drafted into discussions aimed at helping to ease financial burdens on the industry, as fears mount that consumer bills will soar to £2,000 when the price cap increases in April. – Telegraph
A British university is awarding degrees to trainees from a Chinese company accused of developing software that targets dissidents. The University of the West of England Bristol has launched an education programme for software engineers working at the research institute of the Chinese IT giant Neusoft. – Telegraph
Majestic Wine’s best-selling region, New Zealand, is under threat from South Africa after a 12 per jump in sales of wine from the Cape over the past six months. With difficult harvests hurting volumes from New Zealand, the wine merchant said that South African wines had “picked up the slack” and it expected the trend to continue beyond Christmas. It said that in December like-for-like sales of South African wines were up 41 per cent. – The Times
A marketplace for non-fungible tokens (NFTs) has been valued at more than $13 billion in a fundraising that highlights the surge of interest in unique digital items that can be traded online. OpenSea, a blockchain start-up, announced that it had secured the remarkable valuation on the private market barely four years after its founding. The company raised $300 million in a funding round. – The Times
