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London open: Stocks edge lower after hawkish Fed; corporate news rolls in
London stocks edged down in early trade on Thursday following heavy losses in Asia, after the US Federal Reserve struck a hawkish note overnight.
At 0840 GMT, the FTSE 100 was down 0.2% at 7,454.07, as investors waded through a raft of corporate news.
CMC Markets analyst Michael Hewson said: “While there were no surprises around the statement and the decision to keep monetary policy on hold, the Powell press conference saw the heat quickly come out of the rally, as Powell indicated that while a rate hike was likely to come in March, the FOMC wouldn’t hold back from continuing to do so at a faster pace than it did in the last tightening cycle, and that it would be appropriate to start shrinking the size of the balance sheet, as well at the same time.
“The press conference also sent the message that the Fed could well raise rates at every meeting, or even consider a 50bps hike if the need arose, as Powell passed up the opportunity to rule out any of those possibilities. While this keeps the Feds options open, which seems entirely sensible, rule nothing out and everything in, it wasn’t the message increasingly nervous markets wanted to hear.
“In essence it was the Fed saying to markets that the days of handholding are over; our priority now is inflation.”
In equity markets, iconic boot maker Dr Martens slumped even as it posted an 11% increase in third-quarter revenues and backed its full-year expectations.
Low-cost airline easyJet flew a little lower after saying it halved first-quarter losses as Covid-19 travel restrictions were eased and reported a step-up in bookings after the UK government lifted pre-departure testing requirements. The company reported a headline loss before tax for the quarter ending December 31 of £213m, compared with £423m a year ago.
Victrex and Paragon Baking lost ground as they traded without entitlement to the dividend.
On the upside, Diageo gained after the brewer reported a rise in first-half sales and profits as people quaffed more spirits at home during the Covid pandemic, but warned of persistent headwinds from the virus and supply-chain constraints.
Outsourcer Mitie rallied after it lifted its annual profit guidance again as it highlighted higher-than-expected revenue from Covid-related contracts in the third quarter.
Online trading platform IG Group advanced after well-received interim results, while Britvic fizzed higher as the drinks maker reported better-than-expected first-quarter revenues, driven by growth in the GB segment.
HSBC was in the black after an upgrade to ‘outperform’ at Exane, while Rentokil and Man Group were knocked lower by a downgrade to ‘neutral’ by the same outfit.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Standard Chartered Plc | +4.01% | +21.00 | 545.00 |
| 2 |  |
Hsbc Holdings Plc | +2.09% | +10.90 | 533.60 |
| 3 |  |
Rio Tinto Plc | +1.49% | +81.00 | 5,515.00 |
| 4 |  |
Barclays Plc | +1.38% | +2.80 | 205.00 |
| 5 |  |
Direct Line Insurance Group Plc | +1.13% | +3.40 | 305.10 |
| 6 |  |
Lloyds Banking Group Plc | +1.11% | +0.58 | 52.61 |
| 7 |  |
Sainsbury (j) Plc | +1.06% | +3.10 | 294.80 |
| 8 |  |
Johnson Matthey Plc | +0.92% | +17.50 | 1,926.00 |
| 9 |  |
Admiral Group Plc | +0.86% | +27.00 | 3,177.00 |
| 10 |  |
Imperial Brands Plc | +0.77% | +13.50 | 1,757.00 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Fresnillo Plc | -3.72% | -25.60 | 662.20 |
| 2 |  |
Barratt Developments Plc | -2.53% | -15.40 | 594.00 |
| 3 |  |
Spirax-sarco Engineering Plc | -2.48% | -320.00 | 12,575.00 |
| 4 |  |
Rentokil Initial Plc | -2.29% | -11.70 | 499.10 |
| 5 |  |
Scottish Mortgage Investment Trust Plc | -2.27% | -24.50 | 1,053.00 |
| 6 |  |
Halma Plc | -2.19% | -53.00 | 2,368.00 |
| 7 |  |
Ocado Group Plc | -2.12% | -32.00 | 1,476.50 |
| 8 |  |
Sage Group Plc | -2.02% | -14.40 | 698.60 |
| 9 |  |
Wpp Plc | -1.90% | -22.00 | 1,135.50 |
| 10 |  |
Intercontinental Hotels Group Plc | -1.79% | -87.00 | 4,760.00 |
Europe open: Shares slump on Fed comments, Dr Martens gets the boot
European shares slumped at the opening on Thursday, tracking losses on Wall Street after US Federal Reserve chairman Jerome Powell signalled a March interest rate hike and more policy tightening in an attempt to quash rising inflation.
The pan-European Stoxx 600 was 0.95% lower in early deals, with all regional bourses lower.
“European markets are under pressure after the Fed prompted Wall Street to give back earlier gains in the session. All sectors in Europe are in the red with travel and leisure leading the declines,” said Victoria Scholar, head of investment at Interactive Investor.
“By highlighting the strength of the labour market and the wider US economy, Powell implied that robust underlying economic fundamentals could withstand aggressive action against inflation. In this sense, his presser was viewed as relatively hawkish, prompting equity markets to reverse earlier gains and the treasury curve to flatten.”
“Powell also refused to rule out hiking rates at every FOMC meeting this year to combat 40-year high inflation, in another hawkish tilt while the markets are now pricing in between four and five rate hikes in 2022.”
In equity news, shares in iconic UK boot maker Dr Martens plunged almost 16% as revenue growth slowed in its third quarter, after a drop in wholesale business as it prioritised inventory for ecommerce and retail stores channels. The stock has fallen by more than a third in the last month.
German business software group SAP after the company said it had agreed to buy a majority stake in privately held US fintech firm Taulia.
French-Italian chipmaker STMicroelectronics gained after announcing plans to double its investments this year, buoyed by high demand that drove its earnings to beat quarterly expectations.
Deutsche Bank climbed 2.7% after making its biggest profit since 2011 last year, defying expectations for a loss in the fourth quarter following revenue gains at its investment bank during a dealmaking boom.
EasyJet flew lower after the budget airline said the Omicron Covid variant was weighing on trading but forecast a strong pickup in demand next summer when capacity returns to near pre-pandemic levels.
US close: Stocks give up gains as Fed signals March hike
Wall Street stocks had given up their gains by the end of trading on Wednesday, as investors digested a Fed that was “of a mind” to raise interest rates as soon as March.
At the close, the Dow Jones Industrial Average was down 0.38% at 34,168.09 and the S&P 500 lost 0.15% to 4,349.93, while the Nasdaq Composite clung to gains of just 0.03%, to 2.82 points, to settle at 13,542.12.
The Dow closed 129.64 points lower on Wednesday, reversing its steady gains from earlier in the session as corporate earnings news gave way to the much-anticipated Fed decision.
“The Fed kept the federal funds rate target unchanged, and in a move widely anticipated by markets suggested economic conditions warrant an imminent increase in the federal funds rate, setting the stage for liftoff in March,” said Mickey Levy at Berenberg Capital Markets.
“Alongside its policy statement, the Fed also published a statement outlining general principles that will govern future balance sheet reduction, although specific details with respect to pace and timing have been left to a future meeting.
“In line with market expectations, the Fed refrained from hastening the end of its large-scale asset purchase programme, which will end in early March as announced by the Fed at its December meeting.”
Levy noted that the Federal Reserve’s policy statement pointed to a “strong labour market” and “inflation well above 2%” as factors that would justify an imminent increase in the federal funds rate, although the central bank refrained from explicitly characterising labour market conditions as consistent with maximum employment in its policy statement.
“Critically, Powell emphasised throughout his press conference that current economic conditions – which include historically tight labour markets, accelerating wage gains, and the prospects of prolonged supply constraints – pose significant upside inflation risks.”
Following its two-day policy meeting, the Federal Open Market Committee (FOMC) stood pat on interest, keeping the federal funds rate at 0.25%, although the central bank made it clear that hikes were just around the corner.
“I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so,” Federal Reserve chair Jerome Powell told a media conference after the meeting.
The question of reducing the Fed’s balance sheet was less clear, however, with Powell saying that it could start “later this year”, although he said it would happen “sooner and faster” than it has previously.
“We are going to be led by the incoming data and evolving outlook,” Powell said.
On the macro front, mortgage applications fell 7.1% in the week ended 21 January – the sharpest decline in two months – with the Mortgage Bankers Association’s refinancing index plunging 12.6% and the purchase index slipping 1.8%.
Elsewhere, the US goods trade balance hit an all-time high of $101.0bn in December, ahead of estimates for $96.0bn and November’s revised print of $98.0bn, according to an advance estimate from the Census Bureau.
Imports rose 2% to $258.26bn and exports rose at a slower 1.4% clip to $157.3bn
Lastly, new home sales rose 11.9% from a month earlier to a seasonally adjusted annual rate of 811,000 in December, following a similar increase in November and easily beating market expectations of 760,000 to hit their highest level since March 2021.
In the corporate space, Boeing descended 4.82% after missed Street expectations on revenue and losses per share in the fourth quarter and took a $3.5bn pre-tax charge on its 787 Dreamliner programme, although it did achieve positive cash flow for the first time since 2019.
Home appliances manufacturer Whirlpool, which owns brands including KitchenAid, Indesit and Jenn-Air, was down 0.22% at the close ahead of its after hours earnings release.
The company reported a record full-year net earnings margin of 8.1%, up 260 basis points, and a record ongoing EBIT margin of 10.8%, ahead 180 basis points, fully offsetting $1bn in raw material inflation.
On the upside, Microsoft rose 2.85% after the computing topped expectations on its quarterly revenues guidance.
Electric automaker Tesla was ahead 2.07% after beating the Street on both the top and bottom line in its latest numbers, while chipmaker Intel added 1.35% after it reported fourth quarter revenue of $20.5bn, exceeding its October guidance by $1.3bn and making for year-on-year growth of 3%.
Thursday newspaper round-up: Car productions, rents, Tesla, Sensyne Health
The lowest number of cars rolled out of British factories last year since 1956, as the industry warned that rising energy costs and further shortages of computer chips will plague its recovery. Car production slumped across the UK and the world in 2020 as the coronavirus pandemic swept across the globe, but many in the industry had expected a rapid improvement. Instead, the disruption triggered a global shortage of semiconductor chips, leading to an even worse 2021. – Guardian
Private rents in Britain are rising at their fastest rate on record, piling more pressure on households feeling the strain of the cost of living crisis. The average advertised rent outside London is 9.9% higher than a year ago as tenants making plans for a post-pandemic life jostle for properties, according to the website Rightmove. Meanwhile, London rents have hit a new record and are higher now than before the start of the pandemic after a bounceback in demand fuelled by the gradual return to the workplace and more overseas students looking for a place to live. – Guardian
Tesla has announced a record annual profit following a surge in demand for electric cars that has made its chief executive Elon Musk the world’s richest man. Full-year profits were over seven times higher at $5.5bn (£4.1bn) and sales soared 71pc to $54bn, both shattering Tesla’s previous records and making 2021 a “breakthrough year”. – Telegraph
A private equity-style fee structure that has paid out an unprecedented £60 million to two stockpickers at Jupiter Fund Management is to be reviewed by the investment trust footing the bill. Chrysalis Investments revealed yesterday that it was paying Jupiter performance and management fees of more than £117 million after the value of its portfolio of largely unlisted investments soared. – The Times
The distressed healthcare technology company founded by Lord Drayson, the former science and business minister, has secured an emergency financing of up to £11.4 million in its attempt to find a rescue buyer and stave off collapse. Sensyne Health’s financing involves loan notes and warrants, described by one source as “very expensive”, without which the company warned it potentially faces administration. – The Times
