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London open: Stocks slump as UK GDP contracts
London stocks slumped in early trade on Monday as hotter-than-expected US inflation data fuelled expectations the Federal Reserve will hikes rates more aggressively, and as investors digested an unexpected contraction in UK GDP.
At 0835 BST, the FTSE 100 was down 1% at 7,246.74.
Richard Hunter, head of markets at Interactive Investor, said: “The latest inflation print proved too hot to handle, prompting investors to scramble for cover in anticipation of a more aggressive set of central bank moves.
“In the US, the inflation reading of 8.6% in May compared to the April number of 8.3%, scuppering hopes that inflation had peaked. As such, the Federal Reserve decision on Wednesday takes on added significance. While investors were relatively comfortable with a likely hike of 0.5%, the fresh inflationary pressure has had some questioning whether a rise of 0.75% could be on the table.
“In turn, this would reignite concerns – which had never been far away – that a newly determined round of aggressive monetary tightening could crimp economic growth, to the extent that the spectre of recession emerges.”
Elsewhere, fresh Covid lockdowns in China were also weighing on sentiment.
Hunter said: “With easing restrictions only having been announced over the last few days, inevitably the news prompted concerns that demand and indeed consumer confidence would suffer a fresh blow, thus adding to the cocktail of factors which could inhibit global growth.”
On home shores, the latest figures from the Office for National Statistics showed the economy shrank by 0.3% in April amid higher prices and supply chain issues following a 0.1% decline in March, and versus consensus expectations of 0.1% growth.
For the first time since January 2021, contractions seen in services, production and construction.
The ONS pinned some of the blame for the contraction in GDP to the scaling back of the government’s Covid Test and Trace and jab programmes.
ONS director of economic statistics, Darren Morgan, said: “A big drop in the health sector due to the winding down of the test and trace scheme pushed the UK economy into negative territory in April.
“Manufacturing also suffered with some companies telling us they were being affected by rising fuel and energy prices.
“These were partially offset by growth in car sales, which recovered from a significantly weaker than usual March.”
Paul Dales, chief UK economist at Capital Economics, said the 0.3% contraction “isn’t as weak as it looks, but nonetheless increases the chances that the Bank of England opts for a 25 basis points rise in interest rates on Thursday rather than the 50bps hike we are forecasting”. A rate announcement is due from the BoE on Thursday.
In equity markets, industrial business park owner Sirius Real Estate was in the red even as it reported a 73.1% rise in annual rents to €167m driven by higher demand and acquisitions as it lifted its dividend by 16%. Pre-tax profit for the year to March 31 was up 3.2% to €1 69m. The company is paying out a total per-share dividend of 4.4 cents.
Molten Ventures – formerly Draper Esprit – also lost ground after the release of its full-year results.
Rolls-Royce was on the rise after Morgan Stanley upgraded shares of the engine marker to ‘overweight’ from ‘equalweight’.
“We see Rolls-Royce as the clearest example of mispricing in our coverage,” it said. “Parsing the recent Civil Aerospace investor day suggests an earnings recovery is much closer than the market has priced in, while earnings and cash flow are directly geared to the next leg of a global aviation recovery.”
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Fresnillo Plc | +6.25% | +46.80 | 795.20 |
| 2 |  |
Hsbc Holdings Plc | +0.80% | +4.00 | 503.10 |
| 3 |  |
Bt Group Plc | +0.59% | +1.05 | 179.20 |
| 4 |  |
Bae Systems Plc | +0.52% | +4.00 | 775.20 |
| 5 |  |
Vodafone Group Plc | +0.48% | +0.60 | 126.06 |
| 6 |  |
United Utilities Group Plc | +0.14% | +1.50 | 1,047.50 |
| 7 |  |
Melrose Industries Plc | +0.13% | +0.20 | 154.55 |
| 8 |  |
Morrison (wm) Supermarkets Plc | +0.00% | +0.00 | 286.40 |
| 9 |  |
Evraz Plc | +0.00% | +0.00 | 82.68 |
| 10 |  |
Standard Life Aberdeen Plc | +0.00% | +0.00 | 274.10 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Barratt Developments Plc | -4.99% | -24.70 | 469.80 |
| 2 |  |
Scottish Mortgage Investment Trust Plc | -4.83% | -36.00 | 709.80 |
| 3 |  |
Whitbread Plc | -4.74% | -127.00 | 2,550.00 |
| 4 |  |
Carnival Plc | -4.43% | -36.40 | 785.40 |
| 5 |  |
Antofagasta Plc | -4.29% | -61.50 | 1,371.50 |
| 6 |  |
Intercontinental Hotels Group Plc | -4.27% | -200.00 | 4,481.00 |
| 7 |  |
Taylor Wimpey Plc | -4.21% | -5.30 | 120.60 |
| 8 |  |
Glencore Plc | -4.05% | -20.45 | 485.05 |
| 9 |  |
Tui Ag | -4.03% | -6.90 | 164.50 |
| 10 |  |
Easyjet Plc | -3.89% | -17.60 | 434.60 |
US close: Stocks sharply lower following inflation reading
Wall Street stocks closed sharply lower on Friday as market participants digested some hotter-than-expected inflation data.
At the close, the Dow Jones Industrial Average was down 2.73% at 31,392.79, while the S&P 500 was 2.91% weaker at 3,900.86 and the Nasdaq Composite saw out the session 3.52% softer at 11,340.02.
The Dow closed 880.0 points lower on Friday, extending losses recorded in the previous session as investors focussed on May’s consumer price index report, which revealed the cost of living in the US rose more quickly than expected amid broad-based gains by categories. According to the Department of Labor, in seasonally adjusted terms, the consumer price index rose 1.0% month-on-month, pushing the year-on-year rate of gains to 8.6%, versus 8.3% in April and 8.6% for March.
At the core level, which excludes the oft volatile energy and food components, CPI was up by 0.6% on the month. In year-on-year terms, core CPI was ahead by 6.0% in annual terms, against increases of 6.4% and 6.2% in March and April, respectively. Economists were expecting a year-on-year increase of 8.3% for the main index and 5.9% for the core index.
AvaTrade‘s Naeem Aslam said: “Inflation engine is running steaming hot and there is still plenty more to come and this is what we can say about looking at the numbers today. Basically, inflation isn’t near its peak levels, and unfortunately, there is a lot more of these soaring numbers to come.
“Traders and investors are concerned as recession odds are only increasing with every day passing. Higher inflation has become an emotional matter now for consumers as it has started to seriously erode their disposable income. Consumers are constantly being pushed into a corner, and higher inflation is making them make difficult choices.”
Also on the macro front, a key gauge of consumer confidence hit a more than 40-year low in early June, led by a deteriorating outlook for business conditions one-year ahead, with a preliminary reading of the University of Michigan‘s consumer confidence index dropping from 58.4 at the end of May to 50.2 – well short of the consensus call for a print of 59.0. The reading was also its lowest recorded value and comparable to the trough reached during the middle of the recession in the 1980s.
Finally, the Federal Government’s budget deficit narrowed sharply to $66.0bn in May from $132.0bn at the same time a year ago, a much better reading than the $120.0bn reading expected by economists.
No major corporate earnings were released on Friday.
Monday newspaper round-up: Leicester factories, Google, household spending
More than half of the Leicester garment workers involved in a new study say they are paid below the minimum wage and receive no holiday pay, almost two years on from revelations about poor standards in the city’s factories. The study was commissioned by a new body, the Garment and Textile Workers Trust, which is funded by online fashion retailer Boohoo, as part of efforts to clean up its act after revelations about poor practice in the group’s Leicester supply chain. – Guardian
The suspension of a Google engineer who claimed a computer chatbot he was working on had become sentient and was thinking and reasoning like a human being has put new scrutiny on the capacity of, and secrecy surrounding, the world of artificial intelligence (AI). The technology giant placed Blake Lemoine on leave last week after he published transcripts of conversations between himself, a Google “collaborator”, and the company’s LaMDA (language model for dialogue applications) chatbot development system. – Guardian
A shorter week with no loss of pay seemed like a great idea during the strains of lockdown, when Samantha Losey was working “soul-destroying” 80-hour weeks. But after her communications company Unity was picked out of 500 applicants to join the world’s biggest four-day working week pilot, which kicked off last Monday, the managing director began to get cold feet. The agency had just had an influx of new clients, and Losey felt this might not be the best time to test out such a radical idea after all. – Telegraph
The work from home revolution has caused “permanent scarring” to the UK’s high streets as staff continue to shun the office months after pandemic restrictions have ended, the boss of a data firm has warned. Diane Wehrle, chief executive of Springboard, which tracks shop visitor numbers across the country, said footfall in towns and cities still remains well below pre-pandemic levels. – Telegraph
British household spending will shrink next year, the CBI has warned, as it called on the government to take measures to stimulate business investment to prevent a wider economic downturn. The organisation’s latest economic forecast slashes growth this year and next and predicts that household spending will turn negative next year as a result of surging inflation squeezing living standards. – The Times
