ADVFN Morning London Market Report: Thursday 22 September 2022

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London open: Stocks slide after hawkish Fed, ahead of BoE

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London stocks slid in early trade on Thursday ahead of the latest policy announcement from the Bank of England, as investors digested another big rate hike from the US Federal Reserve and a hawkish stance.

At 0825 BST, the FTSE 100 was down 1% at 7,166.01, while sterling was trading at a 37-year low against the US dollar, 0.4% weaker at 1.1228.

Overnight, the Fed raised interest rates by 75 basis points as expected and vowed to “keep at it” as it tackles surging inflation. The US central bank also cut its economic growth expectation for this year to 0.2% from 1.7% growth in June.

Derren Nathan, head of equity research at Hargreaves Lansdown, said the Fed had given a firm nod to the hawks that the direction of travel for the cost of borrowing is trending upwards.

“Looking ahead, the US central bank raised its medium-term expectations for federal funds rates, now predicting that they will hit 4.4% by the end of this year and 4.6% by the end of 2023 against previous guidance of 3.4% and 3.8%,” he said.

“In Chair Powell’s statement he made several references to ongoing strength in the job market, with unemployment sitting at 50-year lows, and this is likely to give the Fed the confidence to embolden its stance against inflation. This did little to settle market nerves with the major US indices suffering in afternoon trading with the Dow, S&P, and Nasdaq all closing down over 1.7%.”

On home shores, the BoE was expected to also raise rates by 75 basis points when it makes its announcement at midday.

Nathan said: “The Bank of England’s Monetary Policy Committee, due to meet later this morning, could follow the Fed’s lead with its own 0.75% increase in base rates, which would be the largest such rise in over three decades.

“Some are expecting a more modest 0.5% hike in line with August’s decision. Either way this will be another blow to consumer spending power as higher mortgage payments compound the cost-of-living crisis.”

In equity markets, Hargreaves Lansdown was the worst performer on the FTSE 100 as it traded without entitlement to the dividend. Crest NicholsonIG GroupEssentraJTC and Redrow were also ex-dividend.

Elsewhere, Polymetal tumbled after the Anglo-Russian precious metals miner said it swung to a net loss in the first half amid lower gold sales.

JD Sports was under the cosh after the sportswear retailer posted a drop in interim profits and said it remained cautious about trading through the remainder of the second half, given widespread macro-economic uncertainty and inflationary pressures.

On the upside, Imperial Leather maker PZ Cussons rallied as it said first quarter like-for-like sales rose 6.7% on the back of higher prices but also reported a fall in annual profits due to lower revenues and brand impairment.

Gambling software development company Playtech ticked up as it hailed an “excellent” first-half performance, with a rise in revenues and earnings driven by regulated B2B markets and the Snaitech business.

 

Top 10 FTSE 100 Risers

# Name Change Pct Change Cur Price
1 Bhp Group Limited +2.16% +48.50 2,298.00
2 Rio Tinto Plc +1.95% +92.00 4,812.00
3 Anglo American Plc +1.58% +44.50 2,859.00
4 Glencore Plc +1.55% +7.55 493.55
5 Admiral Group Plc +1.25% +27.00 2,186.00
6 Croda International Plc +1.15% +76.00 6,708.00
7 Kingfisher Plc +1.05% +2.50 240.00
8 Barclays Plc +1.05% +1.76 169.56
9 Associated British Foods Plc +0.98% +13.00 1,336.00
10 Lloyds Banking Group Plc +0.97% +0.47 48.94

 

Top 10 FTSE 100 Fallers

# Name Change Pct Change Cur Price
1 Hargreaves Lansdown Plc -4.33% -38.60 853.00
2 Land Securities Group Plc -3.80% -22.80 576.80
3 British Land Company Plc -3.22% -12.80 385.30
4 Carnival Plc -3.19% -24.40 741.40
5 Easyjet Plc -3.17% -10.80 330.10
6 Schroders Plc -3.05% -13.55 431.40
7 Intercontinental Hotels Group Plc -2.90% -130.00 4,359.00
8 Melrose Industries Plc -2.78% -3.00 104.75
9 Whitbread Plc -2.54% -65.00 2,495.00
10 Segro Plc -2.33% -19.80 830.00

 

US close: Dow slides as Fed signals further, faster rate hikes

Wall Street stocks turned negative by the close on Wednesday, with the Dow losing more than 500 points, after the Federal Reserve locked in another 75-basis point rate hike and signalled more was to come.

At the close, the Dow Jones Industrial Average was down 1.7% at 30,183.78, as the S&P 500 lost 1.71% to 3,789.93 and the Nasdaq Composite was off 1.79% at 11,220.19.

The Dow closed 522.45 points lower on Wednesday, adding to the losses it recorded on Tuesday.

“This third consecutive 75-basis point rate hike makes this the most aggressive hiking cycle since the Volcker disinflation,” said Mickey Levy at Berenberg after the Fed’s decision and markets closed.

“Following a painfully slow response to the soaring inflation, the Fed’s latest rate hike, its projections, and statements by Fed chair [Jerome] Powell at the post-meeting press conference underline the Fed’s focus on reducing inflation that ‘remains much too high’.”

Levy noted that Powell signalled further aggressive rate hikes over coming meetings were likely, with the historical record cautioning “strongly” against prematurely loosening policy.

“While Powell acknowledged it was ‘very likely’ labour market conditions would soften, the Fed will likely remain attentive to incoming data as risks become more two-sided.”

Indeed, Fed officials waved through another big 75-basis point rate hike in their latest decision late in the session, taking the federal funds rate target to between 3% and 3.25%.

At the same time, policymakers signalled there would be another 125 basis points tacked on to rates by the end of the year, which was much higher than markets were previously anticipating.

“We will keep at it until the job is done,” said Federal Reserve chair Jerome Powell on the fight against rampant inflation.

“I wish there was a painless way to do that. There isn’t.”

The Federal Open Market Committee was now aiming for a midpoint base rate of 4.4% by the end of 2022, up markedly from the 3.8% that it previously signalled.

It also saw a terminal rate in its current cycle of hikes of 4.6% in 2023, with no rate cuts foreseen until 2024.

Naeem Aslam, chief market analyst at AvaTrade, said traders needed to take the news “with a pinch of salt”, noting that it could have been worse given some were fearing a full percentage point hike.

“The fact that we have not seen that much interest rate hike today should be considered good news,” he said.

“This fact may actually bring some bargain hunters into the market when panic settles.

“At the same time, a recession is highly likely now as well, and this means markets are going to be immensely choppy.”

Earlier in the day, news that Russian president Vladimir Putin was mobilising more troops to neighbouring Ukraine was making headlines, as he said the West wanted to destroy his country ahead of announced referendum plans on Ukraine joining Russia within days.

Elsewhere on the macroeconomic front, US mortgage applications increased by 3.8% on a seasonally adjusted basis in the week ended 16 September, according to the Mortgage Bankers Association.

The refinance index rose 10% from the previous week, while the seasonally-adjusted purchase index increased 1% from one week earlier.

Still on data, US existing home sales dipped 0.4% to 4.8m in August, according to the National Association of Realtors, following a downwardly revised 5.7% drop in July for the lowest reading since May 2020, and a seventh consecutive monthly drop.

In equities, Cheerios and Betty Crocker maker General Mills closed up 5.72% after saying net sales had increased 4% to $4.7bn, with organic net sales up 10% year-on-year, leading the group to raise its full-year outlook.

On the downside, plant protein firm Beyond Meat was off 0.81% after suspending its chief operating officer Doug Ramsey, who was arrested and charged at the weekend on allegations of biting a man’s nose in an Arkansas altercation.

Elsewhere, Glatfelter slid 5.57% after it suspended its quarterly dividend overnight amid a “reprioritisation” of capital.

 

Thursday newspaper round-up: UK debt, living wage, Newport Wafer Fab

Britain’s mounting debts will be unsustainable if the government presses ahead with sweeping tax cuts in a mini-budget on Friday, according to the Institute for Fiscal Studies thinktank. Fuelling concerns that the UK’s precarious financial position will spark a run on the pound, the chancellor, Kwasi Kwarteng, is expected to reverse an increase in national insurance payments and cut corporation tax at a cost to the Treasury of £30bn. – Guardian

Almost 400,000 workers in the UK whose employers are signed up to paying the real living wage are in line for a record pay rise, as the charity that sets the rate approved an increase to £10.90 an hour for outside London. The Living Wage Foundation said it was launching the annual increase two months earlier than planned and had recommended its biggest single rise yet in recognition of the intense pressure on households from rocketing energy prices and the highest inflation rate in 40 years. – Guardian

The co-founder of collapsed energy supplier Bulb is planning to start a new company after landing a job at a venture capital fund backed by the former foreign secretary David Miliband. Hayden Wood has been appointed as venture partner at Giant VC, where he will be tasked with finding European start-ups to invest in. – Telegraph

The first Chinese car brand will be sold in Britain within months after a leading UK dealer revealed it is in the final stages of a deal with the country’s biggest electric vehicle maker. Pendragon said it expects to begin selling cars from BYD, which is based in Guangdong Province, before the end of the year. – Telegraph

Employees of the semiconductor firm Newport Wafer Fab, whose controversial takeover by a Chinese-backed business is under review by the government on national security grounds, have weighed into the row over its future. In a strongly worded letter to The Times, the staff association, which says it represents the 582 employees, said they “fully support Nexperia and its ownership of our site” because it has provided stability, improved job security, wages and working conditions. – The Times

The head of Co-op Food is to leave the retailer after five years, while the boss of its wholesale business Nisa will also stand down. Jo Whitfield will step down from her role to “pursue her next challenge” after leading a reinvention of its food business, the retailer said yesterday. – The Times

 

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