FTSE 100 off worst levels as Fed chair’s testimony sees a Wall Street revival, but UK inflation hits new 40-year high

  • FTSE 100 closes down over 62 points 
  • UK consumer price index hits 9.1%
  • Berkeley dives despite good results

4.50pm: FTSE closes in red

FTSE 100 closed in the red midweek as traders digested the latest inflation data and macroeconomic headwinds.

Britain’s blue-chip index finished down nearly 63 points, or 0.88%, at 7,089.

According to official stats, UK inflation went up to 9.1% in the 12 months to May this year compared to 9% in the previous month – the highest level since March 1982 – but that was not the whole picture, according to Michael Hewson, chief market analyst at CMC Markets UK.

“Today’s inflation numbers from the UK came across as rather mixed in the same way as the US inflation numbers a couple of weeks ago, with core prices softening, however PPI prices continued to push higher, suggesting that there is still a lot of price pressure still in the pipeline,” he said.

“These concerns have also fed into weakness in metals prices with another sharp drop in copper, which has fallen to new one-year lows, and its weakest levels since March 2021, as worries over an impending global slowdown gain traction,” he also noted.

3.54pm: Footsie recovers some lost ground but weak miners help keep it in the red

A revival on Wall Street as Federal Reserve chair Jerome Powell testifies has helped pull the UK market off its worst levels.

Powell appears to have said little so far that is likely to unsettle investors.

So with all three main US indices in the green after a downbeat start, the FTSE 100 is now down 46.21 points or 0.65% at 7105.84, having earlier fallen as low as 7030.

Mining shares are among the leading fallers, on continuing concerns that a severe economic slowdown will hit demand for commodities.

Glencore PLC (LSE:GLEN), which has also been found guilty on several counts of bribery, is down 5.48%, Antofagasta PLC (LSE:ANTO) has fallen 4.4%, Anglo American PLC (LSE:AAL) is off 4.25% and Rio Tinto PLC (LSE:RIO) has lost 3.56%.

Elsewhere Ocado Group PLC (LSE:OCDO), which raised £585mln this week with a surprise placing and retail offer, is down 5.33% on suggestions it could be hard hit as cash strapped consumers continue turning to cheaper rivals such as Aldi and Lidl.

Among the risers JD Sports Fashion PLC (LSE:JD.) is up 8.57% after a positive response to its full year results.

Analyst Nick Bubb said: “The headline figures look very disappointing, but that is because they are struck after an unusually large exceptional cost item of £293mln, which turns out to be the adverse fair value movement of the put options on the US business

“Before exceptionals, profit before tax of £947mln is very strong, as expected, boosted by the excellent performance of the US business. The chief executive search is said to be progressing well and JD are still negotiating with an approved purchaser for the sale of the Footasylum business. The new year has started well, with like for like sales up 5% in the first four months, but JD warn that given the macro-economic headwinds they expect profits this year to be only flat.”

2.53pm: Wall Street in negative territory

US stocks have opened lower  with the Fed back in the spotlight as its chair Jerome Powell began his two-day testimony before the Senate Banking Committee.

Just after the open, the Dow Jones Industrial Index had shed 331 points at 30,200 points.

The S&P 500 had dipped 43 points at 3,722 points and the Nasdaq Composite had slipped 67 points at 11,003 points.

Back in the UK, the FTSE 100 is holding steady, albeit sharply lower.

The leading index is currently down 91.05 points or 1.27% at 7061.00.

2.46pm: Fed to decide on rate hikes meeting by meeting – Powell

In his testimony to US Congress today, Federal Reserve chair Jerome Powell said the central bank would decided on further rate hikes meeting by meeting.

But he repeated the Fed was determined to push rates high enough to slow inflation, a commitment which has led to fears that the country could fall into recession.

He said: “Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent.

“We anticipate that ongoing rate increases will be appropriate; the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy.

“We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible. Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored.

“Making appropriate monetary policy in this uncertain environment requires a recognition that the economy often evolves in unexpected ways. Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook.”

2.34pm: Oil slides further

Oil continues to slide as recession fears grow, with Brent crude now down 6% at US$107.75 a barrel.

West Texas Intermediate, the US benchmark, is 6.57% lower at US$102.33.

Craig Erlam, senior market analyst at Oanda, said: “Is oil prices getting whacked the clearest sign yet of recession fears spreading across financial markets? With equity markets, it’s been a death by a thousand cuts, as inflation panic has morphed into tightening and growth fears and finally the reality of a recession. Oil market dynamics mean crude has rallied throughout this as demand has been strong and supply insufficient. Is all of that about to change?

“There’s been a clear shift over the last week and as far as I’m aware, there hasn’t been a miraculous oil discovery that solves all of the supply issues. But there’s been a far greater acceptance that a recession may be unavoidable if central banks are going to get control of inflation again. WTI is falling rapidly back towards $100 where it could see strong support.

12.46pm: Micro Focus leads the mid-cap index lower

The Footsie remains down just over 1% but the FTSE 250 is putting in a worse performance.

The mid-cap index is down 1.51% at 18,663.84, not helped by a slump in shares of Micro Focus International PLC (LSE:MCRO) after its half year results.

The legacy software giant reported revenue of US$1.27bn for the six months to 30 April, down 11% year-on-year and below the US$1.32bn that analysts had expected.

12.05pm: Wall Street set for opening decline

US markets are expected to open lower, giving back some on Tuesday’s rally ahead of US Federal Reserve chair Jerome Powell’s latest testimony before Congress, to be delivered today and tomorrow.

Powell is expected to strike a hawkish note on inflation which has yet to hit its peak, suggesting that trading is likely to remain cautious and volatile, putting an end to the bargain-hunting which shored up equity prices in the previous session.

Futures for the Dow Jones Industrial Average fell 1.5 % in pre-market trading, while those for the broader S&P 500 index shed 1.7%, and contracts for the Nasdaq-100 were down 2%.

Fed policymakers raised interest rates by 75 basis points last week and are expected to keep on hiking rates through the rest of the year. Some believe that the Fed is losing the battle against inflation and that the aggressive rate hikes will instead crimp economic growth and dent corporate bottom lines. Fears that the world’s biggest economy will slip into a recession are also growing.

Meanwhile the UK market is still floundering, with the FTSE 100 down 91.21 points or 1.28% at 7060.84.

11.32am: Footsie falls continue

Leading shares continue to come under pressure, as growing fears of recession amid rising prices and interest rates grip global markets.

The FTSE 100 is currently down 100.4 points or 1.4% at 7051.65.

Housebuilder Berkeley Group Holdings PLC (LSE:BKG) is the biggest faller, down 6.44% despite a 6.4% rise in pretax profits.

“An increase to profit forecasts for the next three years and strong hints of even greater cash returns to shareholders are failing to move shares in high-end housebuilder Berkeley,” said AJ Bell Investment Director Russ Mould. “Investors are focusing instead on rising interest rates, falling consumer confidence and fears of a recession, especially as acquisitions, dividends and buybacks are whittling down the FTSE 100 firm’s net cash pile.

10.54am: Brexit lacks benefits, says new report

Brexit has reduced Britain’s competitiveness and will lower productivity and leave the average worker less well-off than if the UK had remained in the European Union, according to a new report from the Resolution Foundation.

“Brexit represents the biggest change to Britain’s economic relationship with the rest of the world in half a century,” said Sophie Hale, the foundation’s principal economist,

10.35am: House prices rose in April but pundits reckon slowdown is coming

More price rises, this time in the housing market.

UK house prices increased by 12.4% in the year to April 2022, up from 9.7% in March 2022, according to the latest official figures from the Land Registry.

The average house price is now £261,181.

House price growth was strongest in the South West where prices increased by 14.1% in the year to April 2022. The lowest annual growth was in London, where prices increased by 7.9% .

Nicky Stevenson, managing diirector of estate agents Fine & Country, said: “Few were predicting that house price growth would rally amid all the pessimism in the broader economy — but that’s exactly what has happened.

“Gains are being driven in part by equity-rich homeowners looking to trade-up, with prices of detached homes surging faster than any other property type.”

But as some are pointing out, these official figures are not exactly current.

Ross Boyd, founder of mortgage comparison platform Dashly.com, said: “Property prices were on fire in April but that was then and this is now. Economic conditions have deteriorated significantly in the past few months at the same time as interest rates have risen. More rate rises are almost certainly on the cards as the Bank of England attempts to control inflation, which is now at 9.1%. It’s inconceivable to think the housing market will remain unaffected by the current interest rate cycle, which is now firmly on an upwards trajectory. The property market will cool throughout 2022 and in 2023.”

9.55am: Sterling slides despite inflation news

The pound is under pressure despite the continuing signs of pricing pressures which are likely to lead to more UK interest rate rises.

Against the dollar sterling is down 0.4% at US$1.2214 while against the single currency it is off 0.1889% at €1.1623.

Neil Wilson at Markets.com said: “A core reading of +5.9% was a little lighter than expected so traders have trimmed bets for three 50bps hikes by November.

“The fear is inflation is crippling consumers, leading to recession, and the Bank of England is not doing enough to defend the currency. Better a short, sharp dose of monetary policy medicine now than prolonged stagnation/stagflation – consumers don’t pay core, they pay headline. In fact, core inflation is minded to slide when non-core is ripping because of inelasticity of demand for food and energy. But it doesn’t matter since RPI is at 11.7%.

“Whilst the Fed seems to be saying, by its recent actions, that a short recession is better than long-term stagflation, the Bank of England seems afraid to be so bold.”

9.25am: Crude price falls but petrol buyers unlikely to see the benefits

The oil price has fallen back sharply as fears of a global recession grow, making commodity companies among the day’s biggest fallers so far.

Brent crude is down 4.47% to US$109.53 a barrel while West Texas Intermediate – the US benchmark – is 4.88% lower at US$104.21.

So Shell PLC (LSE:SHEL, NYSE:SHEL) is off 4.05% and BP PLC (LSE:BP.) is down 3.1%.

Among the miners, Glencore PLC (LSE:GLEN) has lost 4.79% while Antofagasta PLC (LSE:ANTO) has fallen 3.46%.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “Global sentiment has tipped further into negative territory. The pan-European Stoxx 600 is down 1.8%, with all sectors edging into negative ground. Germany’s DAX has seen a steeper decline of 2.3%, and the CAC 40 has shed almost 129 points.

“This contagion has likely been driven by the UK’s inflation data, with the CPI running at a 40-year high…

“Broader concerns of a slowdown in global economic growth have seen oil and miners among the worst hit on the UK market today..

“Wider recession fears have seen Brent crude fall.. It’s unlikely this dip will be felt at the petrol pumps any time soon though, as broader supply chain concerns still exist in a very big way.

“Ultimately, this is a darker day for global markets than has been seen in a while. Serious questions remain about the resilience of consumers, and it appears traders are bracing for a harsh hand where interest rates are concerned.”

9.04am: Banks among the few risers

There are a few risers in the leading index, notably banks which will see their balance sheets benefit from rising interest rates.

Lloyds Banking Group PLC (LSE:LLOY) has been lifted 0.88% but NatWest Group PLC (LSE:NWG) has jumped 2.89%, helped by news the UK government is extending a plan to sell more of its £11.3bn or 48.5% stake by a year.

UK Government Investments Ltd, which looks after state holdings, said the plan would now  now terminate no later than 11 August 2023 instead of 11 August 2022 .

It added: “The decision to extend the trading plan does not preclude HM Treasury from executing such other disposals that achieve value for money for taxpayers, including during the term of the trading plan.”

Overall though the market is still in negative territory, with the FTSE 100 down 96.26 points or 1.35% at 7055.79.

8.22am: Market under the cosh after rise in consumer price index

Leading shares have dropped sharply in the wake of the UK consumer price index hitting a new 40-year high.

The FTSE 100 is down 91.25 points or 1.28% at 7060.80 in early trading as investors fret about higher prices, a wages squeeze, rising interest rates and the prospect of a severe economic slowdown or even recession.

Urvish Patel, economist at think tank NIESR, said: “Persistently high inflation and a forecast shallow recession at the end of 2022 means [the Bank of England] continues to walk on ice with heightened risks of deepening the recession if rates are hiked rigorously.”

UK inflation is not the only game in town, however, with US Federal Reserve boss Jerome Powell due to testify to Congress, where he will be quizzed on – yes – surging prices and the central bank’s interest rate outlook.

Michael Hewson, chief market analyst at CMC Markets UK, said: “Fed chairman Jay Powell will be on Capitol Hill giving testimony to US lawmakers on the state of the economy, where he is likely to face questions on how far the central bank is prepared to go to tame inflation, in terms of how high does he expect rates to go, and whether he agrees with his colleague Christopher Waller that the only priority for the Fed now is to tackle inflation, and whether the Fed is prepared to allow unemployment rise sharply to achieve that goal.”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: “Jerome Powell’s semiannual testimony could turn the market mood sour again as the Fed Chief is expected to reiterate his strong commitment to fighting inflation even if it means slower economy and a softer jobs market.  

“Joe Biden said earlier this week that he doesn’t think the recession is inevitable, but Goldman upped its recession expectation from 15 to 30%, and Morgan Stanley (NYSE:MS) said that the S&P500 must drop another 15-20% to fully reflect the scale of contraction.”

Back with the UK market and housebuilder Berkeley Group Holdings PLC (LSE:BKG) is outperforming but is still down 0.69% despite a better than expected 6.4% rise in pretax profits to £551.5mln.

Richard Hunter, head of markets at interactive investor, said: “Berkeley continues its growth at pace, although the disconnect between its trading performance and share price performance remains significant…

“The housebuilders are generally a rich source for generous dividend returns, and especially while they continue to flourish.

“[Berkeley] now stands poised to deliver on the next phase of its strategy even though the share price has hardly kept up with developments. The price has fallen by 24% over the last year as compared to a gain of just 0.9% for the wider FTSE100, and has been hampered again today set against a weak market opening. Even so, the market consensus of the shares as a buy remains resolutely intact in anticipating brighter times to come in the longer term.”

8am: Fuel and food drive price rises

Fuel and energy price rises along with food are the main drivers of the increase in inflation, but they are not the only ones.

Laura Suter, head of personal finance at AJ Bell, said: “A slight uptick in inflation in May to 9.1% means that the UK public have been spared double digit inflation for now, but it’s just around the corner. RPI inflation, which is what many of us see our bills increase by every year, has now hit 11.7% — another 40-year high.

“Once again fuel is the factor driving inflation higher, from home energy bills to petrol and diesel prices pushing up transport costs. As a result of rising energy costs, the 12-month inflation rate for electricity is 53.5% and for gas is an eye-watering 95.5%. And May saw another record broken, with the largest increase in transport costs since records began in 2006. As a result of petrol and diesel prices hitting new records in May, the 12-month inflation rate for motor fuels hit the highest rate since 1989 – when the figures were first calculated.

“But it’s not just energy bills increasing, prices are rising across the board. Soaring food costs are also playing their part, with the annual supermarket bill estimated to have risen by almost £400 as a result. Hardest hit were bread, cereals and meat, as they all suffered from the impact of the Ukraine/Russia crisis on grain supplies. Food inflation is expected to increase again in June’s figures, partly due to the ongoing increase in prices and partly because the nation splashed out on fancier food during the Jubilee celebrations.

“Another factor bumping up inflation in May was mortgage costs, with the successive Bank of England base rate hikes pushing up mortgage rates and leading to the largest increase in costs for homeowners since 1999.”

7.36am: “Inflation is pummelling us” say small businesses

More on the hardly unexpected but nonetheless troubling news that inflation has hit a new 40-year high

Anna Leach, CBI Deputy Chief Economist, said: “Inflation has picked up again, and we expect it to stay elevated over the year ahead, particularly as global price pressures remain strong. The result will be much pain for those businesses most exposed to higher costs, and a historic squeeze on households’ incomes. 

“The void left by falling household spending must be filled by government action to shore up both near and long-term economic growth. Committing to a permanent successor to the super-deduction, as well as supporting green infrastructure and technologies that help cut energy bills in homes and businesses, will both boost economic confidence and reduce exposure to volatile global energy prices.”

Small businesses are feeling the pain of the cost of living crisis, with soaring prices outrunning wages.

Ollie Hayes, a former professional rugby player, personal trainer and founder of So Fit Bath, said: “Inflation is pummelling us and it feels like the Government and Bank of England are just watching from the stands. For millions of small businesses, it’s more brutal now than it was during the pandemic but policymakers and the people running this country are all out of ideas. The economy is entering a dark place.”

Nikki Collier, owner at Sudbury-based childrenswear company, BiNibabies, said: “I’ve seen a 60% drop in both online and footfall sales and inflation is almost certainly the cause. At this rate, I will not survive another two months. I’ve survived COVID to now be hit with this, which is far worse. Sometimes I wonder what is the point for us little shops. Everyone says shop local but too many local shops can’t compete with the big brands, who can afford to lower their prices to reel customers in.”

7.23am: Consumer price index climbs to 9.1% in May

The expected opening fall for the FTSE 100 has steepened after fresh figures showed UK inflation climbed to a new 40-year high last month.

May’s consumer price index (CPI) was up 9.1% in May compared to the same period last year, the highest since 1982 and up from 9% the month before, the Office for National Statistics revealed.

With further rises in household energy bills still to come, inflation is expected to climb even higher to around 11% this autumn.

Core CPI, which excludes food and fuel prices, was up 5.9%, down from 6.2% in April. CPIH, the Bank of England‘s preferred measure, was up 7.9% in May from 7.8% in April.

The retail prices index (RPI) hit 11.7%, up from 11.5%.

Market analyst Naeem Aslam at AvaTrade said: “Inflation readings in the UK are moving in one direction which is to the upside and pushing consumers further and further in the corner. There is no doubt consumers are badly squeezed by higher inflation numbers and there is no sign of any peak in sight.

“Today’s economic data suggests that things are likely to become a lot more ugly in the UK and lawmakers really need to get their act together if [they] want to see save the save UK economy from a major depression.”

6.50am: Falling Footsie expected

The FTSE 100 is seen falling on Wednesday amidst fresh signs of volatility in the market.

CFD firm IG Markets sees London’s blue-chip benchmark some 69 points lower, making a price of 7,078 to 7,081 with just over an hour to go until Wednesday’s open.

“Despite yesterday’s gains, today’s European open looks set to be a negative one, as a slide in oil prices over demand concerns weighs on the wider narrative, prompting weakness in Asia markets, along with US futures,” said Michael Hewson, analyst at CMC Markets.

“Today’s main focus will be on the latest UK inflation numbers for May, as well as Fed chair Jay Powell’s testimony to US lawmakers this afternoon.”

Tuesday saw Wall Street stocks rally. The Dow Jones advanced some 641 points or 2.15% to close at 30,530.

The S&P 500 was stronger, up 2.45% to 3,764 whilst the Nasdaq climbed 2.51% to 11,069. The small-cap focussed Russell 2000 meanwhile tacked on 1.7% to 1,694.

In Asia, this morning, though, Japan’s Nikkei drifted 0.08% lower to 26,223 whilst Hong Kong’s Hang Seng fell 1.24% to 21,292 and the Shanghai Composite dipped down 0.31% to 3,297.

Around the markets

The pound: US$1.2231, down 0.3779%

Gold: US$1,825 per ounce, down 0.34%

Silver: US$21.37 per ounce, down 1.14%

Brent crude: US$111.01 per barrel, down 3.1%

WTI crude: US$105.69 per barrel, down 3.12%

Bitcoin: US$20,475, down 2.02%

Ethereum: US$1,100, down 3.94%

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