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MARKET WRAP: FTSE slides, USD rallies as US yields hit 2-year highs

EconomyJan 18, 2022 16:29
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Key Points

  • FTSE 100 closing price of 7,566.2 (-0.6%)
  • US 10-year yield hits two-year high
  • Unilever declines for second day
  • Energy names rally as oil pushes higher
  • USD benefits from higher yields; GBP, EUR slip
  • UK unemployment declines, real wage growth stagnates
  • Bitcoin edges lower

By Samuel Indyk – The FTSE 100 declined on Tuesday as rising yields in the US again weighed on stocks across the pond. The United States 10-Year yield jumped above 1.85% briefly on Tuesday morning to its highest level in two years which weighed on major indices in the US. At the European close, the Nasdaq 100 was down 1.9% and the Dow Jones down 490 points.

Unilever (LON:ULVR) was a notable underperformer in the UK for the second consecutive day after news emerged that the Dove soap maker has had three offers rejected for GlaxoSmithKline's (LON:GSK) Consumer Health unit, a joint venture with Pfizer (NYSE:PFE). The reaction to a potential deal in the City and from Wall Street was not the most positive with some analysts expecting a deal of £60 billion might be needed to tempt GSK into selling the unit.

Energy stocks in the UK were trading higher after WTI and Brent crude continued to rise, with both benchmarks hitting their highest level in more than seven years. A Houthi attack on the United Arab Emirates helped trigger some of the gains amid fears that the instability in the region could damage a supply picture that already looks fragile. Meanwhile, Goldman Sachs (NYSE:GS) said they expect oil prices to breach $100/barrel this year as OPEC spare capacity drops to historically low levels.

Royal Dutch Shell (LON:RDSa) and BP (LON:BP) traded near the top of the FTSE 100 while smaller cap names such as Tullow Oil (LON:TLW) and Energean (LON:ENOG) also traded higher.

The USD dollar benefitted from higher yields with GBP/USD dropping below 1.3600 and EUR/USD back below 1.1350.

The UK labour market data released in the morning was mixed and had little impact on the pound. Total employment grew by 60K in the three months to November, less than forecast. The unemployment rate dropped to 4.1% from 4.2% while average earnings excluding bonuses increased by just 3.8%.

“For the first time since July 2020 wages actually fell in November if you take into account blistering inflation figures,” writes AJ Bell Financial Analyst Danni Hewson. “How does this shift impact the Bank of England’s thinking? Spiralling wage growth and a booming jobs market played into their decision making to increase rates in December.”

Bitcoin edged lower as the world’s largest cryptocurrency continues to trade in the $40,000-$45,000 range.

In the UK, the government announced it would be clamping down on misleading cryptocurrency adverts and bringing in the Financial Conduct Authority with crypto ads brought under existing rules governing financial promotions.

“News of the rule changes comes at a timely moment, given that the value of Bitcoin has dropped by 38% since its all-time high of over $68,000 in November,” said Hargreaves Lansdown Senior Investment and Markets Analyst Susannah Streeter.

“The rollercoaster ride is set to continue given that crypto assets are also highly sensitive to the fortunes of the stock market and were propelled higher in an era of ultra cheap money.

“As speculation swirls about how rapidly central banks will tighten mass bond buying programmes and start raising interest rates, given soaring inflation, they are likely to stay volatile.”


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MARKET WRAP: FTSE slides, USD rallies as US yields hit 2-year highs

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