- FTSE 100 close to opening levels after a weak open
- World Bank warns higher rates could cause global recession
- Sterling hits 37 year low
Inflation in the eurozone hit a fresh high of 9.1% in August from 8.9% in July in line with market expectations while the core figure (excluding energy, food, alcohol and tobacco) also rose to 4.3% from 4.0%, again in line with market forecasts.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics thought the core inflation number “will be very uncomfortable for the ECB in the next few months” with further rises expected.
“The good news is that the acceleration in services inflation is now petering out in our forecasts, leaving non-energy goods as the main near-term upside risk.”
Vistesen said whether the ECB hikes rates in October by 75bps “hangs in the balance” adding “If the ECB looks at the core, they will do 75bp, but if they glean at the headline, we now think they will be inclined to dial it down to 50bp. Watch this space.“
Capita rises after double dose of good news
Shares in Capita PLC advanced after it reported a contract extension with Barnet Council and the disposal of its subsidiary Pay360 Ltd to Access PaySuite.
Shares in the outsourcing services group rose 6.6% after securing the contract extension with the north London council that is worth £42.7mln, although with indexation and potential additional work it could be worth up to £57mln.
Separately, Capita said it agreed to dispose of Pay360 to the division of Access Group for £150mln on a cash-free, debt-free basis.
Capita said the sale will help reduce its debt, provide additional liquidity, and allow it to enhance its digital offerings for clients and build a more focused and sustainable business for the long term.
10.00am: FedEx warning hits Royal Mail
Shares in Royal Mail PLC dipped today following the profits warning by US peer FedEx pulled its full year guidance after warning that first quarter profits would miss estimates as a global demand slowdown accelerates.
It cited "macroeconomic weakness" in Asia and "service challenges" in Europe.
Investors took the view that industry challenges would be the same for Royal Mail which also faces the prospect of more industrial action as employees strike over higher pay.
Royal Mail workers represented by the Communication Workers Union (CWU) had planned a walkout on 9 September 2022 but are now planning to strike on September 30 and October 1 2022.
Shares fell 10.5% to 223.5p.
9.30am: Sterling hits 37 year low
The pound has fallen to a new 37-year low against the dollar, as the sharp drop in UK retail sales heightened recession fears.
Sterling dropped more than 1% to $1.1350, and has lost 0.5% against the euro to €1.1407.
The low point, not seen since the days of Margaret Thatcher, resulted partly from a firm dollar, the greenback has been strong against a number of major currencies as the US Federal Reserve has aggressively hiked interest rates, thereby offering better returns for investors.
The dollar index, which measures it against a basket of currencies, rose as much as 0.5% this morning.
The Fed is expected to raise interest rates by a further 75 basis points at next Wednesday’s meeting, a day before the Bank of England is set to hike rates by 50 basis points.
9.00am: FTSE weaker as miserable week for investors continues
Richard Hunter, head of markets at interactive investor, said today’s falls in global equity markets “capped off a fairly miserable week for investors, with inflationary concerns remaining front and centre.”
In London both the FTSE 100 (down 34 points at 7,248) and FTSE 250 (down 127 points at 18,760) were lower.
“With inflation remaining the major thorn in the side for central banks globally, the inevitable rate rises to lower the current levels are leading investors to question how high the possibility of recession is now becoming, with any policy errors due to over-tightening likely to be the root cause.”
“In the meantime, the bond market is in clear agreement, with yields remaining sharply inverted, often seen as a harbinger of recession.”
“The general gloom also permeated to the FTSE100, which opened unsurprisingly lower” with “losses were broad based, but particularly marked in the mining sector on weakening demand, and in the housebuilders amid an increasingly challenging environment.”
AstraZeneca PLC was a rare riser in the FTSE 100 after it said today it had received two recommendations for drug approvals in the EU, while a drug for blood disorder paroxysmal nocturnal haemoglobinuria met its primary endpoint in a phase three trial.
The group said its Beyfortus drug, which it develops with Sanofi (EPA:SASY). for the prevention of lower respiratory tract disease in newborns and infants has been recommended for marketing authorisation in the European UnionMeanwhile, AstraZeneca's Evusheld Covid antibody treatment has been recommended for marketing authorisation in the EU for adults with the virus at risk of progressing to severe disease.
8.30am: August retail sales should steer MPC to 50bp rate rise
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics said today’s weaker than expected UK retail sales figures came as little surprise given the extremely low level of consumers’ confidence.
She said it “should steer the Monetary Policy Committee towards a 50bp increase in bank rate next week, rather than the 75bp hike deemed most likely by markets.”
Looking ahead, Dickens does not expect the additional public holiday for the Queen’s funeral on Monday, and associated shop closures, will materially dampen retail sales in September believing people simply will shop online or visit shops later in the month instead.
She pointed out that retail sales volumes fell by just 0.1% month-to-month in September 1997, when Princess Diana’s funeral took place, even though most shops closed for the day.
Moreover, the government’s decision to freeze consumer electricity and natural gas prices for the next two years at 27% above their current level, should foster an improvement in consumers’ confidence and a partial recovery in households’ real disposable incomes over the coming quarters.
Dickens expected August’s retail sales figures to be this year’s nadir with a consumer-led recession to be narrowly avoided this winter.
8.10am: FTSE 100 opens lower, down 30 points
FTSE 100 opened lower on Friday following falls in Asian and US markets and as the World Bank warned that central banks could cause a “devastating” global recession if they raise interest rates too high.
At 8.10am the FTSE 100 fell 31 points and the FTSE 250 dropped 118 points to 18,765.
A further dent to sentiment in the UK came from weak retail sales figures which fell 1.6% in August well below market expectations for a fall of 0.5%.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said the weak figures “suggest the UK is already in recession” adding that it “raises a serious question for UK policy makers.”
She noted retail sales were holding up better in the US than in the UK giving more scope to the Federal Reserve to increase rates more aggressively than the Bank of England has in the UK.
“The UK consumer base is weaker, meaning it may be deemed too risky to inflate rates at the same pace as our trans-Atlantic friends, which would keep up the downwards pressure on the pound” she said.
7.45am: World Bank warns of global recession
The World Bank has warned that leading central banks risk sending the global economy into a “devastating” recession next year if policymakers raise interest rates too high over the months ahead and stress financial markets.
The world’s three largest economies - the United States, China and the euro area - have been slowing sharply, and even a “moderate hit to the global economy over the next year could tip it into recession,” the bank said in a new study.
It said the global economy was now in its steepest slowdown following a post-recession recovery since 1970, and consumer confidence had already dropped more sharply than in the run-up to previous global recessions.
The Washington-based organisation called on monetary authorities in the big economies to co-ordinate their actions to reduce the overall amount of tightening.
Central banks, led by the US Federal Reserve, have embarked on a series of aggressive rate rises over the course of 2022 in a bid to tame inflation that is at, or close to, double figures in several advanced economies for the first time in decades.
Energy and food prices have surged following Russia’s invasion of Ukraine in late February, triggering a cost of living crisis.
To avoid letting inflation rip, the World Bank urged governments to provide targeted relief to vulnerable households instead of relying on tighter monetary policy.
World Bank president David Malpass said momentum in the global economy was sliding and more countries were already falling into recession. “My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” he added.
The World Bank did not produce new forecasts for the global economy, but noted that the outlook for 2023 had been sliding as rich and poor countries alike responded to high inflation this year by seeking to limit spending.
7.20am: UK retail sales slump in August
UK retail sales slumped by 1.6% in August 2022, continuing a downward trend since summer 2021 following the lifting of restrictions on hospitality, and well below City forecasts for a 0.5% fall with rising prices squeezing consumer spending.
All main sectors (food stores, non-food stores, non-store retailing and fuel) fell over the month which last happened in July 2021, when all legal restrictions on hospitality were lifted.
Non-food stores sales volumes fell by 1.9% over the month because of falls in each of its sub-sectors: other non-food stores (negative 2.8%), department stores (negative 2.7%), household goods stores (negative 1.1%) and clothing stores (negative 0.6%).
Non-store retailing (predominantly online retailers) sales volumes fell by 2.6% in August, food store sales volumes fell by 0.8% and automotive fuel sales volumes fell by 1.7%.
6.55am: FTSE seen lower after falls in the US and Asia
FTSE 100 expected to open lower after US markets failed to hold onto early gains and ended the session lower.
Spread betting companies are calling London’s blue chip index down by around 40 points.
The Dow closed Thursday down 173 points, 0.6%, at 30,962, the Nasdaq Composite lost 167 points, 0.4%, to 11,552 and the S&P 500 shed 45 points, 1.1%, to 3,901. Thursday marked the Dow's lowest close since July 14.
Michael Hewson chief market analyst at CMC Markets UK said “Concerns about a global recession are also growing, manifesting themselves by way of weakness in commodity prices, crude oil prices slumping by over 3% yesterday, while natural gas prices on both sides of the Atlantic also plunged sharply.”
“These fears have translated into further weakness in Asia this morning with the latest Chinese retail sales and industrial production data for August offering some encouragement of an economic improvement, but unable to turn around the wider negative tone, with European markets set to open lower.”
In the UK retail sales figures are due and are expected to show a fall of 0.5% in August.