Proactive Investors - TUI AG, the world's largest holiday company, may have moved back into profit last year but investors remain cautious, and its shares have fallen back.
They are currently down 8.33%, making them the biggest faller in the mid-cap FTSE 250.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown (LON:HRGV), said: "For all the progress, TUI is mindful of the unforgiving economic uncertainty. A cost-of-living crisis means it’s almost impossible to map demand accurately. Sunny getaways are far from front of mind for much of TUI’s core demographic these days, and exactly what this will mean for the first quarter is yet to be seen.
"Strikes from Border Force officials is another spanner in the works, with disruption on an operational and demand level highly likely in the coming weeks.”
Richard Hunter, head of markets at interactive investor, said: "Investors will need to see evidence of an established trend before warming to the prospects of the company. In the meantime, inflation, disruptions, labour shortages and competition from lower-cost operators which could well capture the imagination of cash-starved consumers could all provide headwinds."
8.48am: Housebuilders among the fallers
Housebuilders are under pressure after broker downgrades.
With the sector affected by the recent rises in mortgage rates, analysts at JP Morgan have cut their rating on Taylor Wimpey PLC (LON:TW.) from overweight to neutral and their price target from 170p to 110p.
The move has left the builder the biggest faller in the leading index, down 2.26% to 101.85p.
The analysts have also moved their recommendation on Redrow PLC (LON:RDW) from neutral to underweight and their price target from 550p to 390p, leaving its shares 4.06% lower at 453.2p.
Meanwhile Barratt Developments PLC (LON:BDEV) has also fallen back, down 1.57%.
8.38am: Inflation remains historically high
Inflation may be easing but it is still historically high, as former monetary policy committee member Andrew Sentance indicates.
UK inflation edged down - CPI to 10.7 percent (from 11.1) and RPI to 14 percent (from 14.2). But both figures are still the second highest seen since the early 1980s. Inflation remains extremely high despite the small drop.— Andrew Sentance (@asentance) December 14, 2022
And Simon French, chief economist at Panmure Gordon, points out that whether the downward trend continues next year partly depends on what happens when the government's energy support package ends next April.
Lowest UK CPI increase since January (+0.4% MoM) takes UK CPI down to 10.7% YoY. Consistent with wider price trends that have also peaked. Recent £ appreciation also helps. CPI rate should keep falling to March - thereafter a lot hinges on govt interventions in energy markets— Simon French (@shjfrench) December 14, 2022
8.21am: London market takes its lead from Wall Street
Leading shares are heading lower, ignoring the better than expected - although still high - UK inflation figures.
Instead the London market is taking its cue from Wall Street, which surged after the US CPI numbers also improved but came off its best levels by the close.
Shortly after the open the FTSE 100 is down 21.61 points or 0.29% at 7481.28.
Investors remain cautious ahead of today's interest rate decision from the US Federal Reserve, and the subsequent comments from chair Jerome Powell.
Michael Hewson, chief market analyst at CMC Markets UK, said: "US markets surged higher on the open with the S&P500 pushing up to 3-month highs, however there was some reluctance to follow through the initial gains ahead of today’s Fed rate decision, with US stocks eventually finishing the session well off their peaks, which in turn looks set to see markets in Europe open slightly lower.
"This caution is probably well-merited given today’s Fed decision where we are still expecting to see a 50bps rate rise, but where there is a risk that the exuberance of yesterday might not survive first contact with Fed chair Jay Powell’s press conference.
"While Powell reinforced the narrative behind a step-down in the pace of Fed rate rises in his Brookings speech earlier this month, he may well not be so keen to feed into the markets pricing in a more dovish outlook for rates as we head into 2023, especially when CPI is still very high, and when there is still a material risk that inflation could remain high deep into 2023...
"Of course, much of that will depend on what follows data wise over the next few weeks with the December payrolls report due in January followed by subsequent inflation numbers which will fall due between now and the 1st February, when the FOMC first meets next year."
8.03am: Tackling inflation is number one priority - Hunt
Chancellor Jeremy Hunt has said tackling inflation is the number one priority and making the wrong choices would prolong the pain.
Which seems to be another shot across the bow of paying public sector workers increases in line with inflation.
Inflation is plaguing economies across Europe - it’s the number one enemy that makes everyone poorer. Getting it down is my top priorityWe have a plan to help halve inflation next year. But if we make the wrong choices, high prices will persist and prolong the pain for millions
— Jeremy Hunt (@Jeremy_Hunt) December 14, 2022
8.01am: GBP rallies against USD as selling pressure hits greenback, EUR continues to run hot
The US Dollar Index (DXY) is facing selling pressure following yesterday’s surprisingly soft inflation reading.
Coming in a 7.1%, year-on-year (YoY) inflation beat expectations of 7.3%, causing a rally on equities and investors weighed up the prospect of a looser economic policy from the Federal Reserve.
DXY finished the Tuesday session one percent lower at 103.59 and has remained there so far this morning.
Cable pounced on the weaker greenback, soaring to six-month highs of 1.244 before cutting back around 90 basis points before session’s close.
As of now, Cable is changing hands at 1.235, as the pound contends with its own selling pressure given that UK inflation data also came in softer than expected
The rallying GBP/USD pair underscores greenback’s selling pressure – Source: capital.com
Today’s reading underscored a YoY rate of 10.7%, beating estimates of 10.9%, with retail prices falling sharply against the month (although by slightly less than expected).
Core inflation (which excludes food and energy from the basket) finished at 6.3% against a 6.5% forecast.
Peak inflation might be behind us, but with UK 10-year gilts dropping to their lowest price in a month (at 3.3%, yields have jumped nearly 30 basis point in the past week), the market clearly expects a degree of hawkishness from the Bank of England in the short term.
In the eurozone, where inflation remains stickier than in the US and UK, analysts are weighing up the potential for a surprise jumbo hike in today’s interest rate decision from the European Central Bank.
That would cause a rally on the euro, which is already running hot. EUR/USD closed 0.8% higher yesterday at 1.062 yesterday, prices not seen since early June.
Price action in the EUR/GBP pair is more muted, having remained in the 86p ballpark since the start of December.
7.52am: Has inflation peaked?
Core inflation - which excludes price changes in food and energy - fell from 6.5% to 6.3%.
Again this was better than expected, with analysts forecasting an unchanged figure.
The figures give some encouragement that inflation may have peaked.
Paul Dales, chief UK economist at Capital Economics, said: "Inflation eased in six of the 12 main categories, which provides some encouragement that it is not a one-off. Petrol prices actually still rose by 0.8% m/m in November. But as that was smaller than the 5.1% m/m leap last November, petrol price inflation fell from 22.2% to 17.2%.
"The latest falls in oil and petrol prices suggest that petrol price inflation will slump in December and January. Second-hand car prices fell by 0.2% m/m in November and its inflation rate slipped from -2.7% to -5.8%. The inflation rates for clothing & footwear, recreation & culture and alcohol & tobacco all eased. Food inflation nudged up from 16.5% to 16.6% and restaurants inflation climbed from 7.8% to 9.7%. But both of those will probably fall sometime in the next three to six months as the effects of the recent falls in agricultural commodity prices are felt..
"Overall, inflation has passed its peak and will continue to fall from here. That will prompt a sigh of relief in Threadneedle Street. But with the economy still proving resilient and wage growth still strong, the Bank of England won’t be complacent. So interest rates are still going to be raised further, but the Bank will probably raise them at a slower rate and the risk is that they peak at a lower level than the 4.50% we are forecasting."
7.36am: UK inflation falls back from its 40 year high
UK inflation eased slightly in November to a better than expected 10.7% from the 40-year high of 11.1% recorded in the previous month.
This is better than the expected fall to 10.9% and comes as the Bank of England begins its latest meeting when it is likely to raise interest rates by a further 50 basis points to 3.5%.
The fall in inflation was helped by lower motor fuel prices feeding through to the overall figure.
Grant Fitzner continued: (2/2)⬇️ pic.twitter.com/62q2ALmH4N
— Office for National Statistics (ONS) (@ONS) December 14, 2022
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdow, said: ‘’Inflation may be past the peak but given that prices for UK consumers have scaled a mountain, there is still a vertiginous descent to navigate before it’s back down to less dangerous levels.
"Lower fuel and second-hand car prices have helped bring down the headline CPI rate but price pain continues in many parts of the economy with increases in alcohol costs in pubs, cafes and restaurants particularly onerous.
"The Bank of England is still expected to raise rates by 0.5% tomorrow, increasing borrowing costs yet again for households and businesses, to try and shove away demand and push prices down. The dark clouds hovering as a recession rolls in are likely to hasten the path lower, but policymakers will still want to tread carefully, fearful that the economy could be shoved into a deep crevasse of contraction if rate rises are too steep
"It’s likely that the next moves by the Bank of England will be more moderate 0.25% hikes with an expectation of reaching 4.75% by the middle of 2023."
7.00am: Early falls expected in London
FTSE 100 expected to open slightly lower ahead of UK inflation figures and the key interest rate decision by the US Federal Reserve later in the day.
Spread betting companies are calling the lead index down by around 7 points.
US markets ended the day in positive territory, but off earlier highs, as weaker than expected inflation figures suggested pricing pressures may be on the wane.
At the close the Dow Jones Industrial Average was up 104 points, or 0.3%, to 34,109, the S&P 500 rose 29 points, or 0.74%, to 4,020 and the Nasdaq Composite advanced 113 points, or 1.01%, to 11,257.
The weak data boosted hopes that the Federal Reserve will signal a lower peak in interest rates, and a slower pace of increases, than previously forecast when it makes its latest rate call today. A rate rise of 50bp is still expected.
“We expect this will open the door for Fed Chair Powell to discuss a further step down in the pace of rate hikes at his post-FOMC meeting press conference” said Mickey Levy at Berenberg.
“Chair Powell is likely to lay the groundwork for a 25bp rate hike at the FOMC’s February meeting,” he suggested.
In Asia on Thursday, the Japanese Nikkei 225 index was up 0.7%. In China, the Shanghai Composite was down 0.2%, while the Hang Seng index in Hong Kong was up 0.6%. The S&P/ASX 200 in Sydney closed up 0.7%.
Back in London and results are due from travel company Tui while CPI figures are also set to be reported.
"On the headline CPI numbers we are expecting to see price pressures slowdown from 11.1% to 10.9%, although when inflation is well above 10%, perhaps slowdown isn't the correct term” commented CMC Market’s Michael Hewson.
“It also isn't likely to affect the calculus for the Bank of England tomorrow when they are also expected to raise rates by 50bps, although any decision is unlikely to be unanimous," he added.