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FTSE 100 lower with B&M leading the fallers while US inflation lower than expected

Published 10/11/2022, 13:33
Updated 10/11/2022, 13:41
FTSE 100 lower with B&M leading the fallers while US inflation lower than expected

FTSE 100 lower with B&M leading the fallers while US inflation lower than expected

Proactive Investors -

  • FTSE 100 down just 7 points
  • Centrica (LON:CNA) boosted by update
  • B&M falls back
US inflation has come in weaker than expected, easing some of the pressure for the Federal Reserve to hike interest rates more aggressively.

The consumer price index for October rose 7.7% year on year, compared to expectations of a figure of 7.9% and down on the previous month's 8.2%.

Core inflation was 6.3%, lower than the forecast 6.5%.

12.27pm: Mining shares lower as copper falls

Oil is not the only commodity under pressure on concerns about rising COVID-19 cases in China and a subsequent slowdown in the country's economy.

Metal prices are also lower, with copper down 0.9% and helping to push down mining shares.

Anglo American PLC (LSE:LON:AAL) is 2.37% lower and Antofagasta PLC (LSE:LON:ANTO) is off 2.27%.

12.00pm: Investors await US CPI data

US stocks are expected to make a mixed start ahead of key US inflation data and as investors consider the uncertainty arising from the midterm congressional elections.

Futures for the Dow Jones Industrial Average were 0.1% lower in pre-market trading, while those for the S&P 500 were up 0.2%, and contracts for the Nasdaq-100 rose 0.3%.

The gains seen by the Republican party in this week’s US midterm elections have been less emphatic than expected.

“While the Republicans have a slim majority in the House, it’s still too close to call for who will control the Senate. We may not get the final picture until December 6 runoff in Georgia,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The looming uncertainty weighed on investor sentiment yesterday and is expected to continue being felt today. Just how the outcome of the midterms will play out for the economy and the path for interest rates remains to be seen. US rate-setters have delivered four consecutive interest rate hikes of 75 basis points this year as inflation remains stubbornly close to 40-year highs.

Against that backdrop, US inflation data for October will be closely watched.

“Headline inflation in the US is expected to have eased from 8.2% (the previous month) to 8% in October, and core inflation is seen softer at 6.5%, compared to 6.6% printed a month earlier,” noted Ozkardeskaya.

If the data comes outs in line with expectations, or ideally softer than expected, the hawks on the Federal Reserve will be kept at bay, and in turn contain the market selloff, she said.

“Whereas figures above expectations would be another hit to the investor sentiment, and send equities lower, yields, and the US dollar higher.”

Ozkardeskaya noted, however, that in six of the past seven months, inflation exceeded expectations.

“So, there is a good chance that it’s the case this time around as well.”

Meanwhile the FTSE 100 is still just about under water, down just 7.94 points at 7288.31.

11.50am: FTX situation rattles cryptocurrencies

Confidence in cryptocurrencies has been hit by the chaos surrounding the FTX exchange.

Having agreed to buy FTX, rival Binance pulled out of the deal, seemingly due to the dire state of its competitor's financial situation.

Craig Erlam at Oanda said: "The situation at FTX has unravelled at a remarkable pace, culminating on Wednesday evening with Binance bailing on its rescue offer following some due diligence and new allegations.

"The ripple effects throughout the industry have been severe so far, with the fear not just being which other tokens could be exposed but whether similar vulnerabilities exist elsewhere."

For the latest developments in the crypto world follow our live blog on the subject.

11.26am: Mid-cap index outperforms

Leading shares remain marginally in the red, with the FTSE 100 down 16.26 points or 0.22% at 7279.99.

Following their updates British Gas owner Centrica PLC (LSE:CNA) remains the leading riser, up 9.18%, while discounter B&M European Value Retail SA (LSE:BME) is bottom of the pile, down 5.8%.

The mid-cap FTSE 250 index is marginally higher, up 0.02% at 18,653.51.

Selco owner Grafton Group PLC (ISE:GFTU) is up 6.81% after a positive trading update, with full year operating profits expected to be in line with analysts forecasts at around £266mln.

It also announced plans for a further buyback of up to £100mln.

But following its figures yesterday, bus and train business FirstGroup PLC (LSE:LON:FGP) is down 4.73%.

10.59am: Oil prices slip on China worries

Oil prices are slipping again, as concerns about rising COVID-19 cases in China continue.

Until recently crude prices had been partly supported by reports that the country may be considering reopening its economy completely after its various lockdowns.

But new case numbers have reached their highest since April, and officials have launched mass testing in the city of Guangzhou although so far there is no lockdown of the type which shut down Shanghai earlier this year.

"As things stand, it is hard to tell whether Guangzhou will repeat the experience of Shanghai in spring this year," said analysts at Nomura.

"If Guangzhou repeats what Shanghai did..it will lead to a new round of pessimism on China."

Brent crude is currently down 0.95% at US$91.77 a barrel while West Texas Intermediate is 1.28% lower at US$84.73.

Craig Erlam at Oanda said: "While the narrative in recent weeks has focused on the potential for Chinese COVID-19 restrictions to be relaxed, which has driven Chinese equities higher and lifted oil prices, the reality has seen case numbers soaring, restrictions reimposed and mass testing undertaken. This doesn't exactly add substance to the rumours and we may be seeing some unwinding of those positions."

10.10am: UK house prices fall in October - RICS survey

More signs of weakness in the UK housing market.

After the Nationwide and Halifax both reported a drop in house prices last month, the Royal Institution of Chartered Surveyors said more than two years of growth ended in October.

According to its latest survey, a net balance of -2% of surveyors cited an increase in house prices in October 2022, the first negative result since June 2020 as rising mortgage rates put off buyers.

New buyer enquiries fell for the sixth month in a row.

RICS chief economist Simon Rubinsohn said: "The latest feedback to the RICS survey provides further evidence of buyer caution in the face of the sharp rise in mortgage costs.

"As a result, the volume of activity is likely to slip back over the coming months and realistic pricing is now much more important to complete a sale."

Analysts at Davy Research predicted substantial house price falls. They said: "Most of the price and activity readings from this morning’s Royal Institution of Chartered Surveyors (RICS) survey for October have collapsed, close to mid-2008 levels when the pace of UK house price inflation was entering negative double-digit territory and transactional activity halved.

"The only possible respite is that mortgage interest rates will gradually recede below 6% in the coming months. However, substantial falls in UK house prices now look likely in the near future."

9.25am: Mixed picture for company updates

Not all the day's trading statements have been well received.

Discount retailer B&M European Value Retail SA (LSE:BME) reaffirmed its earnings guidance after reporting “solid underlying growth in a tough environment” with half year revenues up 1.8%.

But it said UK adjusted earnings fell sharply as margins fell by 213 basis points, “largely due to higher markdowns in the gardening category resulting from the late arrival of warm weather."

Its shares are down 6.5%.

Russ Mould, investment director at AJ Bell, said: "There are signs of margin pressure on the business. An uncharitable takeaway is that B&M doesn’t have a great degree of pricing power, a prized quality right now.

“When your whole model is about offering products at bargain prices, you probably have to absorb some of the extra cost so the brand’s reputation for value isn’t undermined.

“There are also signs that B&M has been caught out by unpredictable weather and left with stock which it has had to sell at big markdowns.”

Auto Trader Group PLC (LSE:AUTO) has lost 4.84% after first half operating profits fell 2% to £149.1mln.

But Centrica PLC (LSE:CNA) continues to lead the way after its update, climbing 8.17%.

Mould said: “For as long as energy companies continue to post record profit while consumers are facing soaring energy bills the debate around some form of windfall tax is not going to go away.

“However, some of the heat has been taken out of the debate by some very mild autumn temperatures – reflected in a weak showing for Centrica’s British Gas retail business.

“Centrica is both a producer and supplier of energy and it’s on the production and marketing side that it is continuing to enjoy extremely strong profit – enabling it to lift guidance and unveil a buyback.

“Centrica is concerned about the impact of some customers being unable to pay their bills and it is clearly aware of the reputational issues as it puts more money into a customer support fund."

ConvaTec Group PLC (LSE:CTEC) is up 5.67% after the medical products firm reported a 2.4% rise in revenues for the first ten months.

With sales continuing to grow, it has raised its guidance for 2022 organic revenue growth to 5.4%-5.8% from 4.0%- 5.5%.

And AstraZeneca PLC (LSE:NASDAQ:AZN) has added 1.24% to 10,980p as it also lifted its guidance.

The Anglo-Swedish drugs giant said third quarter earnings grew by 70% and it now expects 2022 core EPS to increase by the high-twenties to low-thirties percent. This is up from the previous mid-to-high twenties percent range.

Keith Bowman, investment analyst at interactive investor said ”Continued drug development success is again helping the FTSE 100 pharma giant raise its earnings expectations...

"With analysts currently estimating a fair value share price of close to £123, City consensus opinion continues to point towards a buy.”

Overall the FTSE 100 is currently down 12.63 points or 0.17% at 7283.62.

8.45am: Market could be hit if US data disappoints

Back with the forthcoming US inflation figures, and economists at ING say the market may be a bit ahead of itself and warn that the data often comes in higher than expected.

They say: "The main focus should be on the month-on-month core rate, which is seen ticking down to 0.5% from 0.6%. Mind you, readings closer to 0.2% is what would be needed to bring the rate closer to the Fed’s 2% target, so anything we will see today will still signal central bankers that they are wide off the mark.

"But coming in the wake of the Fed signalling the possibility of decelerating its tightening pace from December onwards, there is a good chance that markets will extrapolate this from today’s data. A reading in line with consensus should further strengthen expectations for a 50bp hike in December, which is what the market is currently leaning towards...

"The cautionary tale is that inflation data has had a habit of surprising with higher readings. Markets have been trading stronger going into today’s reading with 10Y Treasury yields dipping towards 4.05% yesterday, which could increase the impact of a disappointing inflation reading.

"However, we have the feeling that the market may still be too absorbed with the notion of a potential pivot. There are good reasons to slow the pace of tightening not least given policy lags involved after a phase of catching up.

"That does not mean that the Fed will want to signal that it is doing less tightening in sum. This should not be the case unless there is more compelling evidence of inflation being on a trajectory to return to target."

8.25am: Ex-divs hold back leading index

The blue chip index would be doing even better if not for a host of big names going ex-dividend, which automatically knocks around ten points off the index.

These include the biggest faller so far, Shell (LON:RDSa) PLC (LSE:SHEL, NYSE:SHEL), which is down 2.31%, Whitbread PLC (LSE:LON:WTB) down 2.08%, Airtel Africa PLC (LSE:AAF), which has lost 2.01%, BP PLC (LSE:LON:BP.), which is off 2% and J Sainsbury (OTC:JSAIY) PLC (LSE:SBRY), 1.74% lower.

Without the impact of these moves the FTSE 100 - which is down just 7.01 points now at 7289.24 - would be in postive territory.

8.14am: Footsie performs better than expected but still in the red

Following the late decline on Wall Street and weakness in Asian markets, leading shares have opened in negative territory.

The slide in the US came amid further disappointing corporate updates, as well as the move by cryptocurrency exchange Binance to pull out of a deal to take over rival FTX.

Meanwhile investors were also trying to interpret the outcome of the US midterm elections, where the Republicans did worse than expected.

In the wake of all that, the FTSE 100 is down 19.21 points or 0.26% at 7277.04, but the fall is not as much as expected after some well received trading statements.

British Gas owner Centrica PLC (LSE:CNA) has jumped 6.6% after it said in an unscheduled update that it expected full year adjusted earnings per share to be towards the top end of analysts' forecasts, and unveiled a share buyback programme.

Later today, US inflation numbers will be keenly watched for their impact on the Federal Reserve's interest rate policy.

Since the Fed unveiled a 75 basis point rise at its last meeting, the markets have come round to thinking it will not sanction another increase of this size in December but a more modest 50 basis points. A higher than expected rise in the consumer price index, however, could throw everything up in the air again.

Michael Hewson, chief market analyst at CMC Markets UK, said: "The real risk is an upside surprise as we look for headline CPI to show further weakness and slip back further from 8.2% to 7.9%. This would also be the 4th successive monthly decline after headline inflation peaked at 9.1% in June, however this isn’t the important number as far as markets are concerned.

"Core prices are the main focus and they accelerated in September, pushing up to a 40 year high of 6.6%, and they’ve been sticky all year. Markets will be looking for evidence of a slowdown here if the narrative of slowing inflation is to take hold. The rise in the US dollar does offer cause for optimism, given it acts as a brake on higher prices. Today we’ll find out whether core prices are giving any indication of slowing down."

7.46am: Sterling, euro fall against US dollar as red wave becomes a ripple

US election results continue to roll in, with the Democrats faring slightly better than expected, although both chambers are still up for grabs.

Equities were pricing in a gridlocked government – historically a positive outcome for the stock market – but with the red wave looking like a ripple, the indexes closed significantly down.

Turmoil in the risk-on cryptocurrency sector surely didn’t help.

That was good for the US Dollar Index though, which closed above 110 having added 0.74%.

There has been a slight pullback to 109.94 this morning.

Cable dipped 1.6% as a consequence; at the time of writing the pair is trading at US$1.137, and could potentially dip further to support at US1.115.

GBP/USD awaits election results and US CPI data – Source: capital.com

EUR/USD has (just) managed to stay above parity despite closing 60 pips weaker yesterday having failed to break through the US$1.001 point- which is where resistance last stepped in on October 27.

Euro’s position will be influenced by the US year-on-year inflation rate due this afternoon.

Inflation is expected to moderate slightly from 8.2% to 8.1%, but any hawkish indications from the Federal Reserve (which would be likely if inflation runs hotter than hoped) could see the greenback gain.

Sterling ceded a percentage point in the EUR/GBP pair yesterday, which is now changing hands at a four-week high of 87.97p.

7.00am: FTSE seen lower ahead of US CPI

The FTSE 100 is expected to make a weak start to the day following heavy falls in US and Asian markets and as investors look ahead to the latest US CPI numbers out later today.

Spread betting companies are calling the lead index down by around 40 points.

US markets fell sharply in late trading as the midterms pointed to political stalemate and after cryptocurrency exchange Binance backed out of the FTX takeover prompting a rout in cryptocurrencies in the process.

This jittery market backdrop prompted a sharp sell-off in US markets after Europe had closed, with the Nasdaq leading the losses, as well as the Dow and S&P 500.

By the close the Dow Jones Industrial Average was down 647 points, or 1.95%, to 32,514, the S&P 500 tumbled 80 points, or 2.1%, to 3,749, and the Nasdaq Composite slid 263 points, or 2.5%, to 10,353.

In London, results from National Grid PLC (LSE:LON:NG.) and Haleon PLC (LSE:HLN, NYSE:HLN) are amongst the companies updating on trading today.

Read more on Proactive Investors UK

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