- FTSE 100 loses 17 points at 7,532
- US stocks seen starting lower
- Citi forecasts 18.6% inflation in January
More from Citi’s Ben Nabarro who is not holding back when it comes to dire predictions for the UK economy.
Consumer inflation will rise from 10.1% currently to 18.6% in January 2023, he estimates, driven by soaring energy prices.
Retail price inflation will climb even higher, peaking at 21.4%, while to counter the surge the Bank of England will be forced to raise interest rates.
He thinks the BoE won’t go over 3% but if inflation remains persistently high it might require 6-7% to curb it, he suggests.
Energy costs are behind his gloomy forecasts with the cap to hit £3,717 this week before rising to £4,567 in January 2023 and £5,816 in April.
Rail fares, air passenger duty, mobile phone tariffs and about a quarter of UK government debt interest are all linked to RPI, he points out.
FTSE 100 down 17 at 7,532
12:28pm: FTSE100 tries to rally but still down 15
FTSE 100 has attempted to rally after a weak start but is still down 15 at 7,534 in the face of a welter of gloomy predictions on energy prices and inflation.
Ofgem sets the new price cap on Frida and already the signs are ominous according to Citi.
Wholesale gas has jumped to its highest level since Vladimir Putin invaded Ukraine, with prices per them up to £5.55 per therm compared to £4.93 in early March.
Britain’s price cap was set at £1,971 last time, but recent predictions have been rising steadily to of least £2,500 on Friday and to hit £3,000 when Ofgem reviews it again early in 2023,
However, Citi reckons even this is wishful thinking and in a note today predicted the cap might rise to £3,700 this week or an 88% hike on the current £1,971.
The government has so far resisted calls by Labour to put an absolute cap on energy costs, saying any decision will only be made by the new prime minister who is due to take office on 5 September.
Oil and gas companies have been heavily criticised for the profits they have been racking up during the crisis and British gas owner Centrica (LON:CNA) was up 1% to 83.4p today, making it one of Footsie’s best performers.
FTSE 100 down 15 at 7,534.
11.40am: US stocks to open higher
The FTSE 100 stayed weak approaching midday with US stocks expected to start the week lower as investors focused ahead to the Federal Reserve’s annual symposium at Jackson Hole in Wyoming.
Fed chairman Jerome Powell will deliver a keynote speech on Friday which is expected to be wide-ranging and to include his expectations for inflation, keeping investors wary ahead of the event.
Futures for the Dow Jones Industrial Average were trading 0.9% lower pre-market, while those for the broader S&P 500 index were down 1.0%, and contracts for the tech-laden Nasdaq-100 lost 1.3%.
“All eyes will be on the Federal Reserve’s Jackson Hole meeting. This year, Jackson Hole may have a bigger-than-usual impact on investor sentiment, as investors don’t really know where the market is going, as the market doesn’t really know where the Fed is going,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
To fight runaway inflation, US rate-setters have raised interest rates aggressively through the year but it remains hard to tell if they are winning. Inflation remains stubbornly at levels not seen in 40 years even though there have been some signs that price pressures may be easing. The spate of rate hikes, however, is threatening economic growth, and many fear that the world’s biggest economy will slide into a recession.
“The July equity rally was mainly triggered by the expectation - and not the fact, nor an announcement - that the Fed could soften its policy and start cutting the interest rates if the US economy sinks into recession,” noted Ozkardeskaya.
“While there are flashing signs that recession could be just around the corner, there have been no signs, or a mention, or a hint that the Fed would start re-lowering its rates at any point in the foreseeable future,” she added.
A bunch of US economic data is also due through the week ahead of the Jackson Hole symposium and will likely set the tone for trading. US durable goods figures are due Wednesday and US GDP data are due on Thursday.
At 11.40am on Monday, the FTSE 100 index was down 22.00 points, or 0.3% at 7,528.37.
11.25am: More on Felixstowe walk-out
Almost 2,000 workers walked out of their jobs at UK’s largest container port.
Crane drivers, machine operators and stevedores are taking part in a strike to disrupt the port in Felixstowe for the first time in 31 years.
Today’s action is the second in an eight-day long strike, with Unite asking for a pay rise in line with inflation, currently at 10.1%.
Workers had been offered a 7% increase plus a £500 one-off payment, although this was overwhelmingly voted against, almost nine to one.
Unite national officer Robert Morton told Sky News: "The supply chain will be severely disrupted, I accept that. That's one of the unfortunate parts of things like this.
"It could be over this afternoon if the employer agreed to meet us for real-time negotiations.
"The last message they gave to us is that 'yes, we will meet you, but no, we will not move our position one inch'.
"That's the wrong approach."
He added: "If we don't achieve what we're trying to achieve, there will be more strikes."
10.40am: Haleon rises
FTSE 100 was firmly on the back foot as investors contemplated the prospect of even more strikes over the summer.
The index was down 38 to 7,511 with tech and consumer-facing stocks undermining a decent showing from utilities, banks and for once, Haleon, the GSK spin-out.
Latest to announce industrial action are criminal barristers in England and Wales, who have voted to go on strike on an "indefinite basis" from September 5.
A dispute over pay, working conditions, and legal aid funding has led members of the Criminal Bar Association (CBA) to take strike action on alternate weeks until now.
By a majority of 79.54%, nearly 2,300 members of the CBA voted in favour of escalating their action to a permanent strike over criminal legal aid rates from September 5.
That follows the start yesterday of an eight-day strike by workers at Felixstowe Docks, which is estimated will cost at least £700mln unless a settlement is reached.
9.30am: FTSE 100 lower
Vodafone agreed on the potential sale of its Hungarian business for €1.8bn. 4iG Public and Corvinus Zrt, a Hungarian state holding company, are the would-be buyers.
Households with smart meters could be paid for turning off high-energy appliances to help avoid blackouts. The National Grid (LON:NG) Electricity System Operator is understood to be preparing plans.
Sony PlayStation is being sued for £5bn. Nine million claimants believe they were ripped off with overpriced games and in-game purchases.
Base Resources (LON:BSE) posted record profits for the year to end-June on higher prices for mineral sands. The Australian-based miner plans to pay a final dividend of A$3.0 cents per share.
Eden Research said first-half trading was in line with expectations with revenues up 33%. The group, a specialist in sustainable biopesticides and plastic-free crop protection, said product sales were up 54%.
Rosslyn Data announced its first enterprise customer through its partnership with Chain IQ. Rosslyn will supply its procurement analytics platform to a tier one Japanese bank on a five-year contract.
9.00am: Oil giants weigh on index
The FTSE 100 fell sharply in early trading, heading back towards 7,500, as falls in oil prices pushed index heavyweights, BP (LON:BP) PLC and Shell (LON:RDSa) PLC lower, and as investors awaited PMI data and the Jackson Hole address by Federal Reserve chairman, Jerome Powell, later in the week.
By 9.00am the lead index was down 39.75 points at 7,510.62 while the broader FTSE 250 slumped 182.76 points to 19,705.03.
Richard Hunter, head of markets at interactive investor, commented: “The recent rally ran out of steam as investors braced for the latest Federal Reserve pronouncements later this week. The likely highlight of the annual Jackson Hole symposium will be a speech from Fed Chair Powell, where the committee’s latest thinking is likely to be unveiled.
“While no material change is expected from the current path of interest rate rises, there may be an update on emerging economic data which is suggesting that the hikes already undertaken are beginning to have an impact.”
Hunter noted: “Asian markets were mixed despite the easing of financial conditions in China, where the central bank is aiming to encourage lending in an effort to boost an ailing economy. Quite apart from the impact of the latest COVID-19 variant which has resulted in several lockdowns, the property market remains under severe pressure and there was also a power shortage in a key manufacturing region.”
“The general summer lethargy also weighed on sentiment in UK markets, where further monetary tightening is also likely to continue. The more recent strength of the US dollar as a haven investment has pulled the rug from sterling, which has had the impact of underpinning the premier index which derives much of its income from overseas, thus making those earnings more valuable in translation” Hunter added.
Strike action at the Port of Felistowe was also in focus.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said: “The Port of Felixstowe is an essential lynchpin in the UK’s trade operations, and an eight-day strike is likely to result in interrupted supplies for supermarkets as well as exports.”
“This is the latest unwanted twist in our weekly food shops, with high prices already making the experience more difficult for many shoppers. From an economic standpoint, a disruption to trade is the last thing the UK needs right now.”
Shares in Wzz Air Holdings PLC fell 3% after it said chief financial officer Jourik Hooghe has decided to step down to pursue opportunities outside of the company. He will be succeeded by Ian Malin, who will join the airline on October 1, 2022.
8.10am: Blue chip stocks head south
FTSE 100 started the week in negative fashion in the absence of any major economic or corporate news to provide direction and following falls in Asia overnight and in the US on Friday.
A fall in the oil price also weighed with index heavyweights, BP PLC (LSE:BP.) (down 1%) and Shell PLC (LSE:SHEL, NYSE:SHEL) (down 0.9%), both declining at the open.
By 8.10am, the lead index was trading down 20.36 points at 7,530.01 and the broader FTSE 250 was 47.22 points lower at 19,840.57.
With PMI reports due this week and the key address by Federal Reserve chairman Jerome Powell at the Kansas City Fed's two-day annual economic symposium at Jackson Hole on Friday investors may pause for breath after recent stock market gains.
Powell’s highly anticipated speech on the economic outlook could signal how high US borrowing costs may go and how long they will need to stay there to bring down soaring inflation.
Cineworld slipped a further 2.5% after confirming that it is considering filing for bankruptcy in the United States, as the cinema chain continues to struggle with high amounts of debt.
However, it stressed that any such filing would allow the group to access near-term liquidity and support the orderly implementation of a fully funded deleveraging transaction which would enable it to keep its operations open and “ultimately to continue its business over the longer term with no significant impact upon its employees.”
Shares in the group fell sharply at the end of last week on a report the company was preparing for bankruptcy.
Aptamer Group PLC (AIM:APTA) rose 1.5% after providing the market with a positive trading update.
Revenue growth of around 150% to £4mln is expected for the year to June 30, 2022, 150% ahead year on year, and in line with market expectations with growth delivered from strong operational performances, including contract wins and extensions across all three business units.
Cash as of June 30, 2022, was £6.7mln, ahead of market expectations, due to continued proactive management of cash, positioning the group well to deliver future growth.
Analyst Edward Thomason at Liberum said “Today’s statement shows clear progress in executing Aptamer’s post-IPO strategy, deploying IPO proceeds to develop the platform and convert customer interest into revenues.”
He reiterated his buy rating with a price target of 270p.
7.30am: London seen starting the week on the downside
Shares in London are expected to open lower on Monday following losses in the US on Friday and in Asia overnight and with little corporate or economic news to provide direction.
Spread betting companies are calling the FTSE 100 down by around 15 points.
The main focus this week may well come towards the end of the week when Federal Reserve chairman Jerome Powell delivers his keynote address at the Kansas City Fed's two-day annual economic symposium at Jackson Hole on Friday.
His highly anticipated speech on the economic outlook could signal how high US borrowing costs may go and how long they will need to stay there to bring down soaring inflation.
Michael Hewson chief market analyst at CMC Markets UK: “This week could well be a challenge for market sentiment, where there still seems to be a hard-core cohort who believe the Federal Reserve will start cutting rates sometime next year.”
“While this week’s US personal consumer expenditure inflation numbers are likely to confirm the slightly softer US inflation numbers, they are unlikely to be sufficient to shift the narrative enough to shake the complacency of those who still think a Fed pivot may be coming.”
“This is why this week’s Jackson Hole symposium is so important as it could well set the tone for the rest of the year, as it has done on previous occasions over the last 10 years.”
“As such the focus this week is set to be on Fed chairman Jay Powell’s speech at the end of the week.”
“With US CPI at 8.5% and the Fed Funds rate down at 2.5%, headline rates are likely to have to go quite a bit higher from where they are now, with the consensus of at least another 1.5% of hikes by year end, which means at least 1 of those will need to be a 75bps hike given there are only 3 Fed meetings left this year.”
“Furthermore, the idea that the Fed would start to reverse its rate hiking cycle if inflation is still well above 2% comes across as inconceivable, and it’s surprising that the market is even pricing it. This week Powell could prick that misconception. The question is will he?” Hewson asked.
In corporate news Vodafone Group PLC (LSE:LON:VOD) announced the €1.8bn sale of its Hungarian division to Hungarian tech firm, 4iG Public Limited, and Corvinus Zrt, a Hungarian state holding company.
7.00am: Weak start seen in London
FTSE 100 set to make a subdued start to the week, with blue chip stocks expected to post opening losses following falls in the US on Friday and in Asia overnight.
Spread betting companies are calling the lead index down by around 11 points in early trading.
US stocks ended a four-week winning streak on Friday, with the three major indices closing lower in a turnaround from the previous weeks.
At the close, the Nasdaq was down 2% at 12,705 points, while the benchmark S&P 500 lost 1.3%. at 4,228 and the Dow fell 0.9% to close at 33,707.
In Asia, the Nikkei 225 closed 0.48% lower and the Hang Seng was down 0.14%.
On what should be a quiet day of corporate news results are expected from conveyancer Smoove and Base Resources.
READ OUR ASX REPORT HERE
Curtis Banks Group PLC