Wall Street Ends Higher In Robust Rebound From Omicron Driven Sell Off

The FTSE 100 finished the day on an up note, gaining 26 points, or 0.4%, to 7,590, even as UK inflation soared to a 30-year high in December.  

“The weakness in equities seen over the past few weeks certainly disguises the overall strong performance of the global stock market over the past twelve months,” IG chief market analyst Chris Beauchamp said.

“At present the losses equities have sustained seem to form part of a normal pullback, and have even yet to reach full ‘correction’ territory,” Beauchamp added.

Notable movers included shares of Burberry Group PLC (LSE:BRBY), which climbed more than 6% after the luxury brand said its yearly profit would exceed market expectations as the company’s full-price sales accelerated in the third quarter.

4.02pm: UK market higher but off its best as Wall Street slips

Leading shares continue to shrug off the rise in UK inflation, although they are off their best levels.

The FTSE 100 is now up 18.66 points or 0.25% at 7582.21, having earlier risen as high as 7614.

A reversal on Wall Street, with all three main indices dipping into the red after a bright start, seems to have taken some of the shine off the UK market.

Michael Hewson at CMC Markets UK said: "After a big sell-off in Asia markets, European markets initially started the day on the back foot, however as the day progressed all the early losses have dissipated helped by a slew of decent trading updates, and a rebound in the basic resources sector, helped by rising metals prices. This has seen the FTSE100 recover back towards the 7,600 level, and back towards where it finished on Monday, despite UK inflation hitting its highest level since 1992."

Among the miners, Polymetal International PLC (LSE:POLY) has put on 6.53%, Anglo American PLC (LSE:AAL) has added 4.4%, Rio Tinto PLC (LSE:RIO) has risen 4.13% and Fresnillo PLC (LSE:FRES) is up 4.02%.

Antofagasta PLC (LSE:ANTO), which initially fell back after a disappointing production report, is now up 3.61%.

Positive trading updates have lifted Burberry Group PLC (LSE:BRBY) by 5.9% and Pearson PLC (LSE:PSON) by 5.6%.

But International Consolidated Airlines Group (LSE:IAG) is down 3.54% after its British Airways subsidiary was one of a number of airlines to cancel flights to the US due to worries about safety with the activation of 5G services near the country's airports.

3.37pm: Bank governor tells MPs energy rises could be transitory

Bank of England governor Andrew Bailey has indicated to a Treasury committee that despite soaring inflation, some aspects may be - to use the word once favoured by central bankers - transitory.

BoE’s Bailey: Some Aspects Of Current Inflation Ought To Be Transitory, Such As Energy And Supply Chains

— LiveSquawk (@LiveSquawk) January 19, 2022

But with talk of a rate rise in February, Bailey did not rule it out.

BoE's Bailey: Would Not Want To Suggest That Will Not Take Action On Interest Rates If Necessary

— LiveSquawk (@LiveSquawk) January 19, 2022

2.46pm: US markets open higher

US stocks started ahead in New York as markets recovered from yesterday's declines. But uncertainty still reigns.  

The Dow Jones Industrial Average added around 62 points at 35,430 in New York.

The broader-based S&P 500 gained around 17 points to stand at 4,595, while the tech-laden Nasdaq Composite index added over 84 points at 14,591.

Craig Erlam, senior market analyst at Oanda, said that uncertainty continued to dominate after a "disappointing start" to earnings season.

"Inflation and interest rate concerns are going nowhere soon and with traders now increasingly considering the possibility of hikes larger than 25 basis points, the possibility of more pain in stock markets is very real," he said.

"The idea that we could go from rock bottom rates and enormous bond-buying to rapid tapering, 50 basis point hikes, and earlier balance sheet reduction is quite alarming. We're talking about markets that have become very accustomed to extensive support from central banks and very gentle unwinding when appropriate. This is quite a shock to the system," he added.

Meanwhile the FTSE 100 remains positive, up 45.25 points or 0.6% at 7608.80.

1.30pm: Markets welcome end of Plan B measures

News that the government plans to lift all the measures designed to combat the Omicron variant - including mask wearing - from next week has given a lift to markets.

Consumer facing shares in particular are heading higher.

JD Sports Fashion PLC (LSE:JD.) is up 2.88%, and Next PLC (LSE:NXT) has added 1.57%.

Among the mid-caps, WH Smith PLC (LSE:SMWH), which earlier issued an update, has risen 6.54%, Cineworld Group PLC (LSE:CINE) has climbed 3.38%, and National Express Group PLC (LSE:NEX) has accelerated 3.22%.

Pubs group JD Wetherspoon Plc (LSE:JDW), which earlier in the day hit out at the Plan B restrictions, is up 2.82%.

Overall the FTSE 100 is up 42.42 points or 0.56% at 7605.97, the day's high, while the FTSE 250 is 0.29% better at 22,719.22.

Matthew Fell, CBI chief policy director, welcomed the easing of restrictions. He said: “It’s great news that Plan B is coming to an end and businesses will be hopeful that we are finally starting to turn the corner on Covid-19.  

“There’s a vital need now for greater consistency in how we live with the virus in the longer term.  Swinging back and forth between restrictions and normality has been damaging.  

“The Government must start to prioritise Covid infrastructure over interventions. That means relying more on free testing, vaccines and anti-virals. 

“There’s also still a job to be done on repairing confidence and demand. Omicron has pushed back the recovery for some key sectors, like international travel and hospitality. The focus now must be on how we can grow the economy and stimulate investment.”

12.25pm: Inflation set to stay at 5% in first half of year, says NIESR

Inflation is likely to stay at around 5% in the first half of this year, according to the National Institute of Economic and Social Research.

It said higher inflation in the medium term was likely to wipe out pay increases negotiated in the last three months. Higher commodity prices and an additional VAT hike scheduled for April 2022 means consumer prices are likely to remain above the Bank of England’s target 0f 2% until 2024.

It expects that the Bank of England will continue to raise interest rates in 2022 but the change in the policy rate will only have an effect some 12 to 18 months later: "Our analysis indicates that annual consumer inflation will remain close to 5% in the first half of the year."

11.39am: US markets forecast to recover

US stocks are expected to open higher, recovering from a sharp fall after rising government bond yields and the prospect of higher interest rates saw investors cutting back on their equity exposure.  

Futures for the Dow Jones Industrial Average rose 0.16% in Wednesday pre-market trading, while the broader S&P 500 index added 0.2% and those for the tech-heavy Nasdaq 100 gained 0.3%.

On Tuesday, the closely watched 2-year yield broke above 1% for the first time since February 2020, the month before the pandemic declaration that sent the US economy into recession. The 2-year Treasury is seen as a gauge of where the Federal Reserve will set short-term borrowing rates.  

Rates rose along the yield curve, with the benchmark 10-year note hitting 1.86%, its highest since January 2020. The 10-year yield started 2022 around 1.5%.

The Dow dropped by 1.51%, to 35,338, while the S&P 500 declined 1.84% to 4,577 and the Nasdaq shed 2.60% to 14,507.     

“Global stocks are taking a beating this week amid a surge in US Treasury yields as markets brace for the tightening of Fed policy,” said Han Tan, chief market analyst at Exinity Group.

“Markets are anxious over the Fed potentially taking a more aggressive approach to controlling inflation. Fed Funds futures have fully priced in a move in March, with a total of four rate hikes of 25-basis points each expected across the whole of this year. 

“Some segments of the market are also fearing that the Fed might be forced to take a sledgehammer to suppress surging US inflation by triggering a larger 50-basis point hike in March.”

Tan noted that tech and other growth stocks have borne the brunt of the hawkish Fed, leaving the Nasdaq on the cusp of a technical correction. 

"The tech-heavy index has also fallen below its 200-day moving average for the first time since the onset of the pandemic in March 2020," he added. "We note the Nasdaq’s 14-day relative strength index has dropped precariously and is close to the 30 threshold which denotes oversold conditions."

11.28am: Pound moves ahead on rate rise talk

The soaring inflation figures have inevitably put the focus back on the Bank of England.

After it belatedly raised interest rates in December, many economists are now expecting another move at its February meeting, in the wake of the latest signs of continuing pricing pressures.

So sterling is edging higher, with the pound up 0.33% against the dollar to US$1.3643 and 0.16% against the euro at €1.2022.

Meanwhile the FTSE 100 remains in positive territory, up 15 points to a high for the day of 7578.55.

10.31am: UK house prices rise in November

With inflation on the rise, it is no surprise the UK housing market also continues to see strong growth.

Average house prices jumped by 10% in the year to November 2021, up from 9.8% in October 2021, according to the latest official figures from the Office for National Statistics.

The average UK house price was £271,000 in November 2021, £25,000 higher than the same time last year.

Average house prices increased over the year in England to £288,000 (9.8%), in Wales to £200,000 (12.1%), in Scotland to £183,000 (11.4%) and in Northern Ireland to £159,000 (10.7%).

London continued to be the region with the lowest annual growth at 5.1%.

Lee Griffiths, managing director at Hinckley-based estate agents Saxon Paddock Estates & Homes: "During the closing stages of 2021, the property market was still incredibly robust. The usual seasonal drop-off and even the Omicron variant didn't impact demand.

"The ongoing problem is the sheer lack of available housing stock. In almost all cases, this led to property sales being agreed in excess of asking prices. We were averaging around 30 viewings per available property, with an average of four offers per property.

"Although we're only a couple of weeks into 2022, the competitive nature of the housing market doesn't seem to have changed. We have seen an increase in new instructions, but pent-up demand is seeing these properties being sold within days."

10.01am: Oil price rise gives lift to BP and Shell

Leading shares have moved into positive territory despite UK inflation soaring in December.

Shrugging off cost of living worries and helped by a strong performance from Pearson PLC (LSE:PSON) and Burberry Group PLC (LSE:BRBY) following their latest updates, the FTSE 100 is up 7.81 points at 7571.36.

Russ Mould, investment director at AJ Bell, said: “Ongoing weakness among tech-related stocks was offset by strength in housebuilders, retail and oil producers in the FTSE 100. Brent crude continues to charge ahead... stoking speculation that it could soon return to US$100 per barrel amid supply constraints and robust demand.”

At the moment, Brent is up 0.94% at US$88.33 a barrel while West Texas Intermediate - the US benchmark - has jumped 1.46% at US$86.68.

This has helped BP PLC (LSE:BP.) add 0.82% and Royal Dutch Shell PLC (A shares) (LSE:RDSA) rise 0.22%.

Ashtead Group Plc (LSE:AHT) is heading the fallers, down 4.55% at 5206p on concerns about a slowdown in its US business and despite UBS raising its target price from 4600p to 5900p.

Neil Wilson at Markets.com said: "Ashtead and Ferguson PLC (LSE:FERG) [are down] on US weakness as the Empire State manufacturing index turned negative for the first time in 20 months."

Ferguson is down 1.73%.

9.07am: Where the price rises came

Here's more detail about where the price rises have come from, courtesy of Sarah Coles, personal finance analyst at Hargreaves Lansdown.

An obvious one is petrol, with the cost of filling up a 55 litre car now £17.44 more than this time last year. Overall the cost of transport is up 11.9% in a year.

Energy prices of course are another factor, with the price of electricity up 18.8% in a year, and gas up 28.8%. When the price cap is changed in April, prices are expected to rise by as much as 50%.

She added: "Food and non-alcoholic drink prices made a much bigger contribution to inflation than we’re used to – with prices rising 5.4%. Within our trolleys there were some eye-watering rises, including margarine up 27.3% in a year, oils and fats 13.1%, sauces 11.6%, lamb 8.5%, low fat milk 8.2% and crisps 9%. When these essentials rise in price, it makes it far more difficult for us to cut costs..

"Clothes prices bucked the usual December trend and actually got more expensive during the month. We typically see them drop between November and December in the pre-Christmas sales, as shops try to clear the shelves of partywear. However, this year prices rose, as stores tried to capitalise on the return of Christmas parties and celebrations. Clothes prices are up 4.5% in a year, and children’s clothes are up 5.5%.

"Then there are a host of things that we don’t buy regularly, but if we need to buy them, we’re in for a nasty shock. Second-hand cars are up 28.6% in a year. Demand has been outstripping supply, leading to some eye-watering rises. Someone who bought a second-hand car a year ago is likely to find it’s worth more now than when they bought it .

"Home improvements, including maintenance and new furniture continued to rocket in price too. as a result of a home improvement boom from more people spending more time at home, and ongoing supply problems. Materials for home maintenance are now 13.9% more expensive than a year ago, while home furnishings are up 12.5%."

8.26am: Market fall tempered by postive updates

Leading shares have opened slightly lower but not as bad as feared, despite the surge in UK inflation.

The FTSE 100 is down just 8.7 points at 7554.85, helped by a couple of strong company updates.

Luxury goods group Burberry Group PLC (LSE:BRBY) has jumped 4.44% after it said annual profits would rise by around 35% after a strong third quarter performance.

Analysts had been expecting an increase of around 19%, but Burberry said it was benefiting from a rise in full price sales and a recovery in Asia and Europe.

Meanwhile Pearson PLC (LSE:PSON) has put on 4.97% as it also forecast its results would beat expectations.

The education specialist said sales would grow by 8% and operating profits by 33% to £385mln, better than the £375mln anticipated.

Chief executive Andy Bird said: "We made great progress in the fourth quarter and are delivering a strong full year performance, with sales growth and profit exceeding our original guidance."

8.10am: Inflation to peak at 6.5%, says ING

Inflation is likely to hit 6.5% in April, but that may well be the peak.

That's the view of ING economist James Smith.

He said: "UK inflation has once again come in above expectations, and we suspect this will add to the temptation at the Bank of England to hike rates again in February.

"Headline CPI accelerated to 5.4% in December, and the underlying details reveal no single specific reason for that outperformance. Food prices jumped for a second consecutive month, which appears linked to higher import and producer cost inflation.  Furniture prices rose more than usual for the time of year, likely a further by-product of supply chain disruptions.

"Of course we’re now getting closer to the inflation peak, which we expect to be roughly 6.5% in April. That’s when the next increase in the household energy cap is due, and the latest futures prices suggest we’re looking at a 50% increase, followed perhaps by another (much smaller) increase in October. That means the electricity costs alone will be adding over 2 percentage points to the headline inflation rate for most of 2022....

"Headline inflation is likely to still be around 4% at year-end. And given the Bank of England has shown itself to be especially worried about elevated rates of CPI, these latest figures will increase the chances of a rate hike in February. Inflation is already comfortably above the rates forecasted by the Bank last November."

But he added: "Given that headline CPI is likely to plunge in 2023, pretty much regardless of what happens to energy and used car prices over coming months, there are questions as to how worried the Bank should really be about the current levels of inflation. That’s why we think wage growth will assume higher priority in deciding how far to increase Bank rate this year...

"We think a wage-price spiral is unlikely in the UK, and that suggests policymakers will tighten policy more gradually than markets are currently pricing. Remember, it's highly unlikely that wages will keep pace with inflation through the majority (if not all of) 2022, weighing on consumer activity.

"We expect two rate hikes this year."

7.55am: More pain to come?

Despite inflation hitting a 30 year high, there could be more pain to come.

Alpesh Paleja, lead economist at the CBI, said: “We’ve not seen the end of rising inflation yet. We expect it to peak in the months ahead, not least if, as expected, the energy price cap is raised.

“With prices on the rise and real wages already falling, it’s likely households will face a cost-of-living crunch for much of this year.

“And with price pressures further up the supply chain still strong, the cost of doing business will also continue to climb sharply.

“It's now vital that the Government comes forward with urgent solutions to protect the most vulnerable consumers, who will struggle most with anticipated price rises. Solutions must also be found for firms that are struggling with ever-growing cost burdens, especially energy-intensive businesses. This should be a precursor to longer-term energy market reforms, to build resilience against future energy price shocks.”

7.47am: Squeeze on wages as inflation jumps

UK inflation has soared to its highest level for nearly 30 years, increasing the squeeze on the cost of living and piling more pressure on the Bank of England to raise interest rates next month.

The consumer price index rose to 5.4% last month, up from 5.1% in November and more than the expected 5.2%.

This is the highest level since March 1992, and comes a day after wage growth slowed to 3.8%.

Grant Fitzner continued: (2/4)

⬇️ pic.twitter.com/5gJ98l35sN

— Office for National Statistics (ONS) (@ONS) January 19, 2022

Grant Fitzner also said: (3/4)

⬇️ pic.twitter.com/SgrGwKbfPp

— Office for National Statistics (ONS) (@ONS) January 19, 2022

Further rises could come in April when a new energy price cap could see household bills rise sharply.

And planned tax increases are likely to hit household finances even more.

The Bank belated increased interest rates from 0.1% to 0.25% last month and could now act again at its February meeting.

Lauren Thomas, Economist at Glassdoor: "Inflation is eating away at wages at a brutal pace we haven't seen for many years. Lower income workers are being hit particularly hard, especially as the cost of fuel and electricity rises. If employers don't want their workers joining the Great Resignation, they need to pay attention to inflation and increase wages to keep their pay competitive."

6.50am: Markets under pressure again

The FTSE 100 is set to start lower on Wednesday, following US indices which fell sharply as the spectre of inflation continues to loom.

CFD firm IG Markets calls the London benchmark down 36 points making a price of 7,533 to 7,535 with just over an hour to go until the open.

Whilst US caution over interest rates clipped equity markets, in Europe the main features on the economic calendar are today’s CPI numbers for the UK and Germany. Both will be focal points for central bank watchers and interest rate second guessers.

“Rising bond yields across the globe reflected growing market concern that central banks might have to hike rates and embark on quantitative tightening much more aggressively than had originally been priced,” CMC Markets analyst Michael Hewson said in a note.

The analyst noted strong UK employment numbers but wasn’t convinced that it protects against rising prices. “While that might mean wages probably won’t fall much further, that doesn’t mean that they will start to play catchup with prices which are showing little sign of slowing,” he added.

Last night on Wall Street, the Dow Jones shed 543 points or 1.51% to close at 35,368.

The S&P 500 gave up 1.84% to 4,577 and the Nasdaq lost more, falling 2.6% to finish at 14,506. Meanwhile, the small-cap focussed Russell 2000 index was down a little more than 3% to 2,096.

Around the markets

Pound: US$1.3608, up 0.09%

Gold: US$1,813 per ounce, down 0.04%

Silver: US$23.53 per ounce, up 0.24%

Brent crude: US$88 per barrel, up 1.7%

WTI crude: US$86.05, up 2%

Bitcoin: US$41,821, down 1%

Ethereum: US$3,109, down 2.75

6.50am: Early Markets - Asia / Australia

Asia-Pacific shares tumbled on Wednesday as oil prices rose for a fourth day to a seven-year high amid worrisome geopolitical troubles in Russia and the United Arab Emirates.

The Nikkei in Japan plunged 2.80% and South Korea’s Kospi moved 0.75% lower.

China’s Shanghai Composite fell 0.53% while Hong Kong’s Hang Seng index dipped 0.40%.

Australia’s S&P/ASX200 closed 1.03% lower at 7332.5 points, with the information technology sector dropping 2.6%.

Source : https://www.proactiveinvestors.com/companies/news/971533/ftse-100-ahead-despite-uk-inflation-soaring-to-30-year-high-while-wall-street-set-for-positive-start-971533.html

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