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London open: Stocks rise ahead of Fed announcement
London stocks rose in early trade on Wednesday despite concerns about inflation, helped along by some encouraging data out of China, amid expectations the US Federal Reserve will announce its biggest rate hike since 1994.
At 0835 BST, the FTSE 100 was up 0.6% at 7,233.19.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “Financial markets have been beset with shivers of anticipation of more aggressive interest rate moves, and as the clock ticks down to the key Federal Reserve meeting later, nerves are set to stay frayed.
“The jitters have sent the Nikkei in Japan lower but Chinese data indicating a better recovery than expected after some Covid lockdowns eased, has helped lift the Hang Seng in Hong Kong and the Shanghai Composite. Industrial output rose 0.7% in May from a year earlier, after falling 2.9% in April. This is likely to support commodity stocks like miners but any ripples of relief are set to be short-lived. Retail sales are slow to recover, still down 6.7% on the year in May, which doesn’t bode so well for luxury goods manufacturers.”
Streeter said expectations have risen that policymakers in the US will slam on the brakes hard with a 75 basis points rate hike, to stop prices spiralling out of control.
“High hopes that inflation could soon be in retreat have been dashed after the US Producer Prices Index soared by 10.8% in May as energy costs soared. The worry persists that a more aggressive attitude by the Federal Reserve will see growth go into reverse and could set off a slow motion crash into recession, with troublesome repercussions for global growth.
“The red warning lights have begun flashing after the closely watched US government bond yield curve briefly inverted yesterday. The yields on 2-year Treasuries rose above 10-year borrowing costs – a development which has regularly signalled a coming recession. The curve is still worryingly flat, with the yield on 2-year Treasuries at around 3.35% and 10-year bonds only a nudge above with a yield of 3.40%.”
In equity markets, discount retailer B&M European Value was the top performer on the FTSE 100 after an upgrade to ‘overweight’ at Barclays.
LSE also racked up strong gains after an upgrade to ‘buy’ at UBS, which said the stock’s current valuation offers “very favourable” risk/reward for one that can grow revenue at about 5% a year.
Premier Inn owner Whitbread gained after it said first-quarter trading beat expectations, as demand continued to rebound following the worst of the pandemic.
WH Smith rallied after saying it expects annual results to be at the upper end of expectations as it reported a surge in revenue over pre-Covid pandemic levels for the first time, driven by a recovery in the travel market.
On the downside, Abrdn was knocked lower by a downgrade to ‘underperform’ at Credit Suisse.
Chilean copper miner Antofagasta fell as it said that full-year production was set to be at the bottom end of guidance following a leak in the concentrate pipeline at the Los Pelambres mine, and subsequent shutdown.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ocado Group Plc | +4.82% | +37.80 | 822.40 |
| 2 |  |
Whitbread Plc | +4.72% | +121.00 | 2,687.00 |
| 3 |  |
Smurfit Kappa Group Plc | +3.67% | +103.00 | 2,912.00 |
| 4 |  |
Hiscox Ltd | +3.65% | +33.60 | 953.60 |
| 5 |  |
Centrica Plc | +3.57% | +2.72 | 78.82 |
| 6 |  |
Sainsbury (j) Plc | +3.05% | +6.20 | 209.50 |
| 7 |  |
Schroders Plc | +3.05% | +80.00 | 2,706.00 |
| 8 |  |
Barratt Developments Plc | +3.00% | +14.60 | 501.80 |
| 9 |  |
Aviva Plc | +2.92% | +11.80 | 415.90 |
| 10 |  |
Barclays Plc | +2.86% | +4.48 | 161.24 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Bp Plc | -1.18% | -5.15 | 429.80 |
| 2 |  |
Shell Plc | -0.91% | -21.00 | 2,287.00 |
| 3 |  |
Ferguson Plc | -0.26% | -24.00 | 9,162.00 |
| 4 |  |
Antofagasta Plc | -0.14% | -2.00 | 1,391.00 |
| 5 |  |
Bae Systems Plc | -0.08% | -0.60 | 774.20 |
| 6 |  |
Nmc Health Plc | -0.00% | -0.00 | 938.40 |
| 7 |  |
Shell Plc | -0.00% | -0.00 | 1,894.60 |
| 8 |  |
Just Eat Plc | -0.00% | -0.00 | 861.00 |
| 9 |  |
London Stock Exchange Group Plc | +0.00% | +0.00 | 8,620.00 |
| 10 |  |
Royal Bank Of Scotland Group Plc | +0.00% | +0.00 | 120.90 |
US close: Stocks mixed following PPI reading
Wall Street stocks turned in a mixed performance on Tuesday following sharp losses in the two preceding sessions.
At the close, the Dow Jones Industrial Average was down 0.50% at 30,364.83, while the S&P 500 was 0.38% weaker at 3,735.48 and the Nasdaq Composite saw out the session 0.18% stronger at 10,828.35.
The Dow closed 151.91 points lower on Tuesday, extending losses recorded on Monday.
Market participants were continuing to prepare for the possibility of a larger-than-expected rate hike from the Federal Reserve later in the week after the Wall Street Journal suggested that the central bank will likely mull over the benefits of a 75-basis-point increase. However, some investors also expect to see a more hawkish tone from the Fed on the back of last Friday’s red hot inflation report.
With last week’s hotter-than-expected CPI reading still in focus, traders turned to the US producer price index at the open on Tuesday, with the Bureau of Labor Statistics revealing the PPI for final demand rose 0.8% in May, in line with analysts’ expectations, up from 0.4% in April but down 1.6% in March.
On the year, PPI rose 10.8% in May, versus 11% the month before. Core PPI, which excludes food and energy prices, was up 0.5% on the month compared with an unrevised 0.4% print in April. On the year, core PPI rose 6.8%.
Elsewhere on the macro front, the National Federation of Independent Business‘ small business optimism index dipped to 93.1 in May, down from 93.2 in April to the lowest level seen since April 2020, with the lion’s share of owners expecting business conditions to hit a record low over the next six months.
The bond market was also drawing an amount of investor attention, with the yield on both the two-year and ten-year Treasury notes easing off from the previous session’s highs to 3.301% and 3.346%, respectively.
Also drawing an amount of investor attention, Opec left its forecasts for world oil demand unchanged on Tuesday, but warned that the global economy was “fraught” with uncertainty. The cartel, publishing its latest monthly report, forecast world oil demand growth for 2022 would be 3.4m barrels per day, with demand projected to average 100.29m bpd, unchanged on May’s estimates. Demand was expected to exceed pre-pandemic levels by 900,000 bpd.
Within that, it revised down its forecast for the second quarter, to reflect the lockdowns in China, but upgraded expectations for the third, on likely strong demand during the summer holiday and driving season. The second half, however, was harder to predict, the Vienna, Austria-based body acknowledged.
No major corporate earnings were released on Tuesday.
Wednesday newspaper round-up: BP, airlines, Coinbase
Global fossil fuel company BP has bought 40.5% of a renewable energy hub in the Pilbara, billed as having potential to become one of the biggest suppliers of green hydrogen in the world. The company will also operate the Asian Renewable Energy Hub, which has plans to generate up to 26GW of wind and solar energy – about a third of the electricity generated in Australia today. – Guardian
Airlines have been told to review their schedules by the government to avoid more flight chaos, as airports and unions said the problems behind recent cancellations would not be fixed by summer. The Department for Transport and the Civil Aviation Authority (CAA) said airlines should ensure flights on sale are “deliverable”, and cancellations should be made “at the earliest possibility”. – Guardian
The UK is poised to snub China’s role in its nuclear ambitions under plans that will grant ministers the power to intervene in project decisions that pose a risk to national security. Kwasi Kwarteng, the Business Secretary, is pushing ahead with proposals that will grant the Government a “special share” when it takes a 20pc share in the planned Sizewell C station in Suffolk. – Telegraph
Coinbase Global is shedding about 1,100 jobs in preparation for what the chief executive of the cryptocurrency trading exchange warned could be a “crypto winter” as the US economy edges towards recession. The cuts, about a fifth of San Francisco-based company’s workforce, come as panic selling grips the cryptocurrency market, with bitcoin, the world’s most actively traded digital asset, losing 60 per cent of its value since a record high in November. – The Times
Hermann Hauser, the co-founder of Arm Holdings, has said the company listing in the UK is a matter of “technological sovereignty” for Europe. “This means you have a full set of all the critical technologies you need to run a country and economy properly. Not being technology sovereign means you become dependent on other countries,” he told The Times yesterday. – The Times
