City economists are today revising UK forecasts after Rishi Sunak’s £15 billion of support to help households through the energy crisis.
They warn that there’s now a greater risk that the Bank of England will be bounced into hiking interest rates more in 2022 in order to offset the rise in inflation stemming from yesterday’s fiscal measures.
Retail stocks including Next and Marks & Spencer rose sharply yesterday as the Chancellor’s £400 energy bill reduction allayed the worst fears of investors about a household spending slowdown.
FTSE 100 Live Friday
Rates rise fears fuelled by energy bill support
S&P 500 poised to break run of weekly losses
FTSE 100 steady, power firms under pressure
US rates rise acceptance lifts markets
10:38 , Graeme Evans
A calmer week for stock markets today fuelled optimism that investors are finally coming to terms with the stance of central banks on tackling inflation.
It’s been a torrid year so far, particularly in the US where the S&P 500 had been facing an eighth consecutive week in the red for only the third time since the Great Depression.
A strong session on Thursday left Wall Street on track to break that sequence after investors cheered updates from retailers Macy’s and discounter Dollar Tree.
There’s also more acceptance about US interest rates rising by 0.5% in June and July, as long as the Federal Reserve sticks to its pledge to be flexible after that.
RIchard Hunter, head of markets at Interactive Investor, said: “There’s the possibility that the Fed’s hawkish stance has now been fully priced into markets, which could signal the return of some opportunistic buying.”
The more relaxed mood left the FTSE 100 index higher for the week and just 4% shy of its record high. The top flight is one of the few major markets in positive territory for the year, aided by its exposure to basic resources and stocks with defensive characteristics.
A stronger pound following the Chancellor’s cost of living measures meant some dollar-earning stocks were under pressure today, but the top flight still rose 5.16 points to 7570.08.
Scottish Mortgage Investment Trust rallied 15p to 760.8p following a better-than-expected update from China’s internet giant Alibaba, which is a key part of the company’s portfolio.
The domestic focused FTSE 250 has taken the brunt of the declining outlook for the UK economy and is down 14% so far in 2022. However there was an improvement of 99.81 points to 20,348.55 today, led by FirstGroup as investors evaluated yesterday’s disclosure of bid interest from a US private equity firm. Shares jumped 7% or 9.2p to 139p.
But pressure on Centrica shares continued after Sunak put the electricity industry on standby for a possible windfall tax.
The British Gas owner lost another 4% or 3.26p to 75.88p on top of yesterday’s 7% fall, jeopardising its promotion chances in next week’s FTSE 100 reshuffle.
Mood improves as FTSE 100 consolidates gains
08:28 , Graeme Evans
The encouraging recent stock market performance is continuing after the FTSE 100 index consolidated gains seen this week.
The top flight is down by just 8.84 points at 7556.08, which leaves it about 4% off its record high and up 2.5% in the year to date.
Richard Hunter, head of markets at Interactive Investor, points out that the FTSE 100 is one of the few global developed markets to be in positive territory for the year, aided by exposure to basic resources and an array of stocks with defensive characteristics.
The domestically focused FTSE 250 has taken the brunt of the declining outlook for the UK economy and has lost around 14% so far in 2022. It rose 30.16 points to 20,278.90 today.
Hunter said: “After a torrid few months, there are some tentative signs of green shoots emerging as investors become more comfortable with the stance of the central banks in tackling inflation.”
Reassuring updates from US retailers including Macy’s and from the tech sector after China’s Alibaba beat revenue expectations helped today’s mood.
Miners led the FTSE 100 risers board, with Glencore up 2.5% and Rio Tinto and Antofagasta ahead by more than 1%.
Bill rebates add to rate rise pressure
08:07 , Graeme Evans
The impact of the energy bill rebate on inflation later this year will depend on how the Office for National Statistics decides to treat the adjustment in its calculations.
But with the economy currently operating above capacity, Capital Economics has warned the boost to GDP growth will probably indirectly feed into higher inflation.
As a result, the consultancy has raised its CPI inflation forecast for 2023 from 4.3% to 4.8%. It said: “About half of that increase is due to the Chancellor’s measures and about half is due to us taking the opportunity to raise our Ofgem price cap assumption for October from a 30% rise to a 40% rise.”
The pressure means the Bank of England’s monetary policy committee (MPC) may have to pull the interest rate lever harder to reduce inflation back towards its 2% target.
Deutsche Bank warns that the case for three more rate hikes this year is rising. Senior economist Sanjay Raja said: “The risk now is that the MPC may be bounced into hiking more in 2022 to offset some of the rise in inflation as a result of the fiscal measures.
Bank of America added: “With the Bank of England concerned about inflationary pressure, the extra fiscal stimulus will, we think, translate into modest additional pressure for more rate hikes.”
S&P 500 poised to end seven-week losing streak
07:46 , Graeme Evans
Yesterday’s strong session for Wall Street shares means major US indices should break a seven-week losing streak later today.
The S&P 500 index is 4% higher this week, which if sustained would mean the leading benchmark ends its worst run since 2001. The tech-focused Nasdaq is on a similar streak but is currently ahead more than 3%.
The Dow Jones Industrial Average has fallen for eight weeks in a row but is more than 4% stronger since Monday after an increase of 1.5% yesterday on the back of reassuring updates from the retail sector.
Macy’s and discounter Dollar Tree’s shares jumped by a fifth after their quarterly statements, but some of this progress was offset after the closing bell when Gap cut its profits guidance.
US futures are pointing to a steady session later, while the FTSE 100 index is forecast by CMC Markets to fall 10 points at 7554.
The top flight was lifted yesterday by retail stocks including Next and B&M European Value Retail as the Chancellor’s £400 energy bill reduction allayed the worst fears of investors about a household spending slowdown.