A volatile week for stock markets is ending with the pound at a two-year low and shares under more pressure as stagflation fears grow.
Sterling’s weakness came as the Bank of England warned of recession and Wall Street traders reignited their fears of large hikes in US interest rates in the fight against inflation.
Despite the economic uncertainty, house prices continue to rise after lender Halifax reported property values increased by 1.1% in April.
FTSE 100 Live Friday
London shares lower after Wall Street slump
Stagflation fears keep pound under pressure
House prices up 1.1% in April, 10.8% over year
UK firms rush to automate warehouses to sidestep labour cost pressures
12:27 , Simon Hunt
Supply chain woes and increased labour costs are prompting firms to outsource and automate their logistics operations in a bid to stay competitive, according to logistics business GXO.
The company reported revenues of $2.1 billion in the first quarter of 2022, an increase of 14% on 2021 as firms ditched manually-operated in-house warehouses in favour of automated third-party sites to keep up with next-day delivery orders.
GXO chief strategy officer Neil Shelton said: “In this environment of labour inflation and questions over the supply of labour…companies are reviewing their supply chains like never before.”
“They’re embracing more technology and automation… allowing warehousing to become a source of competitive advantage for them.”
Tech stocks hit as FTSE 100 weakens
10:20 , Graeme Evans
A spectacular slide for Wall Street’s mega-cap technology stocks triggered more pain for the likes of Ocado and Rightmove today as pressure on London shares continued.
Amazon, Netflix and Apple valuations skidded by as much as 8% after US traders dumped growth and consumer-focused stocks on fears over aggressive interest rate rises.
London’s small band of blue-chip technology companies bore the brunt of this weaker sentiment, with Ocado shares off another 5% to leave the grocery warehouse robotics business down by almost 50% so far this year.
Property search portal Rightmove also fell 4% or 24.4p to 580p, despite lender Halifax reporting that house prices are holding up in the face of economic uncertainty.
Other big London fallers included Auto Trader and gaming business Entain, while warehouse business Segro lost another 43p to 1144.5p as investors appear increasingly worried about slower demand from retail-focused customers.
The FTSE 100 index lost 0.7% or 51.24 points to 7452.03, but the performance was better than in Europe as the weak pound offered some protection for dollar earning companies.
Sterling remained well below $1.24, having slumped more than 2% yesterday to a two-year low on stagflation projections from the Bank of England.
BP and Shell also propped up the top flight with gains of 1%, driven by share buyback expectations after strong first quarter results this week.
The FTSE 250 index, meanwhile, was below 20,000 for the first time since March, down 1% or 208.51 points to 19,881.45. Fallers included Rolex retailer Watches of Switzerland, off 7% or 66.5p to 841.5p.
Corporate merchandise firm 4imprint was a rare bright spot after it said strong US demand had kept it on course to deliver a long-held target of $1 billion of annual revenues by this year. Shares jumped 12% or 290p to 2730p.
FTSE 100 falls, IAG down 6%
08:46 , Graeme Evans
European markets are trading lower as sentiment is impacted by last night’s New York slump and nervousness ahead of US jobs figures later today.
The FTSE 100 index retreated 0.6% or 46.58 points to 7456.69, with British Airways owner IAG the leading faller after its first quarter results showed a first quarter operating loss of 731 million euros (£624 million).
IAG reported a strong recovery in business travel, with premium leisure also holding up well, as it rebuilt passenger capacity to 65% of 2019 levels over the three months. This figure is expected to grow to 85% in the peak summer quarter.
Despite the company’s recovery optimism, shares fell 5.8% or 8.3p to 135.02p.
Energy stocks BP and Shell propped up the top flight after gains of more than 1%, buoyed by the prospect of further share buybacks following the strong first quarter results earlier this week.
The FTSE 250 index fell 0.8% or 155.58 points to 19,934.38, with Centrica down 3% after a downgrade from analysts at HSBC.
House prices up again, longest run of gains since 2016
08:11 , Graeme Evans
The economic uncertainty appears to be having little impact on house prices after lender Halifax reported that property values increased by 1.1% in April and by 10.8% on an annual basis.
The tenth consecutive monthly increase is the longest run of continuous gains since the end of 2016 and takes the average figure to another record high of £286,079.
Halifax managing director Russell Galley said continued growth in new buyer enquiries suggests activity will remain heightened in the short-term.
He added: “The imbalance between supply and demand persists, with an insufficient number of new properties coming onto the market to meet the needs of prospective buyers and strong competition to secure properties driving up prices.”
However, Galley predicted that the rate of house price growth will eventually slow as incomes are squeezed.
He said: “The house price to income ratio is already at its highest ever level, and with interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year.”
The rate of annual house price inflation in London continues to lag the rest of the UK, with prices now up by 6.2% year-on-year.
However, average property values in the capital remain much higher than the rest of the country, with the latest average house price figure of £537,896 a new record for the city.
Pound remains under pressure
07:59 , Graeme Evans
The pound continues to struggle against the US dollar after falling more than 2% yesterday in the wake of the Bank of England’s gloomy economic assessment.
There was no respite today, with sterling still trading at below $1.24 for its lowest level in almost two years.
The pressure came as traders re-assessed the likely path of future rate hikes in light of forecasts that the UK economy may contract in 2023. End-of-year rate expectations eased back by around 17 basis points to between 2% and 2.25% following the Bank update.
Investec chief economist Philip Shaw said: “Our own forecast is that the Bank rate will rise by another 0.25% to 1.25% in August, but we maintain that there is too much tightening priced into the curve and that poor economic news has the potential for markets to reappraise their views further.”
In contrast, US markets continue to expect an aggressive approach by the Federal Reserve, with another half point rise in rates due next month.
Hammering for tech stocks sets tone for weak session
07:45 , Graeme Evans
A big slide for New York technology stocks, with Amazon and Netflix 7% lower, means European markets face another difficult session.
The Nasdaq lost 5% and the Dow Jones Industrial Average closed 3% lower in a turnaround of fortunes from big gains the previous session.
Sentiment had initially been stronger after Federal Reserve chairman Jerome Powell’s comments about not wanting to raise interest rates by more than half a percentage point in the battle to control inflation.
Despite his reassurances, 10-year US bond yields later returned above 3% as Wall Street revisited the possibility of a 0.75% rise at the Fed’s next meeting in June.
Stock market sentiment further weakened and the pound fell sharply after Bank of England governor Andrew Bailey warned that the UK economy will contract in 2023.
Michael Hewson, chief market analyst at CMC Markets, said: “Whereas Powell adopted a sombre but optimistic tone that the Fed could achieve a soft landing, Bailey was much gloomier about the outlook as the Bank downgraded the outlook for the UK economy.
“This gloomy stagflation/recessionary outlook may well have prompted investors to reassess the initial optimism of central bankers, on either side of the Atlantic to engineer a soft landing for the wider global economy, at a time when growth is already slowing, and prices are still climbing.”
Hewson sees the FTSE 100 index opening three points lower at 7500, but with sentiment generally weakening after the top flight lost an initial 1.5% gain in yesterday’s session.