A crunch session for investors today sees the release of the May US inflation figure, which if above last month’s 8.3% will fuel fears over future interest rate rises.
The US Federal Reserve is already expected to raise rates by 0.5% next week and in July, but the outlook for the autumn depends on the inflation pressures easing.
Oil prices above $120 a barrel mean rate rise jitters have intensified ahead of this afternoon’s inflation release, with the FTSE 100 index down 1.5% and the S&P 500 off by 2.4% yesterday.
FTSE 100 Live Friday
Rate rise jitters send markets lower
US inflation set to remain at 8.3%
“Too big to fail” banking era over, BoE says
Demise of pound is exaggerated
10:28 , Simon English
THIS week saw the 40th anniversary of the arrival of the 20p piece. What would that 1982 coin be worth now? 5p. That’s what inflation does to the pound in your pocket, was the point.
Some saw that as indicative of a wider malaise for our currency – there is no question it is under pressure.
It is down from $1.42 a year ago to around $1.24 today, which some blame on Brexit, some on Boris, some on bitcoin. (Some blame it on the boogie.)
The question is where sterling goes from here and the confidence with which experts make forecasts owes little to their track record and much to hubris.
As JK Galbraith nearly said, the only point of currency forecasts is to make economic forecasts look respectable.
Some of the more hysterical commentary has sterling languishing as an emerging market currency.
Too big to fail era over, says Bank
10:27 , Simon English
THE era of “too big to fail” banks going bust and being bailed out by the public is over, the Bank of England claimed today, while warning that three major lenders still have short comings.
Lloyds, Standard Chartered and HSBC were told to improve their so-called resolution plans, a somewhat public rebuke. All three said they would do so.
Banks around the world went bust in the wake of the 2008 credit crunch, beginning with Lehman Brothers and Bear Stearns on Wall Street.
The contagion spread. In the UK Royal Bank of Scotland and Lloyds had to be bailed out at the cost of tens of billions of pounds each.
All banks took contributions from the taxpayer to stay afloat, if only indirectly.
That cloud has hung over the sector ever since with banks ordered to beef up balance sheets and come up with comprehensive plans for how they would cope if forced to wind themselves down.
FTSE 100 falls amid rate rise speculation
10:25 , Graeme Evans
The FTSE 100 index is heading for one of its worst weeks of the year as worries mount over the abrupt end for the era of cheap money.
After US markets skidded 2% on Thursday night ahead of today’s May inflation release, the FTSE 100 fell another 1% or 71.44 points to 7404.77. It is down by 2% over the week.
The selling pressure came as investors priced in steeper-than-expected interest rate rises to bring inflation back under control, particularly after central banks in India and Australia went for big increases this week.
Hargreaves Lansdown analyst Susannah Streeter said: ‘’Inflation is what is scaring the horses on financial markets and equities in Europe are galloping lower after another pretty wild ride for US equities.”
Today’s US inflation reading is expected to be unchanged at 8.3%, but any higher than that will increase speculation that the Federal Reserve will have to continue increasing rates in the autumn.
The European Central Bank is due to start tightening in July and the Bank of England looks odds on for another quarter point hike, taking its base rate to 1.25% next week.
Deutsche Bank’s Sanjay Raja thinks some Bank policymakers may even press for a half point rise. He has also raised his forecast for the eventual peak to 2.5%, compared with previous expectations for 1.75%.
The rate rise speculation triggered more weakness for growth stocks whose valuations are built around earnings being reinvested for future returns. Tech investor Scottish Mortgage Investment Trust was one of the session’s biggest fallers, down 2% or 19.2p to 779.6p.
The storm clouds also contributed to Royal Mail and JD Sports Fashion falling 2%.
The squeeze on household budgets is being felt at FTSE All-Share kitchenware business ProCook, which slid 42% on a warning over recent trading.
Chief executive and founder Daniel O'Neill said of the belt tightening: "There are clear and numerous pressures on consumers at present which are impacting discretionary spend across retail as a whole and kitchenware is no exception.”
ProCook, which listed on the stock market in November at a price of 145p, fell 33p to 45p as it said revenues for the year to next April are set to be flat at around £69 million.
ProCook warning sends shares 42% lower
08:53 , Graeme Evans
The squeeze on household budgets has been felt at kitchenware business ProCook, where shares are down 42% this morning on the back of a warning on recent trading.
ProCook, which listed on the stock market in November at a price of 145p, said like-for-like sales have weakened across all channels and that it now forecasts revenues for the year to next April to be flat at around £69 million.
Shares fell 33p to 45p as ProCook now expects adjusted profits of between £4 million and £6 million.
Chief executive and founder Daniel O'Neill said: "There are clear and numerous pressures on consumers at present which are impacting discretionary spend across retail as a whole and kitchenware is no exception.
“Whilst we are still seeing lots of new customers discovering the ProCook brand and buying our products, it is clear that many are tightening their belts.
“This creates a difficult short-term trading environment, but does not distract us from our strategic priorities.”
Pressure grows for 0.5% BoE hike
08:11 , Graeme Evans
The Bank of England’s monetary policy committee meets next week, when policymakers are due to raise rates by another 0.25% to 1.25%.
However, Deutsche Bank economist Sanjay Raja thinks at least three members on the nine-strong committee will press for a bigger half point move.
He added today: “Looking ahead, we now expect the MPC to hike in every meeting for the remainder of the year and one more time in February next year.
“And while our previous call had the Bank Rate peaking at 1.75% – within the range of neutral, which we broadly put at 1.25% to 2% – our updated call has Bank Rate going to 2.5%, beyond neutral and into modestly restrictive territory.
“With risks to the Bank's inflation projections tilted firmly to the upside, the modest push into a restrictive stance should give the MPC added confidence in getting inflation back to target over the medium-term.”
FTSE 100 falls ahead of US inflation figure
07:49 , Graeme Evans
All eyes are on this afternoon’s US inflation release, which is expected to show a headline figure unchanged for May at 8.3%.
An increase above this is unlikely to be well received by stock markets, especially with the US Federal Reserve meeting next week.
Fears over the extent that interest rates might have to rise have intensified in recent days, fuelled by oil prices above $120 a barrel.
The FTSE 100 index fell by 1.5% yesterday and is set to lose another 56 points at 7,420 this morning, leaving it on course for its worst week this year. The S&P 500 also fell 2.4% last night.
Michael Hewson, chief market analyst at CMC Markets, said: “Up until a week ago there was some optimism that we could be near a peak as far as US inflation is concerned.
“That perception has taken a knock over the past few days, as reflected by a sharp rebound in yields, as central banks across the globe embark on a series of outsized rate hikes.
The US 10-year bond yield is now above 3% in anticipation that the Federal Reserve will continue raising rates even after the anticipated 0.5% hikes next week and in July.
Yesterday the European Central Bank decided to end its asset purchase plan in three weeks and raise interest rates next month, the first time since 2011.