- FTSE 100 closes off 25 points
- US stocks mixed after jobs, service sector data
- Fed tapering decision awaited
5.00pm: All eyes on the Fed meeting outcome
The FTSE 100 ended modestly lower on Wednesday as Wall Street made mixed progress ahead of the Federal Reserve’s latest monetary policy decision after some upbeat US data.
At the close, the UK blue-chip index was 25.92 points, or 0.4% lower at 7,248.89, below the day’s peak of 7,277.64 but above the session low of 7,235.32.
On Wall Street around London’s close, the Dow Jones Industrials Average was 112 points, or 0.3% lower at 35,940, with the broader S&P 500 index off 0.1%, although the tech-laden Nasdaq Composite added 0.1%.
Craig Erlam, senior market analyst, UK & EMEA at OANDA commented: “Stock markets are relatively flat on Wednesday ahead of the highly anticipated Fed decision that’s only a few hours away. I say highly anticipated but, like a terribly kept secret, we’re all aware of what’s almost certainly going to be announced. A taper of their asset purchase program by $15 billion per month – $10 billion in Treasuries, $5 billion in mortgage-backed securities – would bring an end to the program in the middle of next year which takes us to the question we all want the answer to. What then?
“Despite Powell’s best efforts to convince everyone that tapering and interest rates aren’t linked, hikes are already being priced in for next year with the first expected almost immediately after tapering is anticipated to draw to a close. More rate hikes are expected to follow soon after. With that in mind, will Powell and his colleagues continue to cling to their belief that inflation is transitory?
“I think that will inevitably be dropped at this meeting or the next, when new projections will allow them to re-evaluate their position and communication. Their views won’t dramatically change, they’ll still insist that pressures are being driven by temporary factors and will pass naturally over time, but that it may take longer than initially believed.
“That will allow them the space to bring forward expectations for rate hikes to align more with the markets over the next couple of years. Whether investors will stay on board with that is another thing. US stock markets are trading around record highs going into the meeting as we’re coming off a very strong quarter of earnings, which has taken priority over downside risk fears that had weighed in the run-up to the reporting season.
“The economy will have to continue showing signs of significant improvement to keep investors on board as they adjust to a world without central banks keeping rates at extremely low levels. Given those headwinds, I’m sure we’ll see big fluctuations in economic and rate expectations over the next 12 months but for now, investors look surprisingly comfortable.”
Erlam added: “The data from the US has provided some encouragement at just the right time, given the new phase that the Fed is about to embark on. The ADP employment data comfortably surpassed expectations at 571,000, setting us up for a potentially strong jobs report on Friday following last months lacklustre performance.
“The ISM services PMI was also a bright spot, rising to a record high as business activity and new orders surged to their highest ever levels. This bodes well for consumers going into the holiday period after the setback of the delta wave. The only downside to the data was the jump in delivery time, prices paid and order backlog which suggest bottleneck issues are getting worse rather than better ahead of the holiday period.”
3.55pm: Uncertainty continues ahead of Fed and Bank of England
With eyes focused on the Federal Reserve later and the Bank of England tomorrow, it is no wonder there is an air of uncertainty around the markets.
The FTSE 100 is hovering around its lows of the day, down 34.62 points or 0.48% at 7240.19.
In the US, the stronger than expected services and jobs figures have added weight to the idea that the Fed will decide to begin tapering its asset purchase programme which has been supporting the economy, and indeed the market.
The Dow Jones Industrial Average is currently down 74 points or 0.21%, the S&P 500 is 0.15% lower but the Nasdaq Composite is virtually flat, up just 0.04%.
Back in the UK, cyber security business Darktrace PLC (LSE:DARK) is the biggest faller in the leading index, down 5.14% as a key shareholder sold a third of its stake.
Bottling business Coca-Cola HBG AG has fallen 3.84% after its latest update.
And trading news from Next PLC (LSE:NXT) has disappointed the market, with its shares down 3.51%.
The retailer’s concerns that supply chain problems could hinder the availability of stock and price increases could hamper demand have also affected rivals.
JD Sports Fashion PLC (LSE:JD.) is down 2.04% and Marks & Spencer PLC has lost 1.86%.
The slipping oil price has seen BP PLC (LSE:BP.) slide 3.09% and while Royal Dutch Shell PLC (LSE:RDSB) is down 2.25%.
Heading higher is British Airways owner International Consolidated Airlines PLC, up 2.07% following a positive update from Germany’s Lufthansa.
And Royal Mail PLC (LSE:RMG) has put on 1.53% as UBS analysts moved their recommendation from sell to neutral.
Miners, which had been under pressure recently, have recovered, with Antofagasta PLC (LSE:ANTO) adding 1.51%.
3.19pm: BP and Shell fall as crude slides
The weakness in the oil price continues as US inventories rose for the sixth week in succession.
In turn that is putting pressure on oil company shares, with BP PLC (LSE:BP.) down 2.91% and Royal Dutch Shell PLC (LSE:RDSB) seeing its A shares just over 2% lower.
Michael Hewson at CMC Markets UK said: “Another week of rising US inventories has seen crude oil prices slide back, a state of affairs that is all the more surprising when you consider that demand expectations have continued to rise as we head into the winter months.”
2.10pm: US service sector hits new peak
Following the US jobs data, the country’s service sector is also performing more strongly than forecast.
The Institute of Supply Management’s services PMI came in at 66.7 in October, another record high. This was up from September’s reading of 61.9 and much better than the figure of 62 which had been forecast.
Both the business activity index and new orders index also hit all time highs.
ISM chair Anthony Nieves said: “In October strong growth continued for the services sector, which has expanded for all but two of the last 141 months.”
But he added: “However, ongoing challenges – including supply chain disruptions and shortages of labour and materials – are constraining capacity and impacting overall business conditions.”
1.55pm: US markets edge lower
So the jobs data has had an influence on Wall Street after all.
US stocks opened in the red on Wednesday as markets digested the strong ADP figures and awaited a Fed decision on tapering stimulus measures.
The Dow Jones Industrial Average shed over 73 points at 35,979 in early deals in New York. The S&P 500 lost around four points at 4,626, while the tech heavy Nasdaq exchange dropped around eight at 15,641.
October’s ADP private employment report showed that private businesses hired 571,000 workers last month, beating expectations for 400,000.
Victoria Scholar of interactive investor again: “Although the Fed will no doubt be paying close attention to this week’s labour market figures, a single data point is unlikely to change the central bank’s course of action, with the likelihood remaining for the Fed to cut its Treasury bond buying by $10bn per month and downsize its mortgage-backed security purchases by $5bn a month, starting this month and winding up the entire stimulus programme by June.”
Shortly come the latest US service sector numbers from ISM.
12.21pm: US private payroll report beats forecasts
The US employment market was stronger than expected in October, according to the latest private payroll report.
Ahead of this week’s widely watched and more broadly based non-farm payrolls number, the ADP survey showed 571,000 jobs were added last month.
This is much better than the 400,000 expected.
However the previous month’s figure has been revised down from 568,000 to 523,000.
The ADP figure for September gave little indication of the subsequent disappointing non-farm number for the month.
But the latest number could indicate a strong number for this month’s non-farms, analysts suggested.
Victoria Scholar, head of investment at interactive investor, said: “Friday’s non-farm payrolls report is expected to see 450,000 jobs added in October, a sharp increase from last month’s meagre 194,000 gain, which was the lowest reading of the year and sharply below market consensus for a gain of 500,000. September’s figure was weighed down by a sharp drop in public sector employment, with private payrolls actually increasing 317,000.”
All in all, more grist to the mill for those expecting the US Federal Reserve to begin tapering its monthly bond buying programme as the economy recovers.
US ADP Employment Change Oct: 571K (est 400K; prev 568K; prevR 523K)
— LiveSquawk (@LiveSquawk) November 3, 2021
US October ADP National Employment Report – Officialhttps://t.co/AwUSVJlirI pic.twitter.com/nGt81tZyKm
— LiveSquawk (@LiveSquawk) November 3, 2021
#ADP indicates 571K jobs were added in Oct, up slightly from 523K in Sep. ADP overshot the #jobsreport in Sep (in part bc ADP is private payrolls only and much of the slowdown in Sep was govt jobs) and a print of 571K on Fri would be slightly above expectations. pic.twitter.com/aOzknq9fOD
— Daniel Zhao (@DanielBZhao) November 3, 2021
So far the report has done little to influence Wall Street, with the Dow Jones Industrial Average and S&P 500 still both marginally lower and the Nasdaq Composite marginally higher.
Meanwhile the FTSE 100 has fallen further, down 32.63 points or 0.45% at 7242.18.
11.28am: All eyes on the Fed
US stocks are expected to open mixed after hitting new highs in the previous session as investors await the Federal Reserve’s policy decision..
Futures for the Dow Jones Industrial Average declined 0.13% in Wednesday pre-market trading, while the broader S&P 500 index shed 0.11% and those for the tech-heavy Nasdaq 100 gained 0.04%.
Stocks closed higher on Tuesday on continuing strong corporate earnings.
The Dow rose 0.39% to 36,053, while the S&P 500 gained 0.37% to 4,630 and the Nasdaq advanced 0.34% to 15,649.
The Fed is expected to announce a tapering in its asset purchases when it wraps up its two-day policy meeting today, a move that has already been telegraphed to the market. Investors will be looking for clues on whether the end of quantitative easing signals the start of higher interest rates.
“Wall Street closed at a new record high for a fourth-straight session as earnings continue to underpin confidence in fundamentals,” said Neil Wilson, chief market analyst at markets.com.
“It appears that fears about inflation eroding margins are so far unfounded. Whilst markets may have concerns about the Fed’s tapering and eventual tightening, these seem to have been well telegraphed thus far with the Fed chasing to catch up with bond markets and not the other way around.”
Back in the UK and the FTSE 100 is down 19.49 points or 0.27% at 7255.32.
11.09am: Airlines climb on Lufthansa update
Positive results from Lufthansa have given a lift to the airline sector.
British Airways owner International Consolidated Airlines PLC is now the biggest riser in the leading index, up 3.93% at 169.78p.
Among the mid-caps, Wizz Air Holdings (AIM:WIZZ) PLC has climbed 2.27% and easyJet PLC is 1.81% better.
Ryanair Holdings PLC (LSE:RYA) has put on 3.27%.
Joshua Mahony, senior market analyst at IG, said: “Airline stocks are leading the way this morning, with the latest earnings data from Lufthansa lifting sentiment around the sector as a whole. Third quarter numbers from Lufthansa have signalled a return to profits for the German airline, building on the similar news from Ryanair on Monday. With travel restrictions removed throughout much of Europe, there is a hope that this quarter will mark a turning point beyond which airlines can regain lost ground.”
Elsewhere Royal Mail PLC (LSE:RMG) has added 2.87% as analysts at UBS moved from sell to neutral with a 440p price target.
They said: “UK labour shortages and inflationary wage pressures are well known with the shares pricing in already some incremental costs eroding 2022 profits with investor expectations below the current full year concensus…
“We believe Royal Mail may be better positioned than peers to handle the current environment of labour shortages..
“In our upside scenario (fair value 600p) we assume parcel demand accelerates due to increased UK restrictions or network disruptions at peers caused by labour shortages. On top the push of Royal Mail into Sunday delivery may bring further market share gains.
In our downside scenario (fair value 200p) the incremental parcel sortation capacity erodes pricing power within the industry and labour cost inflation is steeper (e.g. more than 5-6% wage inflation, or no deal with CWU in the first half of 2022 and low productivity improvements), bringing industry margins under pressure.”
Overall the FTSE 100 is currently down 18.28 points or 0.25% at 7256.53.
10.29am: ECB plays down rate rise prospects
The Fed may be tapering, the Bank of England may raise rates, but the European Central Bank is having none of it.
In a speech in Lisbon, ECB president Christine Lagarde said its three conditions for rates to rise were unlikely to be met next year. The three conditions are inflation reaching 2%, being persistent and not just due to one-off price increases and stabilising at that level over the medium term.
Lagarde said: “In our forward guidance on interest rates, we have clearly articulated the three conditions that need to be satisfied before rates will start to rise. Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year.”
(THREAD) Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, says President Christine @Lagarde.
Thus, the three conditions that need to be satisfied before rates start to rise are very unlikely to be met next year.
— European Central Bank (@ecb) November 3, 2021
Lagarde: An undue tightening of financing conditions is not desirable at a time when purchasing power is already being squeezed by higher energy and fuel bills, and it would represent an unwarranted headwind for the recovery.
Read the full speech https://t.co/oMU4yUd3Uw
— European Central Bank (@ecb) November 3, 2021
And here is one economist’s response:
With almost a week delay, here finally is the #ECB pushback against markets’ overly enthusiastic rate hike expectations. pic.twitter.com/ZM7IpFUCm9
— Carsten Brzeski (@carstenbrzeski) November 3, 2021
10.15am: Investors remain cautious ahead of central bank meetings
Leading shares continue to drift but are off their worse levels, as caution reigns ahead of the week’s big central bank events.
Having slipped to 7247, the FTSE 100 is now down 17.53 points or 0.24% at 7257.28.
AJ Bell investment director Russ Mould said: “The FTSE 100 was in something of a holding pattern on Wednesday morning as investors await two central bank announcements which could define the year to come, let alone this week.
“The first of these comes tonight UK time as the US Federal Reserve is widely expected to begin tapering its financial support for the economy. It will hope this move has been telegraphed sufficiently to avoid a repeat of the taper tantrum which greeted a similar move by then Fed chair Ben Bernanke back in 2013.
“Tomorrow brings the possibility of the first hike from the Bank of England in three-and-a-half years from the current record low of 0.1%.
“The challenge facing central bankers is that if they move too soon on rates they risk choking off the recovery, too late and the evident inflationary pressures could run out of control. Timing will be everything.”
9.44am: UK services beat expectations
The UK service sector performed better than expected in October, but pricing pressures continue to grow.
The IHS Markit/CIPS purchasing managers index for the sector came in at 59.1, up from 55.4 in September and higher than the forecast figure of 58.
This was the strongest pace of recovery since July.
Markit said the sharp and accelerated rise in business activity in October was driven by the strongest increase in new work since June, helped by the reopening of the economy and looser international travel restrictions.
But stronger demand, staff shortages and stretched supply chains all contributed to a spike in inflationary pressures during October. Both operating expenses and prices charged by service providers increased at the steepest rates since the survey began in July 1996.
UK October Markit PMI Services Report – IHS Markit
IHS Markithttps://t.co/xOFTJIyJcI pic.twitter.com/eHCt3eohqp
— LiveSquawk (@LiveSquawk) November 3, 2021
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “The dominant service sector in the UK economy had a surprisingly good month in October with a strong uptick in overall output, job creation and new orders as business and consumers began to spend again unfettered by lockdown and pandemic restrictions.
“This rise in activity was driven by the domestic market but also export orders rising to the largest extent since 2018 as travel opportunities opened up and pandemic savings were spent on holidays and hospitality.
“Not even the survey record high in prices charged to customers and consumers restricted this autumnal joie de vivre as businesses were keen to keep going and build on the pandemic recovery and UK citizens enjoyed more normality.
“With all the good news in the PMI results, business optimism still fell to its lowest since March and there are good reasons for this. Escalating business costs remain deeply concerning as salaries rocketed along with fuel and energy costs and material shortages as a result of supply chain disorder. A third of supply chain managers reported stronger job creation as vacancies grew to meet fresh demand, but many struggled to find the right staff from ever-decreasing numbers of job seekers.
“The seemingly likely rise in interest rates this week may take some of the heat out of the overinflating UK economy but will also result in additional pressure on some household budgets, threatening to cut off this stream of good fortune early next year.”
Meanwhile the UK Composite Output Index – manufacturing and services – rose to 57.8 in October, up from 54.9 in September and the highest reading for three months.
Amid the concerns about inflation, the FTSE 100 is close to its low for the day, down 24.68 points or 0.34% at 7250.13.
9.24am: Darktrace drops as shareholder cuts stake
Cyber security firm Darktrace PLC (LSE:DARK) has been weak all week and is continuing to fall as the lock-up period for key investors ends.
The passing of the deadline has led to shareholder Deep Defence selling around a third of its stake in the business, which last week joined the FTSE 100.
Now it is the biggest faller in the leading index, down 6.01% at 594.5p as Deep Defence – a subsidiary of private equity firm Vitruvian Partners – raised GBP63.8mln with a placing of 11mln shares at 580p each.
Following the placing Deep Defence will hold 20,841,750 ordinary shares or 2.99% of Darktrace.
Darktrace has seen around GBP2bn wiped off its value in little over a week, and investors are concerned other major shareholders may also now cash in.
8.57am: Crude on the slide
Oil prices are sliding a little as US stocks rose by more than expected last week, perhaps hinting at a slow down in demand.
Brent crude is down 1.88% at US$83.13 a barrel while West Texas Intermediate, the US benchmark, is off 2.01% at US$82.22.
Neil Wilson at Markets.com said: “Oil slackened as API inventories were soft – stocks rose by 3.6mln barrels last week, well ahead of the 1.5mln expected. EIA inventory data is due later, expected to show a build of 1.9mln barrels. OPEC+ meets on Thursday amid calls for it to raise output further. Specifically, there seems to be some pressure coming from the White House as Joe Biden blamed the cartel for higher oil and gas prices.”
8.16am: UK market dips at open
Leading shares have opened lower as investors await the key decisions from the US Federal Reserve and the Bank of England.
The Fed is expected to indicate later today that it plans to start tapering its US$120bn a month bond-buying programme, while tomorrow the Bank is widely expected to edge UK interest rates higher from their current record low of 0.1%.
Ahead of that, comes the latest UK services PMI for October, which is expected to be confirmed at 58, up from September’s 55.4.
So with the prevailing mood one of caution, the FTSE 100 has dipped 13.79 points or 0.19% to 7261.02.
Next PLC (LSE:NXT) seems to be proving that if you constantly outperform, the one time you don’t you will suffer.
In its latest trading update it maintained its full year profit forecast despite a strong third quarter performance.
Normally it raises its prediction and since it has not, its shares have dropped 3.12% to 8053.05.
It also warned that rising prices could hit demand for discretionary purchases.
Richard Hunter, head of markets at interactive investor, said: “Despite the success of the quarter, guidance for the full-year remains unchanged after having been raised four times this year…
“This cautious outlook, which is characteristic of Next’s usual predictions, has likely led to some profit taking in the early exchanges of trading…
“Even so, Next remains a business which is in rude health. Its success is in stark comparison to many other struggling retailers, and even some of those who also have an established online presence. The effects of the pandemic on consumer shopping habits is currently suggesting some stickiness towards the online option, but even in the event of the return of strong footfall to stores, Next would also benefit. With the festive season fast approaching, there could very possibly be a further boost to sales, which would round off a strong year.”
Elsewhere, after yesterday’s falls on a slump in iron ore prices, mining shares are back in favour and are dominating the risers.
BHP PLC is 1.64% better, Glencore PLC (LSE:GLEN) has climbed 1.6% and Rio Tinto PLC (LSE:RIO) has risen 1.2%.
7.52am: Average UK house price above quarter of a million on Nationwide index
The UK housing market continues to be strong despite the ending of the stamp duty holiday in September, according to the latest Nationwide house price index.
Ahead of a possible interest rate rise this week, the figures show house prices growing by an annual 9.9% in October, slightly lower than the 10% figure recorded the previous month.
Prices rose 0.7% in month-on-month terms.
The average price has risen to GBP250,311 from GBP248,742.
Nationwide says this is the first time its index has shown the average price going above a quarter of a million pounds, although the ONS and Halifax have previously reported hitting that level.
Robert Gardner, Nationwide’s chief economist, said: “Demand for homes has remained strong, despite the expiry of the stamp duty holiday at the end of September. Indeed, mortgage applications remained robust at 72,645 in September, more than 10% above the monthly average recorded in 2019. Combined with a lack of homes on the market, this helps to explain why price growth has remained robust.
“The outlook remains extremely uncertain. If the labour market remains resilient, conditions may stay fairly buoyant in the coming months – especially as the market continues to have momentum and there is scope for ongoing shifts in housing preferences as a result of the pandemic to continue to support activity.
“However, a number of factors suggest the pace of activity may slow. It is still unclear how the wider economy will respond to the withdrawal of government support measures. Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living.
“Even if wider economic conditions continue to improve, rising interest rates may exert a cooling influence on the market, though the impact on existing borrowers is likely to be modest.”
Dominik Lipnicki, director of Your Mortgage Decisions, said: “Demand for property is still very strong but supply issues are the biggest sticking point, with simply too few properties on the market. Most now expect the Bank of England to raise the base rate in the near future, potentially this week, and we may well see a return to the pre-pandemic rate of 0.75% over the coming 12 months. But rates would still be stupendously low by historical standards and the impact on demand is likely to be negligible. Clearly, if the Bank of England presses the nuclear button and the base rate rises above 3%, that would indeed have a significant impact on both affordability and demand.”
6.50am: Investors await Fed, economic data
The FTSE 100 is expected to open slightly lower ahead of today’s Fed meeting which is expected to set out the first steps for a tapering of its US$120bn a month bond-buying programme.
Before that we have the latest ADP payrolls report for October, which is set to show a modest slowdown from the 568k jobs in September, with 400k new jobs. We’re also expected to see a modest improvement in the latest ISM Services numbers for October to 62, from 61.9.
In terms of domestic news, traders are awaiting the Bank of England meeting on Thursday, where interest rates may be raised.
“This expectation of a rise in rates has raised concern in some parts that the Bank of England might be on the cusp of a significant policy mistake. This seems somewhat hyperbolic in the wider scheme of things, given that its already priced in. The central banks wider problem is how to temper expectations about future rate rises, not this first one,” said Michael Hewson, chief market analyst at CMC Markets.
“While we’ve seen rising concern that the Bank of England might be on the cusp of a policy mistake by raising interest rates, the debate around the Federal Reserve is the exact opposite in that there are an increasing number of voices who say they are moving too slowly.”
London’s leading index is expected to open 7 points lower at 7,267.
6.50am: Early Markets – Asia / Australia
Stocks in the Asia-Pacific region were mostly lower on Wednesday as the Federal Reserve concludes its two-day meeting today with investors watching out for clues on tapering.
China’s Shanghai Composite slipped 0.12% while Hong Kong’s Hang Seng index fell 0.59%
In Japan, the Nikkei 225 declined 0.43% and South Korea’s Kospi slumped 1.25%.
Australia’s S&P/ASX200 was an exception, rising 0.93% to close at 7,392.70 points.