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FTSE 100 falls into negative territory after worse than expected US CPI data

© Reuters. FTSE 100 falls into negative territory after worse than expected US CPI data

FTSE 100 slides after worse than expected US CPI numbers
UK unemployment rate falls to lowest level since 1974
Ocado warns of lower sales and profits at Ocado Retail

FTSE 100 dipped into the red as higher than expected US CPI figures sent US futures tumbling as markets penned in a 75bp rate rise by the Federal Reserve at its next meeting with more increases to come.

At 1.50pm the lead index was trading down 18 points at 7,454 after being in positive territory for most of the day.

US CPI rose 0.1% in August giving an annual increase of 8.3% against expectations of a fall of 0.1% and an annual figure of 8.1% respectively.

Core CPI (excluding food and energy costs) rose 0.6% in August giving an annual increase of 6.3% against forecasts of a fall of 0.1% and an annual figure of 6%.

Futures for the DJIA sank 400 points on the report.

1.00pm: Citi sees UK rates up 50bp at next meeting

Citi Research said it expects the Bank of England to raise interest rates by 50 basis points at next week’s meeting.

But it said this view was conflicted with what it thought the Monetary Policy Committee should do and what it thought it would do.

Citi said normally the case for accelerating rate rises would be strong with medium term inflationary pressures likely to remain.

It added the UK now faces financing a near double digit current account deficit via portfolio flows which it thought was a “tough ask.”

But it noted the MPC has provided no indication that an acceleration is on the table and thinks a lower peak in near-term inflation would reduce any sense of urgency.

12.15pm: FTSE at session highs ahead of US CPI

Blue chip stocks were at their best levels for the day around midday ahead of key US inflation numbers.

At 12.15pm the FTSE 100 was trading up 25 points at 7,498 with the FTSE 250 also higher, up 75 points at 19,589.

Ahead of the CPI numbers US stocks were expected to continue their recent rally at the start on Tuesday ahead of crucial inflation data for August which is predicted to show that price pressures in the world’s biggest economy may have already peaked.

The data is expected to bolster the hope that US interest rates, beyond September, will not have to be raised as aggressively as on previous occasions. These expectations are likely to shore up stock prices for now.

Futures for the Dow Jones Industrial Average were trading 0.4% higher pre-market, while those for the broader S&P 500 index added 0.4%, and futures for the tech-laden Nasdaq-100 were also ahead 0.4%.

Today’s data will be key as inflation is the data with the biggest influence on Federal Reserve interest rate expectations since rate setters declared war against inflation last year, noted Ipek Ozkardeskaya senior analyst at Swissquote Bank.

Market expectations point to a slowing inflation rate, with the headline figure seen easing steadily to 8.1% in August from 8.5% in July and the peak of 9.1% in June.

“A second month of a soft inflation read has the power to soften the Fed hawks and increase the bets of softer rate hikes beyond September,” added Ozkardeskaya.

“Odds for September won’t change even with a significantly soft inflation read. The Fed is almost fully expected to raise the rates by another 75 basis points at next week’s FOMC (Federal Open Market Committee) meeting. What will happen after is, however, up to the data,” she said.

The Federal Reserve has been raising interest rates steadily and aggressively throughout the year. A 75- basis point hike this month, will be the third such increase this year as rate setters seek to tame inflation which, as things stand, remains around 40-year highs.

“A sufficiently soft, and ideally softer-than-expected inflation read today should keep the Fed hawks at bay, and give further support to the bullish action in equity markets, whereas a figure above expectations, or worse, a figure above last month’s read could snap the latest rally and send the stocks tumbling,” Ozkardeskaya predicted.

The inflation data is due out at 8.30am ET. Looking ahead, US producer price data, due out on Wednesday, will also give a snapshot of price pressures in the pipeline.

Hundreds of businesses are urging the chancellor to offer details about the support they’ll receive with their energy bills, according to Sky News.

The letter to Kwasi Kwarteng was signed by 300 companies and written by Kate Nicholls, the CEO of UK Hospitality.

It reads: “We welcome the support that has been given to households – including our customers and employees – and agree that more needs to be done.”

“But businesses must see action too, or more of the population will need direct support.”

“We need a plan that cuts business costs, stimulates demand and tackles inflation – and we set that out below.”

The plan calls for: a business rates holiday for all hospitality premises with no caps applied, the deferral of all environment levies, the reinstatement of a generous Time to Pay scheme from HMRC and the reintroduction of a trade credit insurance scheme for energy.

The letter concluded: “At this time of crisis, we need urgent, substantial action.”

11.20am: List of retailers closing for state funeral continues to grow

The list of retailers that will close their doors for the funeral of Queen Elizabeth II continues to grow.

Supermarkets Sainsbury’s, Tesco (LON:TSCO), Waitrose, Morrisons, Aldi and Lidl will all close although some convenience stores and petrol stations may open after 5pm.

Other retailers who have confirmed they will close next Monday include Marks and Spencer (LON:MKS), Dreams, Harrods, John Lewis, Homebase, WH Smith (LON:SMWH), B&Q, Primark, Argos, Poundland, B&Q, Apple (NASDAQ:AAPL), Lakeland, Halfords, Next, Zara, Waterstones and Joules.

Most shopping centres are set to remain open with retailers to make their own decisions as to whether to open or not.

Some pubs are set to remain open with Fullers announcing plans to open its doors to “provide a place for people to come together and pay their respects.”

Government guidance on whether retailers should close their doors next Monday states: “Some businesses may wish to consider closing or postponing events, especially on the day of the state funeral, however, this is at the discretion of individual businesses.”

10.40am: Further strike action planned at Felixstowe

Workers at the UK’s largest container port will walk off the job for eight days starting later this month, as their pay dispute continues.

Unite said workers at Felixstowe will strike from Tuesday September 27 until Wednesday October 5, in what will be their second eight-day strike this year.

The union blamed management at the Felixstowe Dock and Railway Company for ending pay talks after announcing it was “imposing” a pay deal of 7% on the workforce.

The port’s management said on its website: “We are very disappointed that Unite has announced this further strike action at this time.”

10.00am: Unemployment down, average pay up in the UK

A fall in UK unemployment over the summer offered some solace in the face of the headwinds facing the economy, according to the EY ITEM Club although it noted the decline was driven mainly by a rise in inactivity, with the number in work increasing only modestly.

Martin Beck, chief economic advisor to the EY ITEM Club, said: “Against a backdrop of GDP seeing next to no growth over the late spring and summer, a fall in unemployment delivered some positive news.”

“However, the decline in joblessness disguised what was only a modest 40,000 rise in employment, the smallest since January to March.”

Total pay growth accelerated to 5.5% year-on-year in the three months to July from 5.2% in June and Beck said this “significantly faster growth in pay” will probably carry more weight in the MPC’s thinking in advance of next week’s monetary policy decision than the weakness of employment growth or the fall in vacancies.

Beck said he expects unemployment to rise, but anticipates a softer landing compared to past economic downturns.

9.25am: Deutshce upgrades BT

Deutsche Bank (ETR:DBKGn) has taken BT Group PLC LON:BT of its sell list upgrading the company to hold.

Although the broker viewed the shares as more expensive than telco peers (especially relative to risk) it said it feels there is now a less skewed balance of potential newsflow.

Deutsche said BT could benefit from a stay on planned tax rises, ongoing inflation feeding through automatically to prices and perhaps a stronger pound which would benefit ‘domestic’ stocks within the FTSE.

Against this is consumer and B2B weakness and the risk of higher churn in the face of higher prices and a recession, Deutsche cautioned while ultimately alt-net proliferation will increase both business to commerce and business to business competition.

Deutsche has an unchanged price target of 140p.

9.00am: Ocado a case of “jam tomorrow.”

Richard Hunter, head of markets at interactive investor said today’s warning from Ocado Group PLC (LSE:OCDO) of lower sales and profits at Ocado Retail has the impact of confining Ocado to becoming a perennial “jam tomorrow” stock.

Hunter said Ocado Retail, the joint venture with Marks and Spencer (LON:MKS) PLC, remains the major driver of group revenues, but lighter baskets and heavier costs are weighing on progress.

“Even though it accounts for around 90% of total group revenues, today’s statement relates solely to the joint venture with Marks & Spencer and does not therefore provide an update on the Solutions business” Hunter noted, adding “The high-tech and unique offering driven by robotics and seamless delivery is one where strong growth has been long-anticipated but has yet to materialise meaningfully.”

Hunter concluded “The jury remains out on prospects for the time being with the market consensus still stuck at a hold, albeit a strong one.”

8.35am: Aldi breaks into the Top 4

German-owned discounter Aldi has overtaken Morrisons to become Britain’s fourth-biggest supermarket group, according to industry data published on Tuesday.

Market researcher Kantar said Aldi’s sales rose 18.7% in the 12 weeks to September 4th, taking its UK grocery market share to 9.3% from 8.1% a year ago as consumers look for value during the cost of living crisis.

Aldi trails market leader Tesco (LON:TSCO), Sainsbury’s and Asda but Aldi and fellow discounter Lidl now account for 16.4% of the market.

“Back at the start of the 2010s, Tesco, Sainsbury’s, Asda and Morrisons together accounted for over three quarters of the sector but that traditional big four is no more,” said Fraser McKevitt, Kantar’s head of retail and consumer insight.

The researcher said grocery inflation hit 12.4% in the four weeks to September 4th, another record, adding £571 to the average annual grocery bill, with products like milk, butter and dog food jumping up especially quickly at 31%, 25% and 29% respectively.

8.15am: FTSE 100 opens slightly higher

FTSE 100 made a subdued start to trading following strong gains yesterday with investors eyeing the US CPI figures due out later today for hopes that inflationary pressures have peaked.

At 8.10am the FTSE 100 was up 5 points at 7,478, while the broader FTSE 250 was up 14 points at 19,528.

In the UK, the latest jobs figures showed the unemployment rate had fallen to its lowest level, 3.6%, since1974, but analysts said the tight labour market could continue to push up wage growth.

ING Economics said: “The number of workers classified as long-term sick has jumped dramatically in the past couple of months, and that’s one reason why firms are still struggling to source the staff they need.”

“While worker demand has cooled, Bank of England hawks will be worried that these shortages will continue to push up wage growth.”

Shares in Ocado Group PLC (LSE:OCDO) dipped 9% and Marks and Spencer Group PLC (LSE:MKS) by 3.2% after they said full year sales at their joint venture Ocado Retail would fall as consumers cut back on their weekly spend.

7:45am: Sales and profits to fall at Ocado Retail

Ocado Group PLC (LON:OCDO) has warned it expects a small fall in sales in full year 2022 at Ocado Retail, the joint venture between Ocado Group and Marks and Spencer Group PLC (LSE:MKS),, following a decline in trading in recent weeks as customers trade down and shop smaller baskets.

The online food retailer warned full year sales would fall in full year 2022 with EBITDA close to break-even adding cost headwinds (predominantly energy and dry ice) are likely to weigh on profitability in quarter four.

Quarter three sales were £532mln, up 2.7% compared to quarter three 2021, with even stronger growth expected in quarter four.

Active customer numbers grew 23% year-on-year to 946,000, driving an increase in average orders per week of 10.7%.

But while customers and orders have grown, consumers are shopping smaller baskets and seeking value-for-money items as they respond to inflationary pressures the company said.

As a result, the value of the average basket was down by 6% in the period, to £116, with a greater decline experienced later in the quarter during the peak summer holiday season.

7.25am: UK unemployment rate hits lowest level since 1974

The UK unemployment rate fell 0.2% to 3.6% in the three months to July hitting its lowest level since1974 and a decrease in the employment rate, while the economic inactivity rate increased.

The UK employment rate was estimated at 75.4%, down 0.2% on the previous three month period, and 1.1% lower than before the pandemic while the economic inactivity rate was estimated at 21.7%, up 0.4% on the previous period.

Growth in average total pay (including bonuses) was 5.5% and growth in regular pay (excluding bonuses) was 5.2% among employees in May to July 2022.

In real terms growth in total and regular pay fell in real terms (adjusted for inflation) on the year in May to July 2022, at 2.6% for total pay and 2.8% for regular pay.

6.55am: FTSE 100 seen slightly higher ahead of UK jobs and US CPI figures

The FTSE 100 is expected to open slightly higher following gains in the US overnight with UK jobs figures and US CPI numbers in focus.

Spread betting companies are calling the FTSE 100 up by around 10 points.

In the US, the Dow finished Monday up 321 points, 0.7%, at 32,383, the Nasdaq Composite added 154 points, 1.3%, to 12,266 and the S&P 500 improved 43 points, 1.1%, to 4,111.

The closing bell marked the fourth consecutive winning day for the major indices.

Michael Hewson chief market analyst at CMC Markets UK: “As we look ahead to today’s European open the main focus will be on US CPI numbers for August, followed by PPI tomorrow, as hopes grow that we may well have seen the peak, in the US at least.”

“Before that we get to parse some important UK economic numbers.”

“Have we seen peak UK CPI in the wake of last week’s huge energy price package?”

“We should find out tomorrow, but before that we have the latest unemployment numbers for the 3 months to July which is expected to remain unchanged at 3.8%.”

“Of much greater importance will be the latest average weekly warnings numbers which, while quite strong, are well below the cost of living, although they have been rising at a steady rate since January, when wage growth was at 3.8%”

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