- FTSE 100 closes down 141 points
- Commodity prices tumble on demand worries
- China's COVID-19 crisis continues to worsen
4.50pm: Hefty falls on a Blue Monday
The FTSE 100 index ended sharply lower on Monday, nursing another triple-digit drop following a similar-sized plunge on Friday, with heavyweight commodity stocks under the most pressure amid China demand concerns.
US stocks were also weak in the New York morning session weighed down by worries over the pace of Federal Reserve interest rate hikes and ahead of some key corporate tech earnings this week.
In London, the UK blue-chip index closed down 141.14 points, or 1.9% at 7,380.54, albeit above the heftier session low of 7,339.53 but well below the day’s opening peak of 7,521.68.
Michael Hewson, chief market analyst at CMC Markets UK commented: “European markets have been a sea of red today, after a weak lead from Asia which was prompted by sharp falls in Chinese markets as the Covid situation in Shanghai continued to deteriorate, with deaths rising to a record level. Notwithstanding that, covid cases are now starting to manifest themselves in Beijing, raising concerns over a strict lockdown there.
“This, in turn, has prompted concerns that China’s zero covid policy will hobble the ability of the Chinese government in meeting its GDP target for this year. The 5.5% target had already started to look difficult to achieve after Q1 GDP came in at 4.8%, and with little sign of an economic reopening this target is already being revised lower by various banks.”
Hewson added: “Basic resource stocks have been absolutely rinsed on the back of these slowdown concerns as fears of lockdowns across China, and further supply chain disruptions impact on the prospect of any sort of recovery story.”
4.15pm: Another triple-digit fall
It is looking like the FTSE 100 will finish the day above 7,400, which is small consolation on a day of a triple-digit fall.
With less than half an hour of trading to go, the Footsie was down 111 points (1.5%) at 7,410, with investors spooked by Covid issues in China.
“China's COVID-19 crisis continues to worsen despite a decline in the seven-day moving average of daily cases. On Sunday, Beijing residents (21.5m) began to undergo mass testing following a jump in cases in the capital. Concerns over an expansion of lockdowns encompassing Beijing drove crude oil, iron, and other commodity prices sharply lower in early Monday trading. This raises concerns about global supply chains and domestic Chinese growth,” said Mickey Levy at Berenberg.
“Drewry's World Container Freight Rate Index, a gauge of 40ft container shipping spot prices across different routes, continues to trend down and has fallen 16% ytd [year-to-date]. Shipping costs tend to affect consumer prices with significant (up to 12 months) lags and will likely continue to exert upward price pressures even as shipping rates fall,” Levy said.
As Michael Hewson at CMC observes, the FTSE 100, with its strong commodities bias, has been particularly hard hit as a result of the slide in commodity prices.
3.00pm: US stocks deep in the red
As expected, US stocks have opened lower ahead of what is a big week for earnings announcements.
The Dow Jones index was down 281 points (0.8%) at 33,530 and the S&P 500 was off 44 points (1.0%) at 4,228.
It is being widely reported that the Twitter Inc (NYSE:TWTR) board is set to accept Elon Musk’s US$54.20 per share offer for the company but there is no official word as yet.
In London, Anglo American PLC (LSE:AAL) is leading the Footsie’s retreat after the Environmental Assessment Service of Chile (SEA) recommended that the permitting application for the Los Bronces integrated project be rejected.
The FTSE 100 miner’s shares were off 5.9% at 3,255p in afternoon trading, making them the worst blue-chip performers today.
Anglo American has been engaged in an environmental assessment process for its Los Bronces Integrated Project in Chile since 2019.
The FTSE 100 was down 110 points (1.5%) at 7,411.
1.50pm: Slow recovery for the Footsie
London’s leading shares are slowly clawing back the morning’s losses, with the emphasis on the “slowly”.
The FTSE 100 was down 126 points (1.7%) at 7,396.
April’s Industrial Trends Survey by the CBI (Confederation of British Industry) is unlikely to have been the catalyst for the Footsie finally getting up off the deck to groggily put its guard back up.
The total order balance fell to +14 in April from +26 in March and below the consensus forecast of +22.
Pretty grim @CBI_Economics UK Industrial Trends Survey.
Sharp fall in #investment intentions is especially disappointing (????), but #employment growth at least improved and is expected to pick up further next quarter...https://t.co/NBP1LWJMcZ pic.twitter.com/0iiLKnJPgr
— Julian Jessop ???????? ???????? (@julianHjessop) April 25, 2022
“April’s CBI survey adds to evidence that the manufacturing sector is slowing as customers temper their demand in the face of huge increases in prices. The fall in the total orders balance to its lowest level since October is worrying because manufacturers report whether orders are above or below ‘normal’. This means that the balance acts as an indicator of the level of orders rather than the growth rate,” explained Samuel Tombs at Pantheon Macroeconomics.
“In addition, the net balance of manufacturers expecting output to rise over the next three months dropped to +19 in April—its lowest level since February 2021—from +27 in March. While the net balance of manufacturers planning to increase prices fell to +71 in April, from +80 in March, it remained well above its +16 average since 1975, amid expectations of further huge increases in average unit costs. Given emerging evidence that demand is faltering in response to hefty price rises, manufacturers are understandably pessimistic about the outlook; the business optimism balance dropped to -34 in Q2, from -9 in Q1,” Tombs reported.
“The employment and investment intentions balances also weakened in Q2, though they remained above their long-run averages. We think manufacturers are right to be relatively downbeat about the outlook and expect production to flatline over the rest of this year,” Tombs said.
@RichardJMurphy MANUFACTURING SENTIMENT FALLS SHARPLY AS DEMAND GROWTH SLOWS – CBI QUARTERLY INDUSTRIAL TRENDS SURVEY
Optimism fell sharply Business optimism fell at the sharpest pace since April 2020 (-34% from -9% in January). We did warn them wonder when Dr Mann will retract?
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) April 25, 2022
12.55pm: No sign of a continuity bounce in France
The Footsie has barely moved in the last three hours but somehow is still the second-worst performing index of the major European indices.
London’s benchmark index was down 160 points (2.1%) at 7,362, a percentage fall that is surpassed in severity by the CAC 40, France’s leading index, which is off 147 points (2.2%) at 6,434, after Emmanuel Macron was confirmed as President of France for a second term.
The index has remained somewhat steady since the election begin earlier this month, despite right-wing candidate Marine Le Pen gaining more of the votes in the first round than expected.
According to ING Economics, Macron’s reinstatement guarantees continuity for the next five years, both economically and politically.
12.05pm: US stocks to open lower
US stocks were expected to open lower on Monday as a busy week for corporate earnings as well as economic data from the world’s biggest economy unfolds and as Russia’s invasion of Ukraine enters the third month, keeping investors on a state of high alert.
Coronavirus-related restrictions in China are driving Chinese stocks lower and leading to fears that global economic growth will suffer, adding another strand of worry to already uncertain markets.
Futures for the Dow Jones Industrial Average shed 0.8% in pre-market trading, while those for the broader S&P 500 index were down 0.9%, and contracts for the tech-heavy Nasdaq 100 lost 0.8%.
“There are a number of factors which have triggered this risk off-trade,” said Naeem Aslam, chief market analyst at avatrade.com. “Firstly, the conflict between Ukraine and Russia keeps traders on their toes. It doesn't look like this particular situation is going to get better anytime soon as the US has provided more military aid to Ukraine more recently.”
“Secondly, we have the Fed in the US, which is aching to bring the interest rate back to its normal level, and various members of the Fed are spooking equity traders with their own trajectory of Fed's monetary policy,” he said, noting that as things stand, the Federal Open Market Committee is widely expected to raise interest rates by at least 50 basis points at next week’s meeting.
“In terms of economic numbers, this week is an important one: the US inflation numbers are coming out this week. In addition to this, we also have the personal consumer expenditure index, which is considered as the Fed's preferred measure of inflation. On Wednesday, we have the US GDP quarter/quarter number hitting the terminals,” Aslam added.
Yet another concern is about corporate earnings and the extent to which they will be dented by slowing economic growth, with numbers due this week from the four biggest US companies by market capitalization - Apple, Microsoft, Amazon, and Google parent Alphabet.
Against this backdrop, China’s strict, zero-tolerance policy on coronavirus is adding to fears that the country’s economic activity will slow down, denting supply chains which may, in turn, dampen growth across the globe. Notably, the two main indices on the Shanghai Stock Exchange slumped about 5%, in their worst performance since the start of the pandemic early in 2020.
Oil prices were also lower amid concerns about slowing economic activity in China. Benchmark Brent crude futures were down 4.23% at $102.14 a barrel, while WTI was 4.37% lower at $97.61 a barrel.
In London, the FTSE 100 was down 160 points (2.1%) at 7,162.
11.30am: House prices hit record levels
This might be a good time to revisit the old dilemma: is it better to invest in equities or property?
The argument for the latter continues to strengthen. House prices in Britain have hit a record high, with more than half of the properties selling at or over the final advertised asking price, according to the property listings website Rightmove.
Average prices have risen £19,082 over the last three months according to Rightmove, reaching £360,101.
More data from the online real estate portal found that properties are achieving 98.9% of their final advertised asking price on average, with the time taken to sell a house halving from 67 days to 33 days over the last three years.
"With three new monthly price records in a row, 2022 has started with price rise momentum even greater than during the stamp duty holiday-fuelled market of last year,” said Tim Bannister, Rightmove’s director of property data.
Bannister adds, however, that there are some early signs that prices may soon begin to ease, although any slowing down will be gradual rather than immediate.
Buyer inquiries to agents are down 16% compared to last year, although that figure is still 65% ahead of 2019.
Meanwhile, the FTSE 100 was down 165 points (2.2%) at 7,356 in late morning trading.
10.40am: The rot has stopped
The FTSE 100 remains in a deep hole but at least it has not retreated any further in the last hour.
The index of big-cap shares is down 168 points (2.2%) at 7,353, with the number of stocks defying the trend now up to six.
Two of these – Reckitt Benckiser PLC and Unilever PLC (LSE:ULVR) – are classic defensive stocks, as both produce fast-moving consumer goods. Reckitt is up 1.3% and Unilever is 1.1% firmer.
Anglo American PLC (LSE:AAL) has taken Glencore PLC (LSE:GLEN)’s place in the Footsie cellar; it is 6.5% lower as investors worry about weakening demand from China for metals.
“The scourge of Covid continues, with China unwavering in its zero-tolerance policy. As cases erupt in Beijing, there is concern that prolonged lockdowns will hit employment and lead to a sharp slowdown in growth as well as sparking fresh shipping logjams and supply chain issues,” said Susannah Street at Hargreaves Lansdown.
9.45am: Inflation fears play second fiddle to worries over worsening Covid situation in China
While the worsening Covid situation in China is taking top billing on the list of things troubling bulls, inflation and the threat of rising interest rates are the main support acts.
With plenty of things to worry about, investors have been happy to sell blue-chips in London this morning, sending the FTSE 100 165 points (2.2%) lower at 7,356.
“There’s been a sharp reversal in stock market sentiment since Thursday when Jay Powell stressed that taming inflation is ‘essential’ and said a 50bps [basis points – 100bps = one percentage point] hike is on the table in May....this we know, but market sentiment turned anyway as it underscored the gigantic pivot the Fed has performed in just a few weeks. Some chatter about a 75bps hike was heard from arch-hawk James Bullard, but this is not terribly plausible. Increasingly though it looks like the FOMC [Fed’s interest rate-setting committee] will opt for 50bps,” said Neil Wilson at Markets.com.
On the plus side, sterling has lost nine-tenths of a cent to fall to hit its lowest level against the US dollar since late 2020. This may be bad news if you are planning a May getaway to Florida or indeed if you are the boss of a UK company that imports heavily from countries that ask to be paid in dollars but for many of the big guns in the FTSE 100, a strong dollar provides profitable tailwinds.
Forecast: Pound US Dollar Exchange Rate at Lowest levels Since October 2020 https://t.co/G5ltxqErIv
— Exchange Rates UK (@exchangeratesuk) April 25, 2022
8.35am: Resource stocks hit hard by worsening Covid situation in China
The FTSE 100 has fallen below 7,400, having opened sharply lower, thanks largely to the weakness of resource stocks.
London’s index of heavyweight shares is off 127 points at 7,394, with just four index constituents – National Grid PLC (LSE:NG.), Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB), B&M European Value Retail SA (LSE:BME) and Avast PLC (LSE:AVST) in positive territory.
The resource stocks sell-off has been triggered by fears about Covid lockdowns in Shanghai, China’s economic hub.
“Oil is extending the downtrend having already shed almost 5% last week on similar concerns; however, the prospect of a potential ban of Russian oil by the European Union is providing a floor in the market and stemming more aggressive declines,” according to Victoria Scholar, the head of investment at interactive investor.
“Chinese equities have suffered heavy losses with the Shenzhen Composite shedding more than 5% while the yuan hit a one-year low after Beijing reported a jump in Covid cases over the weekend while mainland China grapples with its worst outbreak since the start of the pandemic in early 2020. Meanwhile China’s economic hub Shanghai reported growth of 3.1% in the first quarter, sharply slowing year-on-year as the city remains under prolonged lockdown. Authorities have been installing fences without any warning around residential areas to prevent the population’s movement to stop the spread of the virus,” she added.
In the oil sector, BP PLC (LSE:BP.) is down 3.1% while Aveva Group (LSE:AVV) PLC, the industrial software company that generally does well when energy companies are thriving, is 4.7%. Among metals plays, Glencore PLC (LSE:GLEN), Anglo American PLC (LSE:AAL) and Rio Tinto PLC (LSE:RIO) are all down more than 4%.
Polymetal International PLC (LSE:POLY) defies the trend with a 1.5% gain at 274p after its first-quarter production results and output guidance update.
“The company continues to operate safely and profitably and is fully focused on ensuring business continuity and long-term viability,” said Vitaly Nesis, the chief executive of Polymetal.
Nesis said the company had been hit hard by sanctions against Russian companies.
Elsewhere, AstraZeneca PLC (LSE:AZN) dipped 1.0%, slightly outperforming the index, after it said its Biologics Licence Application for tremelimumab, its immune checkpoint blocker, has been accepted for priority review in the US.
$AZN AstraZeneca says tremelimumab accepted for US Priority Review for Imfinzi combo for liver cancer treatment https://t.co/8AU5qodidW #AZN #Katie_Proactive
— Proactive (@proactive_UK) April 25, 2022
6.55am: Another triple-digit fall in prospect
Friday’s sell-off looks set to continue this morning as the Covid situation in China continues to worry investors.
Spread betting quotes point to the FTSE 100 more or less replicating Friday’s 106 point fall.
On Friday in the US, the Dow Jones slumped 981 points to 33,811 and the S&P 500 tumbled 122 points to 4,272.
In Japan, the Nikkei 225 is 467 points lighter at 26,638 while in Hong Kong the Hang Seng is 663 points in the hole at 19,976.
In China, the Shanghai Composite is 122 points weaker at 2,965, its lowest level since 2020, as strict restrictions have begun to spread in the People’s Republic, with authorities ordering mandatory Covid tests in a district of Beijing.
At least the market got the result it wanted – presumably – in the French presidential elections but even in France shares are expected to open lower.
Around the markets
- Sterling: US$1.2794, down 0.44 cents
- Gilt: 1.968%
- Gold: US$1,915.70 an ounce, down US$18.60
- Oil: US$102.95 a barrel, down US$3.20
- Bitcoin: US$38,960, down US$579
- Ethereum: US$2,847, down US$$95