- FTSE 100 ends around 7 points higher
- Wall Street weak on holiday return
- German inflation peak raises concern
4.50pm: Footsie holds ground above 7,600
The FTSE 100 index ended a tad higher on Tuesday, albeit having given up some earlier stronger gains as Wall Street returned from the long Memorial Day weekend in dull fashion amid inflation concerns and with the May US non-farm payrolls report due Friday.
At the close, the UK blue-chip index was 7.60 points, or 0.1% higher at 7,607.66, above the day's low of 7,591.84, but well below the session peak of 7,648.26 - its highest level since July 2019.
Chris Beauchamp, chief market analyst at online trading platform IG said: “Once again stronger commodity prices, led principally by oil, have been the foundation of the FTSE 100’s strength. Having suffered less during the recent volatility thanks to its raw material names, the index is now clinging to positive territory for the time being.
"Unilever’s 6% surge thanks to the arrival of John Peltz has also helped support the FTSE, but with the mood turning sour across markets again perhaps the FTSE 100 is fated to join the selling in due course.”
But in New York, around London’s close, the Dow Jones Industrial Average was 194 points, or 0.6% lower at 33,018, while the broader S&P 500 index was down 0.6%, and the Nasdaq Composite lost 0.4%.
Beauchamp commented: “The eurozone’s high inflation reading has prompted stocks to reverse course, showing that investors are still very jumpy when it comes to the economic outlook and continued high inflation readings. Last week’s ‘bear market rally’ is at risk of ending, although the month-end and the start of Q3 tomorrow muddies the waters to an extent.”
4.00pm: Bobbling along, singing a song
The FTSE is bobbing along at roughly the same level it reached mid-morning, up 19 points at just below 7,622.
Unilever is top of the leaderboard still and B&M is still bottom, as they have been pretty much since the opening bell.
“Once again stronger commodity prices, led principally by oil, have been the foundation of the FTSE 100’s strength," says Chris Beauchamp, market analyst at IG.
"Having suffered less during the recent volatility thanks to its raw material names, the index is now clinging to positive territory for the time being."
As for eurozone bourses, Beauchamp says, "high inflation reading has prompted stocks to reverse course, showing that investors are still very jumpy when it comes to the economic outlook and continued high inflation readings.
"Last week’s ‘bear market rally’ is at risk of ending, although the month-end and the start of Q3 tomorrow muddies the waters to an extent.”
3.32pm: Greenwashing allegations
There's been lots about greenwashing in the past few weeks and there may be more coming, after regulators raided the offices of Deutsche Bank's fund management arm, DWS.
German prosecutors claim that US$1trn of investment products that had been sold were not as environmentally friendly and sustainable as was claimed.
The German public prosecutor’s office said "sufficient factual evidence has emerged" to build a case after DWS's former head of sustainability blew the whistle last year, saying the company would often overstate the success of its ESG strategy.
Around 50 officials from German regulator BaFin, the federal criminal police office and the public prosecutor’s office searched the premises, according to local reports.
Shares in parent Deutsche Bank, which was raided just over a month ago over money laundering, fell 2%.
Investors in the company, which is Germany’s largest lender, perhaps are used to this sort of thing, with it having been smacked with more than US$18bn of finesa since 2000.
Meanwhile the wider German DAX index is down 1.2%, with those in France, Italy and Spain also below water today.
3.00pm: Green and (sometimes) pleasant isle
London's blue-chip index is a rare island of green in a worldwide sea of red, as US markets have opened lower.
On Wall Street the Dow Jones has fallen 1.3%, the broader S&P 500 has lost 1.1% and the tech-laden Nasdaq has reversed another 0.9%.
Meanwhile the FTSE 100 is up 0.25% to 7,626, with its smaller sibling, the FTSE 250, down 0.7% at 20,408.
London's large commodities cabal and utilities making their presence felt in the leaderboard, with telecoms trio BT, Airtel Africa and Vodafone high up the list. Other utilities such as National Grid PLC (LSE:NG.), SSE PLC and United Utilities Group Plc are further down.
More traditional defensive stocks are there too, namely tobacco companies Imperial Brands and British American Tobacco PLC (LSE:BATS), the latter with full-year results coming next week.
As well as the below-mentioned Shell and BP, other resources names are on the up: Rio Tinto PLC (LSE:RIO), Antofagasta PLC, Anglo American PLC, Glencore PLC (LSE:GLEN).
While the more UK focused banks are in the red, HSBC is on the front foot.
With Europen bourses in the red too, market analyst Craig Erlam at Oanda says:
"It's not particularly surprising that we've seen a reversal of Monday's moves considering the inflation data we've had from the bloc. The data from Germany and Spain meant the risks were heavily tilted to the upside and that's how it materialised. Yields across the euro area are higher again today as investors continue to price in a more aggressive pace of tightening."
He also notes that Bitcoin has "made some interesting moves early in the week".
On top of the significant gains on Monday, the number-one digital coin then broke above $32,000 for the first time in almost three weeks.
When it broke below $30,000, "this was an extremely worrying development for bitcoin but since then it has stabilised around $30,000 and has been very choppy. Price action this week will have many asking whether the cryptocurrency has finally bottomed."
2.33pm: ECB rate rise dilemma
After Eurozone inflation continued to rise (see below), there is ever more certainty that a rate rise will come from the Christine Lagare and the ECB next week.
"The case for exiting from negative interest rates promptly is now irrefutable," says Capital Economics. "The ECB looks sure to confirm next week that it will raise rates in July and we suspect that it will leave the door open to a 50bp hike."
Fawad Razaqzada, market analyst with City Index, says there are "still no signs of peak inflation", as oil prices back rallying again, "things could unfortunately get worse".
He notes the big dilemma for the ECB: "should it need to act more aggressively to tackle inflation or keep policy loose because the already-struggling Eurozone economy will need as much support as it can get? Surging inflation and oil prices will only exacerbate economic woes for businesses and households in the months ahead. This will likely result in lower economic output, regardless of the ECB’s response, even if raising interest rates back above zero looks like a certainty. Against this backdrop, European stocks are likely to struggle to sustain a positive trend."
#Inflation in low-growth, aging Eurozone has skyrocketed to 8.1%. This has little to do with monetary policy.
There is nothing the #ECB can do about it.
Good luck! pic.twitter.com/sdN8s8xRnw
— jeroen blokland (@jsblokland) May 31, 2022
2.15pm: Top Gun
AMC Entertainment Holdings (NYSE:AMC), a meme stock that still holds a special place in some investors' hearts, is up in pre-market trading after a record-setting weekend box office performance by Top Gun: Maverick.
Yesterday London-listed rival Cineworld enjoyed double-digit gains on news that the film grossed US$124mln on its first weekend, making it the eighth-highest grossing film of 2022.
But today, Box Office Mojo has reported that the Tom Cruise film took in US$156mln in the US over the long weekend and another US$126mln internationally, making a worldwide box office total of US$282mln.
AMC said over 3.3mln cinemagoers watched the silver-screen return of Maverick on its screens, out of the 4mln people who went to the movies at the weekend.
Cineworld shares are down 8% in London.
1.39pm: Petrol prices keep rising
With families already worried about the potential traffic jams on the roads over the four-day jubilee holiday, rising prices looked to be adding further gloom on a long weekend that should be remembered for its joyous celebrations.
As the cost-of-living mounts, unprecedented prices will be seen at the petrol pump as families top up petrol before their long journeys.
New figures released on Tuesday showed the average price for a litre of petrol peaked at 173.02p.
This comes on the back of news that Brent Crude Oil prices will likely skyrocket following the European Union’s decision to stop importing Russian oil.
Meanwhile, reports released on Monday showed diesel prices surged to a new high of 182.7p, on average, over the weekend.
1.05pm: Euro zone inflation reaches record high
Euro zone inflation leapt higher again in May to a fresh record high of 8.1%, compared with 7.4% the previous month.
The Harmonised Index of Consumer Prices (HICP), the measure of inflation for the 19 member countries, was forecasted to be 7.7% by analysts.
Unprecedented inflation levels, which were over four times the European Central Bank’s (ECB) target of 2%, highlighted the need for a more aggressive and vigorous approach to tackle the cost-of-living crisis in Europe.
Governors in the Netherlands, Austria and Latvia have all pushed for the ECB to hike interest rates by 50 basis points in its next meeting in July.
12.32pm: TUI slashes 43 flights a week in June, affecting 37,000
TUI AG (LSE:TUI), the Anglo-German tour operator that was previously known as Thompson in the UK, has cancelled 43 flights a week in June, a move that is expected to affect up to 37,000 passengers.
The holiday operator cut a quarter of its flights from Manchester Airport as half-term travel chaos, both in the air and on the roads, continued.
On Tuesday, colossal queues were again forming out of terminal buildings at Manchester, Bristol, Birmingham and Gatwick as bosses blamed staff shortages.
Lord Parkinson, the arts minister, claimed the travel industry had months to prepare for the half-term chaos and should have had the necessary staff ready.
Parkinson said: "We have been on a long pathway back to recovery so that people can enjoy this moment and [companies] should be making sure that people are able to get away on holiday and enjoy it fully.
"We have been, for many months, urging them to make sure they've got enough staff."
He went on to add that there are "lots of opinionated people in the aviation industry," which Sky News interpreted as airline bosses, who have long blamed the government for shortages and cancellations.
Meanwhile, a TUI spokesperson said: “We would like to apologise to our customers who have experienced flight delays and cancellations in recent days and understand that many of our customers have been looking forward to their holiday with us for a long time.”
12.03pm: Banks lag behind
Bank shares are dragging on the FTSE 100 after the earlier numbers from the BoE showed UK housing market activity has started to cool in reaction to falling real incomes and rising interest rates.
Having been higher earlier in the morning, NatWest Group PLC (LSE:NWG) shares are now in the red, along with Lloyds and Barclays, down 0.4%, 05% and 0.7% respectively.
Economist Martin Beck at the EY Item club said a 'soft landing' was likely for the housing market.
"The high share of fixed rate deals means the impact of higher interest rates will feed through slowly, so a soft landing looks likely unless there is a sudden deterioration in the labour market," he said.
He added: “Until recently, the housing market had remained relatively resilient to the squeeze on household finances and higher interest rates. But these forces are now starting to weigh on demand".
He noted that unsecured lending "continues to hold up reasonably well", while households continued to accumulate what are thought of as 'excess' savings.
"The EY ITEM Club’s expectation that consumers will steadily draw on those savings to support spending should offer some protection to the consumer sector in the face of pressure on real household incomes," Beck said.
11.35am: Wall Street drag
US markets are expected to open lower as trading resumes after a long weekend, with inflation concerns weighting as oil prices spike again.
Futures for the Dow Jones are down 0.6 % in pre-market trading, while the S&P 500 index shed 0.6% and the Nasdaq-100 0.3%.
In energy markets on Tuesday, WTI crude oil futures rose 3.2% to $118.79 a barrel and Brent crude futures added 3.3% to $119.40.
Oil-led price pressures are one of the main factors contributing to higher levels of inflation across the globe. Investors fear that higher interest rates at a time when inflation is elevated will threaten economic growth and hit corporate bottom lines.
“Even though we saw some easing in US inflation figures earlier this month, the relentless positive pressure on oil prices is very much worrying across the Atlantic as well,” said market analyst Ipek Ozkardeskaya at Swissquote Bank, noting that benchmark US crude oil prices are near the $120 a barrel level while Brent crude has reached higher levels.
“Even though oil advanced to levels that look interesting for selling a top, the positive pressure is too strong for betting on a downside correction in the short run. Shorting oil has become a risky bet, as following the European ban, there is a stronger case building for a further extension of the gains", she added.
One often-ignored fact, said Marshall Gittler at BDSwiss, is that Russia not only exports oil but also exports a lot of refined products too.
In 2020, for example, he noted that Russia exported some 1.2mln barrels a day of refined products to Europe, including about 10% of its total supply of diesel fuel.
“This is one reason why prices of petroleum products have increased by far more than prices of crude oil," Gittler said.
"Refineries can only process just so much oil, and furthermore they’re designed to work with specific kinds of oil. Therefore even if a country can get its hands on enough oil, there’s no guarantee that it can convert it into the need amounts of usable products. It’s not just an oil shortage, it’s a refining shortage too.
“The shortage of refining capacity is going to keep upward retail energy prices unusually high regardless of the oil supply problem, and an embargo against Russian refined oil prices – which I assume today’s measure includes – will only make this worse," he added.
11.00am: Highest since July 2019
The FTSE is up 22 points at 7,622.53, off its morning high, where it hit 7,648.26. This was the first time above 7640 since February and the highest intraday point since July 2019.
Banks and other lenders have been nudging up mortgage rates this year following four base rate increases by the Bank of England since December, with data from the BoE this morning revealing that the “effective” interest rate – the actual interest rate paid – on newly drawn mortgages increased by 9 basis points to 1.82% in April.
The BoE has also released mortgage lending numbers, showing net mortgage borrowing fell to £4.1bn in April – below the pre-pandemic 12-month average – from £6.4bn in March.
Mortgage approvals for moves in the next few months fell again to 66,000 in April – again below the pre-pandemic average – from 69,500 in March.
British consumers borrowed another £1.4bn, including £700mln on credit cards, which is the third consecutive month above the pre-pandemic average, while credit card debt was up 11.6% in a year – the highest since November 2005.
Adrian Lowery, analyst at Bestinvest, says that the monthly decline in the total amount borrowed is a startling 56%, although he noted that this data set has been very volatile recently.
“This data could be taken as the latest sign that nervousness over inflation and household finances is starting to drag on what has been an overheated sellers’ property market," Lowery said.
With Zoopla revealing this week that one in 20 listed properties reduced their asking price by 5% or more in April to mid-May, more than in previous months, he said there are now "signs that the market is softening, and price growth is set to slow".
On the effective interest rate, with further hikes to the base rate in coming months as policymakers seek to rein in soaring inflation, Lowery said fears of further mortgage rate rises have been "pushing more and more homebuyers and remortgagers to look for longer-term fixed-rate mortgages", with five-year deals hugely popular and demand for 10-year deals soaring.
He noted that the comparison website MoneySupermarket revealed that searches for ten-year fixed rate mortgages have leapt from 2.9% of all mortgage searches in May last year to 14.2% currently. 10am: Fuel prices in focus
Downing Street is facing calls for a second cut in fuel duty this year as forecourt prices hit record highs, with the cost of filling a family car with diesel topping £100 for the first time.
The average price of diesel in the UK rose to a record 182.59p a litre on Sunday and petrol prices increased to a record 172.73p a litre, according to the AA.
Chancellor Rishi Sunak cut fuel duty by 5p a litre in March, but campaigners have accused retailers of increasing their margins rather than passing the reduction on to drivers.
READ: Government facing calls for a second cut in fuel duty this year
9.37am: Into its stride
The Footsie is getting into its stride now, up 38 points to a six week high and in stark contrast to most European markets, which are in the red.
Market analyst Victoria Scholar at Interactive Investor says, “European markets have opened to the downside with technology and travel & leisure underperforming. The DAX in Germany is leading the declines while the FTSE 100 is managing to stage modest gains."
Oil companies are one big point of difference for the London index from its continental peers.
Scholar notes that Brent crude is at fresh two-month highs "driven by an exacerbation of the imbalance between supply and demand after the EU’s Russian oil ban combined with China’s easing covid restrictions supporting demand and OPEC+ this week which looks set to stick to its guns rather than succumb to Western demands for the release of further output".
"Since the trough in August last year, Brent crude has rallied by around 90%. Although the last two months has seen considerable volatility for oil prices, they have largely been stuck in a range. However more recent upward momentum suggests oil could be poised for a bullish breakout from a technical standpoint."
GlaxoSmithKline PLC (LSE:GSK) is not contributing much to the FTSE's gains, up just 0.3%, despite unveiling a US$3.3bn deal to bolster its vaccines pipeline as it heads towards the date when it spins off its consumer healthcare arm.
It is acquiring US-based Affinivax, which gives it access to a technology being developed to treat pneumococcal diseases such as pneumonia, meningitis and bloodstream infections.
Adding Affinivax is an effort to pad out its pipeline of late-stage drugs, said analyst Laura Hoy at Hargreaves Lansdown.
"The group’s planning to rely on growth from these niche medicines to support its ambitions for 5% compound annual sales growth, and this acquisition could be the first of many as the group looks to improve its portfolio.
"While this marks a step in the right direction with regard to the group’s strategy, we’re mindful that owning the treatment and making money from it are two very different things. Late-stage drugs often fail to clear the final hurdle, so the Affinivax purchase may not end up moving the needle at all.”
8.33am: Show of enthusiasm
The FTSE 100 got out of bed with a show of enthusiasm after a sluggish start to the week, with oil majors, miners and utilities leading the way.
London's blue-chip index has added 16 points to 7616.
Oil majors Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) are being lifted as Brent Crude Oil (LSE:BRENT) finished at its highest closing level in over two months after European leaders announced a partial ban on Russian oil, with supplies from sea no longer being purchased and a gradual abandoning of pipeline supplies.
As such, Europe will reduce two-thirds of its oil imports from Russia, which will reportedly cost Russia around US$10bn in lost revenue.
Topping the blue chips is Unilever PLC as US activist billionaire Nelson Peltz was given a seat on the board.
Chair Nils Andersen said Peltz would take a non-executive role after "extensive and constructive discussions" were held with him and the team at his Trian fund.
READ: Unilever gives billionaire activist Peltz a seat on the board
The biggest faller is B&M European Value Retail SA, which announced a solid set of results and a replacement for Simon Arora as chief executive.
Current finance chief Alex Russo has been selected, which does not seem to have gone down well with investors (read more here).
6.45am: Sluggish start expected
The FTSE 100 is expected to start sluggishly on Tuesday and may remain so until Wall Street returns from its long weekend.
A partial European ban on Russian oil and downbeat Chinese economic data are the themes running into the London open, with UK mortgage approvals data due this morning and a few company results releases pencilled in the diary.
London’s blue chip index has been called flat to marginally higher on spread-betting platforms, having added 14 points at the start of the week, finishing at 7,600.06 – only one strong session away from four-year highs.
“With US markets closed overnight, Asian markets are drifting today,” said market analyst Jeffrey Halley at Oanda.
“Equities are mixed with currency markets are indulging in some modest US Dollar short covering as US bond futures fall (yields up). Gold and silver remain comatose. Only oil is on the move, continuing its rally overnight as Shanghai eases more restrictions and the European Union announces a partial Russian oil ban.”
Naeem Aslam at AvaTrade said the EU embargo on Russian oil was “long coming”.
Ursula von der Leyen, the president of the European Commission, said the ban “will effectively cut around 90% of oil imports from Russia to the EU by the end of the year”.
Added Aslam: “Traders will be paying close attention to the oil and supply equation in the Eurozone. It is highly likely that oil prices in the EU will shift upward permanently as the EU will incur a higher cost of sourcing oil from alternative sources.”
Looking to the Bank of England’s mortgage approvals numbers, Michael Hewson at CMC Markets said they “might start to show signs of slowing, while consumer credit numbers could go either way, rising as struggling consumers borrow more to pay for everyday items, or slowing as consumers tighten their belts and dip into savings”.
6.50am: Early Markets - Asia / Australia
Asian shares were mixed on Tuesday as China’s official manufacturing Purchasing Managers’ Index for May came in at 49.6, an improvement over April’s 47.4 but still below the 50-point mark that separates growth from contraction.
The Shanghai Composite in China gained 0.75% nevertheless and Hong Kong’s Hang Seng index rose 0.97%.
Japan's Nikkei 225 was trading 0.34% lower while South Korea’s Kospi lifted 0.52%.
Australia’s S&P/ASX200 fell 0.78% even as commodity prices surged after China reported less than 100 new COVID-19 cases on Monday and its government eased restrictions.