London close: Stocks weaker ahead of PM announcement, Fed decision

by | Dec 15, 2021

London stocks closed in negative territory on Wednesday, ahead of another Omicron update from the Prime Minister as well as the latest decision from the US Fed, and after data showed that UK inflation surged in November to its highest level in more than a decade.
The FTSE 100 ended the session down 0.66% at 7,170.75, and the FTSE 250 was 0.52% lower at 22,433.88.

Sterling was also in negative territory, last trading down 0.18% on the dollar at $1.3207, and weakening 0.14% against the euro to €1.1734.

“Apart from some gains in European markets, stocks remain on the back foot, as investors across the globe prepare for a busy 24 hours in the world of central banking,” said IG chief market analyst Chris Beauchamp.

“The most important decision comes through tonight, with the Fed expected to quicken the pace of tapering and also provide an updated dot plot that will allow markets to spend their Christmas and New Year examining the tea leaves and deciding on what 2022 might bring in terms of rate hikes.

“Today’s CPI figure puts plenty of pressure on the Bank of England to move, but given how the Omicron situation in the UK appears to have changed so dramatically this week the Monetary Policy Committee will feel justified in holding policy unchanged for now.”

UK Prime Minister Boris Johnson was due to front the media just after 1700 GMT, after daily confirmed cases of Covid-19 hit a new all-time high of 78,610 – beating the previous record of 68,053 reached on 8 January.

The UK Health Security Agency, which replaced Public Health England in April, earlier described the Omicron variant of Covid-19 as “probably the most significant threat” since the pandemic began.

Johnson was not expected to introduce more restrictions on Wednesday evening, however, after 99 Conservative MPs rebelled against the introduction of Covid passes in England on Tuesday night.

Those restrictions were passed by a majority of 243, however, thanks to support from the Labour Party.

On the economic front, official data released earlier in the session showed annual inflation surging to 5.1% in November, making for the highest rate for more than a decade.

The consumer price index, which increased from 4.2% in October, was above consensus expectations of 4.8% and the Bank of England’s forecast for 4.5%.

It was the highest annual rate since September 2011.

A number of segments drove the hike, with motor fuel surging to 28.5% from 21.5% after the price of crude oil jumped, while tobacco also rose following an increase in duties in late October, and food jumped to 2.5% from 1.2% in October.

“The quick ascent of CPI inflation over the last four months probably will not panic the MPC into raising interest rates this week, given that the full extent of the economic damage wrought by Omicron is still unknown,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“Looking ahead, the headline rate looks set to remain near November’s rate over the following four months, as the influence of a decline in motor fuel inflation, primarily due to base effects, will be offset by further increases in food and core goods inflation, linked to recent increases in producer prices.

“The headline rate then likely will soar to about 6.0% in April.”

Deutsche Bank, meanwhile, said that it now expected headline consumer price inflation to peak above 6% in April next year, marking the highest annual rate of inflation since the Bank of England’s independence in 1997.

The bank’s senior economist Sanjay Raja said headline retail price inflation was expected to push up to 7.7% year-on-year.

“And there’s some reason to think that inflation risks – at least for the very near term – remain tilted further to the upside,” Raja said.

“Changes to inflation weights will only serve to amplify the rise in core goods, energy, and food inflation, with the 2022 consumption basket likely to be skewed more towards non-services.

“The good news, if any, is that as pressures rotate away from goods to services, we should see a more amplified drop in headline inflation – something we still envisage will come late next year.”

Elsewhere, official data showed UK house prices easing in October, after the stamp duty holiday came to an end.

According to the Office for National Statistics, average house prices decreased by 1.1% month-on-month in October.

On a seasonally-adjusted basis, prices dropped by 1.0%, and on an annual basis, house prices increased 10.2% in the year to October, down on the 12.3% growth recorded in September.

The average price of a property in the UK was now £268,349.

In equity markets, Cineworld Group tanked 39.4% after it was ordered to pay Canadian theatre company Cineplex CAD 1.28bn (£751.57m) in damages after pulling out of a planned takeover.

Electricals retailer Currys was 9.27% lower after it reported higher first-half profits, but warned its market had been softer in recent weeks, and that it could face more headwinds from the Omicron variant.

Rentokil Initial was 4.67% weaker, falling for the second day in a row after announcing on Tuesday that it was acquiring US rival Terminix in a $6.7bn deal.

British Airways and Iberia owner IAG descended 5.1% after it said it was in advanced talks to cancel the acquisition of Air Europa from Spain’s Globalia.

IAG agreed in 2019 to buy rival Air Europa for €1bn, but the price was reduced earlier this year to €500m after the travel sector took a hit from the pandemic.

The company said a further update would be made “in the future, as appropriate”.

Other travel and hospitality shares were also under pressure amid Omicron worries, with cruise operator Carnival down 5.84%, budget airlines Wizz Air and easyJet flying 4.96% and 4.28% lower, respectively, and pub group Mitchells & Butlers 4.36% weaker.

On the upside, sales and marketing firm DCC jumped 8.97% after it bought US sales and distribution business Almo for around $610.0m, marking its largest acquisition to date.

Baltic Classifieds was ahead 4.76% after well-received first-half results.

Playtech advanced 2.13% after Sky News reported on Tuesday that Caliente Interactive, in which it owns a 49% stake, was in talks about a $2.5bn merger with Tekkorp Digital, a US-listed special purpose acquisition company.

Market Movers

FTSE 100 (UKX) 7,170.75 -0.66%
FTSE 250 (MCX) 22,433.88 -0.52%
techMARK (TASX) 4,374.60 -0.22%

FTSE 100 – Risers

DCC (CDI) (DCC) 6,000.00p 8.97%
Darktrace (DARK) 398.60p 6.01%
Ferguson (FERG) 12,720.00p 2.46%
SEGRO (SGRO) 1,418.50p 2.34%
Croda International (CRDA) 10,335.00p 2.17%
Sage Group (SGE) 823.40p 1.79%
Experian (EXPN) 3,567.00p 1.71%
SSE (SSE) 1,613.00p 1.57%
Spirax-Sarco Engineering (SPX) 15,670.00p 1.49%
Bunzl (BNZL) 2,927.00p 1.32%

FTSE 100 – Fallers

Antofagasta (ANTO) 1,314.50p -5.39%
International Consolidated Airlines Group SA (CDI) (IAG) 126.14p -5.10%
Rentokil Initial (RTO) 522.00p -4.67%
Next (NXT) 7,736.00p -3.95%
Whitbread (WTB) 2,713.00p -3.59%
Rolls-Royce Holdings (RR.) 113.02p -3.52%
JD Sports Fashion (JD.) 204.00p -3.32%
Informa (INF) 477.10p -3.13%
Associated British Foods (ABF) 1,898.00p -3.08%
Kingfisher (KGF) 329.50p -2.77%

FTSE 250 – Risers

Baltic Classifieds Group (BCG) 220.00p 4.76%
Indivior (INDV) 241.00p 4.60%
Ibstock (IBST) 200.20p 2.61%
Reach (RCH) 249.00p 2.45%
Games Workshop Group (GAW) 9,750.00p 2.42%
Kainos Group (KNOS) 1,778.00p 2.24%
Playtech (PTEC) 742.00p 2.13%
Baillie Gifford Japan Trust (BGFD) 1,000.00p 1.83%
Balfour Beatty (BBY) 246.00p 1.82%
Coats Group (COA) 67.30p 1.82%

FTSE 250 – Fallers

Cineworld Group (CINE) 27.50p -39.40%
Currys (CURY) 112.90p -9.27%
Restaurant Group (RTN) 73.70p -6.47%
Carnival (CCL) 1,184.00p -5.84%
Wizz Air Holdings (WIZZ) 3,950.00p -4.96%
SSP Group (SSPG) 214.30p -4.63%
Wood Group (John) (WG.) 177.80p -4.61%
TUI AG Reg Shs (DI) (TUI) 207.00p -4.52%
Greencore Group (CDI) (GNC) 125.80p -4.43%
Mitchells & Butlers (MAB) 215.00p -4.36%

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