FTSE Sees Record Success, but Bank of England March Rate Hike Looks Likely
- The Bank of England is likely to implement another 25 bps rate hike.
- The FTSE 100 has reached a record high of 8047.
- UK annual inflation rate has decreased for the third month in a row.
UK inflation levels are on the way down, but concerns about the labor market are forcing the BOE’s hand in further aggressive rate hikes. The UK’s economy has been slowing for some time, and the central bank will need to see further evidence of inflation’s retreat before its policy can become more dovish.
Is inflation packing its bags?
The good news is, the UK’s annual inflation rate has now been falling for months – reaching a level of 10.1% last month. That number sits below most of the predictions of where it might be sitting at this stage. The average household however will probably be none the wiser, as skyrocketing food and energy prices continue the country’s cost of living crisis. Food prices in particular rose by almost 17% in January, and seem likely to stay at that level for some time.
Investors are probably also feeling a bit more cheerful than they were before, with the UK’s FTSE 100 index climbing almost 10% over the past 3 months to reach a record high of 8047 yesterday. However the labor market showed less positive signs. Average weekly earnings growth reached an 18-month high of 6.7% in the last quarter of 2022, and much of the public sector plans to continue widespread strike action. If there’s a silver lining, it’s that the UK just missed entering a recession at the end of last year.
What’s the BOE’s next move?
All this has experts thinking that the UK’s central bank is pretty likely to implement another 25 basis point increase at the next meeting of the Monetary Policy Committee. To be exact, they think there’s a roughly 66% chance of it happening. The BOE’s target remains bringing the inflation rate down to 2%, and so far – the UK has been moving towards its target more slowly than other major economies. But at the very least, it’s moving in the right direction.
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The Anglo-French battle for the stock market crownCompetition between the English and the French dates back centuries, but it seems the UK has to concede on this round as its stock market loses a big status symbol.
- London is no longer home to Europe’s biggest stock market. Yep, for the first time since the records began in 2003 the FTSE 100 is no longer the most-valued stock market in the region, having been overtaken by France’s Euronext Paris. Damn, that market has straight up not been having a good time recently.
- The Euronext Paris is now worth around $2.823tn versus the UK’s $2.821tn. A weak pound, soaring inflation, and recession fears have sent the FTSE 100 on a truly wild ride of a year, having hit a post-covid high in February and hitting a more than 18-month low in October – it’ll be interesting to see what happens after Chancellor Jeremy Hunt’s Autumn Budget today.
- Paris on the other hand, is home to a bunch of luxury companies like LVMH that have been riding a wave of optimism now that China restrictions are easing, buoying the value of its stock market. It’s another sign of the UK’s changing position in the EU after Brexit – in 2016, British stocks were collectively worth $1.5 trillion more than France.
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Queen Elizabeth II passesThe world is in a state of deep sadness over the death of Queen Elizabeth II, who passed away peacefully yesterday at the grand old age of 96.
- The Queen died at her residence at Balmoral, Scotland, with her son – the now King of the United Kingdom of Great Britain and Northern Ireland, Charles III, and her daughter Princess Anne – at her bedside. Rest in peace, Ma’am.
- President Joe Biden has paid his condolences, saying he “mourns” for Britain, concluding his statement by saying: “Her legacy will loom large in the pages of British history, and in the story of our world”. A host of world leaders have so far also paid their respects, including Chinese leader Xi Jinping and Russian president Vladimir Putin.
- Contrary to what one would expect, the FTSE 100 actually went up, rising by a little over 1% in morning trading. However the general business mood in Britain seems concurrent with the social one rn – with flags at half mast across London, and swathes of digital advertising switched off as a mark of respect.
The Royal Family
BOE brings down the rate hike hammerEconomic news is coming at us from all sides while global inflation continues to climb and the Bank of England seems to be on the “go big or go home” team.
- The BOE has just hiked rates for the sixth time this year, opting for a 50bps hike in the largest single-meeting rate increase since 1995 – so my whole life. What a time to be alive. The rate hike, higher than estimates though it was, was not the most concerning part of yesterday’s meeting though.
- The central bank’s future projections were weaker than people would like, forecasting that the UK will fall into a recession in Q4 of this year for around 5 quarters and seriously bring down post-tax income and consumption habits. Basically, they know an economic downturn is coming but gotta keep hiking rates anyway – a similar sentiment to many other central banks.
- The agency also forecast inflation to hit as high as 13% this winter in the UK thanks to raging energy costs, and baseline GDP is expected to fall for the next two years to mark the first instance of two straight contractions in the economy since the 1960s – so perhaps the rate hike aggression is warranted. Either way, the FTSE 100 remained relatively flat on Thursday.
Images George Rex / Flickr
Global stocks give recovery vibes?Last week took many global stocks to milestone lows – but, the FTSE has a good day while the US celebrated Juneteenth on Monday, and it looks like the love is spreading.
- The FTSE 100 lifted 1.5% on Monday, making a small attempt to recapture some of the 4.12% that was wiped off last week. The index is suffering through its worst month since covid first hit the market in March 2020, and prices are currently at a 2022 low.
- The Bank of England delivered a 25bps rate hike last week, keeping cautious in comparison to the Fed and the Swiss National Bank’s recent shock hike. Sterling has fallen over 9% against the dollar this year, and strategists say the tame approach means more pain on the way for the currency.
- US indices want a piece of the stabilization action, set to rebound in Tuesday morning trading after futures jumped in Monday’s after hours trading. Futures on the Dow lifted 1.45%, S&P 500 futures rose 1.67%, and Nasdaq futures lifted 1.7% – still, all three are trading around their lowest levels since 2020.
ulleo / Pixnio
Playing footsie with inflationUK inflation hits yet another multi-decade high, but the FTSE 100 shakes it off to carry on its week of green.
🔍 Key points:
- UK inflation came in at an annual 6.2% in February, up from January’s high of 5.5% and the highest rate since March 1992. Analysts had expected a rate of 5.9%.
- Fuel and energy prices have been hitting new highs amid war in Eastern Europe, deepening the country’s cost of living crisis. The BoE already hiked interest rates back up to their pre-pandemic level of 0.75%, but inflation data will likely mean more on the way.
- Despite that, the FTSE steamed ahead 0.46% on Tuesday for its fifth consecutive session in the green. Chancellor Rishi Sunak is set to give his Spring Statement on budget on Wednesday, which may give a hint at the monetary future.
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The UK joins in on the rate hike funThe FTSE 100 is staying positive in the face of an inflation warning from the Bank of England (BoE).
🔍 Key points:
- The UK central bank has hiked interest rates back up to their pre-pandemic level of 0.75% (from 0.5%) as governments around the world try to tackle the record-high inflation that everyone is battling rn, and is apparently set to get worse…
- The BoE warned that inflation could push past 8% in the next few months, and as high as 10% this year, as the war in Ukraine puts extra pressure on already high energy and food prices.
- But investors just seem relieved that inflation is being dealt with tbh, sending the FTSE 100 up 1.28% on Thursday, now up 2.57% this week so far after spending nearly every day this week in the green. It’s about time.
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GDP makes a comebackTurns out the U.K. economy has bounced back from Omicron quicker than expected, but how will it hold up in the face of soaring commodity prices in Feb?
🔍 Key points:
- GDP in the U.K. grew 0.8% in January. It marks an impressive turnaround from December’s 0.2% drop, defying expectations for 0.2% growth and taking the economy up 0.8% from pre-pandemic levels.
- The FTSE 100 celebrated the win, jumping 2.3% in Friday trading before closing the day up 0.8%. The index ended the week up 2.41% after three consecutive weeks of losses, continuing the positive moves in Monday morning trading.
- But how much longer will it last? February was a rough one for global economies, with energy prices catapulting and oil soaring past $130 a barrel last week. European leaders are also talking about cranking up sanctions against Russia despite positive comments from Putin over the weekend, which will likely squeeze on U.K. living costs and reduce growth.
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I see charts of green, red candles tooGlobal markets delivered a mixed bag on Tuesday as investors contemplate historic bans on Russian oil.
🔍 Key points:
- The FTSE finally got to enjoy a day in the green, lifting a light 0.07% on Tuesday but catapulting up 2.9% in Wednesday morning trading. Things across the pond didn't go as well, with all three major U.S. indices ending the day in the red, albeit less dramatically than earlier in the week.
- World leaders are cutting off Russian oil. A lot of the whipsaw movements came on the back of Biden banning all imports of Russian oil and gas into the U.S., a move that was matched by a U.K. phase-out of Russian oil imports. The EU didn’t join in but did say it plans to cut Russian gas imports by two-thirds this year.
- One Russian minister predicted the move could push oil past $300 per barrel, and said the country would not hesitate to cut off gas to Europe in response (Russia met 40% of European demand last year, so that’s big). The Moscow Exchange has been shut since Feb 25, and the ruble has fallen over 40% against the dollar this year so far.
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£100bn wiped off the FTSEThe FTSE 100 has its worst week since the pandemic hit as Russian advances into Ukraine get investors panicking.
🔍 Key points:
- The index closed last week down 6.71% to mark its worst week since March 2020 and see over £100bn in value wiped off – the losses extended into Monday morning, when prices hit their lowest level in nearly a year.
- Investors were reacting to Russian forces seizing Europe’s biggest nuclear power plant last Friday, prompting Western nations to consider harsher sanctions that are sure to ripple through the Russian economy.
- It doesn’t help that U.K. economic growth is now expected to halve this year. The British Chambers of Commerce has downgraded its expectations for U.K. GDP growth in 2022 from 4.2% to 3.6%, which would be half of the 7.5% recorded last year, thanks to soaring inflation, major tax rises, and global shocks like Russia’s invasion.
Markus Distelrath / Pexels
Stocks sell off on Russia bansThe FTSE 100 is at a 2022 low as investors react to developments in the Russia/Ukraine conflict, joined by Russian stocks that have seen their values evaporate.
- Investors are feeling their uncertainties mount, and it’s showing on the charts. The FTSE 100 is down 2.5% in early trading on Friday, now down 5.5% for the week in its worst five day session since February 2020. We’re only four days in, but already March is shaping up to be the index’s worst month in over two years.
- Russian companies have seen their London-listed shares plummet. The London Stock Exchange yesterday suspended trading of 28 Russian-linked companies, and The Dow Jones Russia GDR Index, which tracks London-traded Russian companies, has plunged 98% in two weeks and wiped off $572bn from its value.
- Soaring commodity prices are likely to take a toll on inflation, which is already at a 40 year high. Micheal Hewson at CMC Markets says: "This looks like a trend that is only likely to get worse with significant consequences for global supply of key raw materials as well as demand for goods and services.”
IGORN / Pixabay
The FTSE falls as Russian troops enter UkraineThe FTSE 100 hits two month lows on Thursday morning as the situation in Ukraine significantly worsens and world leaders get involved.
- The index is down 2.5% in Thursday morning trading in its biggest drop in a month, hitting prices unseen since mid December, and joined in the red by indices across the world.
- Russian troops have moved over the border into Ukraine, and investors are nervous about what the future holds as world leaders like Boris Johnson and Joe Biden ready their sanctions. The EU is taking a stand too, with top EU diplomat Josep Borrell promising the embargoes would be “the harshest package of sanctions we have ever implemented.”
- Oil prices have surged above $100 for the first time since 2014 as fears grow that the conflict will interrupt energy supplies to Europe. Germany has already suspended the approval of the Nord Stream 2 pipeline, which would have doubled gas inflows from Russia, and other commodities spent the day whipsawing around the charts.
Khashayar Kouchpeydeh / Unsplash
“A very ill omen” gets markets feeling weakThe FTSE 100 has extended its losses on the back of what Boris Johnson called “a very ill omen”.
- The index declined by 0.39% on Monday to its lowest price this month so far. Prices had their worst five-days since November last week, sinking 1.92% to erase all gains from the week before.
- The political situation between Russia and Ukraine is becoming more contentious, leading to an anxious market. Putin has recognized the Donetsk and Luhansk People’s Republics in Eastern Ukraine as independent states, earning backlash from Boris Johnson and other political leaders.
- Equities aren’t feeling so hot, but oil sure is. The price of Brent crude, an international benchmark, was nearing $100 a barrel on Tuesday after reaching seven-year highs – Russia is the world’s second largest oil exporter, and the threat of sanctions against them are looming.
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Warning: this inflation is hotThe cost of living in the U.K. keeps getting higher and higher, putting pressure on both the FTSE index and England’s central bank.
- U.K. inflation climbed to a 30-year high of 5.5% in January, up from 5.4% in December (analysts thought it would stay at that level) and waaay up from 0.7% in January 2021.
- The FTSE 100 sank 2.85% on Wednesday to snap the winning streak it had been on for the week as investors considered what the numbers may mean – Resolution Foundation economist Jack Leslie says inflation “could drive the deepest squeeze on living standards in six decades”. How fun.
- The Bank of England will likely act accordingly. Economist Samuel Tombs is expecting a 0.75% increase in March and 1% in May, while others think rates will climb at least 2% within the year in light of January data – the bank has already raised rates in December and February from their historic 0.1% low to 0.5%.
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The FTSE faltersU.K. FTSE indices see billions wiped off their value as investors contemplate international market concerns.
- Up to £54bn ($73.1bn) was wiped off the value of London’s top 350 companies on Monday morning when the FTSE 100 had its worst day since January 24 with a 1.69% drop, and the FTSE 250 saw a 2.3% drop.
- Investors were worried about the global economy as Wall Street had a muted Monday and the tenuous situation in Ukraine helped drive oil prices to a seven-year high.
- It comes only a few days after the FTSE 100 hit a 22-month high to claw back all of its pandemic losses. Prices started Tuesday in the green despite new economic data showing a shrinking workforce and record levels of vacancies (which could pressure BoE into more rate hikes).
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Lackluster shoppaholics force the FTSE on saleThe FTSE 100 fumbles on retail sales data, following in the footsteps of major U.S. indexes to see multi-week lows.
- The index fell 1.2% on Friday for its worst day in eight weeks, extending the losses into Monday morning trading.
- Where have all the shoppers gone? Retail sales dropped 3.7% in December, a much sharper decline than the 0.6% analysts were expecting as new Omicron rules affected consumer spending.
- It’s the first economic data from December to come out, confirming investors’ fears that Omicron has hurt the economy and adding to pressure on the Bank of England to raise interest rates.
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Inflation nationThe FTSE 100 swiftly drops from its two year highs after investors get a look at U.K inflation numbers.
- Prices flopped down 0.63% on Tuesday after starting the week at their highest level since before the pandemic.
- U.K. inflation jumped to a 30-year high of 5.4% in December, up from 5.1% in November, and the expectation is that it’ll increase to above 6% in the spring after energy prices increase.
- Investors are keen to see what the Bank of England will do with the news in its February 3 meeting, with some expecting severe rate hikes to mirror the Fed’s solution – so watch this space.
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New year new marketThe FTSE 100 flirts with two year highs, but will the romantic spirit survive employment data?
- The index charmed its way into gains of 0.91% on Monday to hit its highest price since January 22 last year.
- GlaxoSmithKline (GSK) provided the mood music after it rejected a £50bn offer from Unilever (ULVR). Energy and mining stocks lit a few romantic candles too, flickering with gains across the table.
- But new economic data soured the mood. Prices are down 0.71% in Tuesday morning trading after UK employment showed that though unemployment is dropping steadily, wages are too.
Bas van den Eijkhof
FTSE 100 finally makes a full recoveryThe UK’s leading index jumped up to a 22-month high yesterday, recovering its pre-pandemic levels as Omicron fears relax their grip on the market.
- The index reached a high of 7,472 on Wednesday, gaining over 1% following a two-day Christmas closure.
- It has recovered all its Covid losses to exceed February 2020 levels by over 50 points.
- U.S. markets have recovered faster than U.K. ones, due in part to the dominance of Big Tech in the States, so it’s a relief to see the FTSE finally getting back on track.
Illustration by TradingView
Inflation stationRecord high inflation deflates the FTSE 100 as investors bite their nails over looming monetary policy changes.
- The index is down 0.35% in Wednesday morning trading, extending a six-day sell-off that has wiped nearly 1.9% off share prices.
- Inflation is at a ten year high. The CPI lifted 5.1% in the last year, up from 4.2% in October and nearly double what the Bank of England was targeting.
- The central bank is meeting on Thursday to decide if it’ll tighten its monetary policies and raise rates in the face of rising inflation and a labor crunch. The IMF has advised it withdraw its Covid-related stimulus, and people are nervous.
Illustration by TradingView