FTSE 100 down 1.5%, Aviva 3% lower after update
The threat of a US debt default and fears over more interest rate rises meant London’s FTSE 100 index fell sharply today.
Wall Street’s mounting jitters over the debt ceiling contributed to a poor session across Europe as the FTSE 100 index slumped 1.5% or 114.13 points to 7648.2.
Signs of persistently high core inflation also meant selling of housebuilding stocks in London as traders priced in more interest rate hikes.
Aviva shares were caught in the sell-off, falling 3% or 11.5p to 412.3p even though chief executive Amanda Blanc hailed encouraging first quarter results.
This included “attractive levels of profitability” in general insurance despite cost headwinds, as well as an 11% rise in health and protection sales.
Among other insurers, Legal & General fell 7.1p to 230.4p and Prudential lost 39.5p to 1131.5p.
On a shortened FTSE 100 risers board, BT Group rose 1.45p to 150p as Ofcom ruled that new prices at regulated division Openreach are not anti-competitive.
The FTSE 250 index fell 1.4% or 267.27 points to 18,941.04, with travel stocks Carnival and TUI down 5%.
Homeowners warned they could be hit with two interest rate hikes this summer
Homeowners were warned on Wednesday that they face two possible further interest rate hikes this summer.
Economists sounded the alarm that the Bank of England’s Monetary Policy Committee could be forced to hike rates from 4.5 per cent in June, then possibly again within months, to get a firm grip on inflation.
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Great Portland Estates boss joins call for rethink of tourist tax
The chief executive of London property developer Great Portland Estates has joined the growing list of City voices calling on the government to consider scrapping the ‘tourist tax’.
GPE is best known for offices, but it also has a number of retail sites including on Bond Street.
Many bosses have recently raised concerns about the impact on retail from the government abolishing VAT-free shopping when Britain left the EU in 2021.
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Banks colluded on bond dealing says watchdog
FIVE top banks could be heading for big fines after the competition watchdog claimed they shared sensitive information about trading in government bonds.
Those secret online chats could have disadvantaged others investors and hurt both taxpayers and the Treasury.
The Competition and Markets Authority claims Citi, HSBC, RBC, Deutsche and Morgan Stanley swapped data on bond trades rather than competing with each other.
They did it in Bloomberg chatrooms between 2009 and 2013 in the wake of the global financial crash when the UK government needed to raise money from bond auctions.
Both Citi and Deutsche won praise for admitting to their involvement in the scam so will escape stiff punishment.
The other three banks have not admitted to any wrongdoing.
Michael Grenfell, executive director of enforcement at the CMA, said the insider chats “could have denied taxpayers, pension savers and financial institutions the benefits of full competition for these products, including the minimisation of borrowing costs.”
He added: “A properly functioning, competitive bond market benefits tens of millions of taxpayers and pension savers as well as being at the heart of the UK’s reputation as a global financial hub.”
The CMA said the conversations are alleged to have related to the buying and selling of UK government bonds – specifically, gilts and gilt asset swaps – and included details on pricing and other aspects of trading strategies.
All five banks are already in a privileged position as so-called GEMMs – gilt-edged market makers.
Bloomberg itself is not under investigation, the CMA said. Its findings are provisional and the investigation continues.
The watchdog has a “cartels hotline” for anyone wanting to report similar actions. It is 0203 7386888 or cartelshotline@cma.gov.uk.
Inflation “coming down at a snail’s pace”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said further interest rate hikes could trample the early signs of growth in the economy, but they may be the only way to bring price rises back under control.
“’Inflation has soared up like an eagle and taken a ferocious bite out of our standard of living, but it’s coming down at a snail’s pace and leaving a sticky trail of prices in its wake,” she said. “Growing at 8.7% in the year to April the growth in headline consumer prices was higher than expected and more than quadruple the Bank of England’s target. More worryingly, core inflation, which strips out volatile food and energy prices crept back upwards to 6.8%. It shows that the price spiral is still proving to be a stubborn beast to conquer for the Bank of England.
“Another rate rise may have the effect of a herd of rhinos trampling over an economy, which is only just seeing some green shoots appearing as the forecast recession recedes. But policymakers don’t have many other strategies to deploy right now to herd inflation in the right direction.”
Inflation reading offers mixed signals for pound
The pound is close to flat against the dollar today at $1.2422.
Matthew Ryan, head of market strategy at global financial services firm Ebury, said the latest inflation figures present mixed signals for currency traders, but investors saw more signs of strength than weakness in the immediate term.
“The data has relatively mixed implications for sterling. On the one hand, the persistence of elevated inflationary pressures, particularly in the core index, may raise fresh concerns about the outlook for Britain’s economy,” he said. “We continue to contest that a UK recession in 2023 will be avoided, though clearly the still acute cost of living crisis presents a material downside risk to this outlook. On the other hand, today’s data makes additional Bank of England interest rate hikes increasingly more likely.
“In our view, the latter will be of more pressing importance for investors in the near-term, hence the rally in the pound following today’s data. “
Key data as FTSE opens lower
The FTSE 100 fell sharply this morning as today’s slower-than-expected decline in inflation – and a shock rise in core inflation to the highest level in 30 years – means the Bank of England is now expected to raise interest rates at least twice more.
Click through the graphs to see how markets have reacted this morning.
FTSE 100-listed builders under pressure, M&S shares jump 8%
Shares in housebuilders have fallen sharply after today’s stubbornly high inflation print raised expectations of more demand-sapping interest rate hikes.
Taylor Wimpey and Persimmon shares fell by 4%, with wider stock market sentiment not helped by the impact of last night’s weak session on Wall Street.
The FTSE 100 index snapped its recent run of calm trading by falling 1.2% or 94.30 points to 7668.65, with the FTSE 250 index 223.95 points lower at 18,984.36.
Other blue-chip fallers included insurer Aviva, which lost 3% or 14.3p to 409.5p on the back of its first quarter trading update, and Burberry with a fall of 69p to 2189p.
On a brighter note, shares in renewable energy giant SSE rose 30p to 1899.5p after its annual results. And the return of the Marks & Spencer dividend helped the retailer’s shares jump 8% or 12.85p to 176.45p in the FTSE 250 index.
Food inflation gets even worse
Food inflation has climbed even fast in a number of areas, ONS data shows.
The rate of inflation across fruit, vegetables, soft drinks, beer, wine and spirits has all gone up.
Scroll through the chart below to view food inflation data.
Openreach pricing plan cleared by Ofcom
New pricing arrangements proposed by BT’s regulated Openreach arm for its full-fibre services have been given the all-clear by Ofcom.
The Equinox 2 offer involved giving lower prices to retail providers – such as BT, Sky, TalkTalk and Vodafone – if they agree to use mainly Openreach’s full-fibre products for new orders instead of its legacy copper products.
The proposals mean alternative network operators are now likely to face stronger competition from Openreach. However, the regulator concluded that the conditional terms of the offer did not create a barrier to the use of altnets.
Ofcom said: “Our overriding objective is to bring better broadband to people across the UK, by promoting competitive investment in high-speed networks and making sure there’s a level playing field for all companies.
“With this in mind, and based on the evidence available to us, we don’t consider Openreach’s new pricing discounts to be anti-competitive.”
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