LONDON MARKET MIDDAY: Stocks slip as investors brace for Fed testimony

(Alliance News) - Stock prices in London were lower at midday on Monday as investors prepare for ...

Alliance News 10 January, 2022 | 12:16PM
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(Alliance News) - Stock prices in London were lower at midday on Monday as investors prepare for the prospect of more aggressive monetary policy from the US Federal Reserve.

The FTSE 100 index was down 12.45 points, or 0.2%, at 7,472.87. The mid-cap FTSE 250 index was down 60.97 points, or 0.3%, at 23,292.28. The AIM All-Share index was down 4.15 points, or 0.4%, at 1,183.19.

The Cboe UK 100 index was down 0.1% at 741.04. The Cboe 250 was down 0.2% at 20,778.02, but the Cboe Small Companies was up 0.1% at 15,593.25.

In Paris, the CAC 40 stock index was down 0.2%, while the DAX 40 in Frankfurt was 0.3% lower.

New York was pointed to a flat-to-lower open following a lower close on Friday with equity markets seeing an up-and-down start to 2022.

Dow Jones Industrial Average was called marginally higher, the S&P 500 down 0.5%, and the Nasdaq Composite down 1.3% based on futures trading.

Key data points this week will be consumer price index readings from the US and China on Wednesday, as the global economy contends with higher energy costs, supply chain blockages, and the fast-spreading Omicron variant of Covid-19.

The Fed faces a tough balancing act of having to adjust monetary policy to rein in prices while at the same time avoid hindering the economic recovery.

The US central bank has already started tapering its vast bond-buying programme, put in place at the start of the pandemic, and has signalled it could start lifting interest rates from record lows from March, with some observers predicting multiple hikes this year.

Fed Chair Jerome Powell will testify before the Senate Banking Committee on Tuesday.

Analysts at ActivTrades said: "Market volatility continues to grow almost everywhere for the beginning of the new year as lingering uncertainties keep pressure on market sentiment. Investors are still digesting the sooner-than-expected hawkish pivot from the Fed, with the first rate hike now anticipated in the first quarter (March) as well as further rises expected later in the year. The huge hit and impact of the Omicron strain on economies combined with the prospect of withdrawn liquidity from central banks is denting investors' appetite for riskier assets in the short-term.

"Traders are likely to wait for new major market drivers before pushing stock prices in new directions. All eyes will remain on monetary policy this week with a new batch of comments from major Fed speakers alongside the crucial US inflation report on Wednesday."

In the FTSE 100, housebuilders were the worst performers after the UK government announced plans to resolve the flammable cladding crisis.

Persimmon was down 4.7%, Barratt Developments down 3.6%, Taylor Wimpey down 2.5%, and Berkeley Group down 2.5%. Midcap builders Redrow, Bellway and Countryside were off 3.9%, 3.3% and 3.1% respectively.

Developers in the UK must agree a GBP4 billion plan to fix dangerous cladding on low-rise flats by early March or risk new laws forcing them to act, Housing Secretary Michael Gove has said.

The Cabinet minister threatened that he is "prepared to take all steps necessary" to fix the "broken system" in a letter to the industry ahead of detailing the plans on Monday. Potential action also includes restricting access to government funding and future procurements, the use of planning powers, and pursuing firms through the courts.

The proposals to alleviate the scandal that has trapped leaseholders in unsafe and unsellable homes come more than four years after the Grenfell Tower fire in June 2017, in which 72 people were killed. Leaseholders in buildings between 11 metres and 18m tall will no longer have to take out loans to cover the costs of remediation work despite no new money coming from the Treasury.

Instead, Gove told developers to agree to start contributing this year to cover the "full outstanding cost", which he estimates to be GBP4 billion.

"Many flat owners have been left with onerous costs for replacing flammable cladding and the latest reports on who will foot the bill should come as no surprise to the sector in that context," said AJ Bell's Russ Mould. "The housebuilders have benefited from generous incentives, such as Help to Buy and the mortgage guarantee scheme, in recent years. However, state support is not a one-way street, and the sector needs to do its bit to look after its customers."

Experian was down 2.4% after Morgan Stanley downgraded the credit checking agency to Equal Weight from Overweight.

In the FTSE 250, Plus500 was up 2.8%. The contract-for-difference trading provider hailed an "outstanding" operational and financial performance throughout 2021 that exceeded market expectations.

For 2021, Plus500 said revenue is estimated around USD718 million, supported by customer income - a key underlying growth metric - of USD702 million. The revenue figure is below the USD872.5 million posted in 2020, but higher than the company-compiled consensus analyst forecast of USD655.2 million.

In addition, Plus500 said that it was considering a new share buyback programme, following the completion of the USD12.6 million buyback scheme announced in October.

On AIM, Avacta was down 27% after the cancer-focused immunotherapies developer halted the sales of its AffiDX antigen test due to its lower sensitivity to detecting the Omicron variant of Covid-19.

Avacta said that the cause for the lower sensitivity of the test is the antibody with which the company Affimer is paired. As a result, Avacta has paused sales of the antigen test as it works to replace the antibody in the product to improve its performance.

The pound was quoted at USD1.3587 at midday on Monday, up from USD1.3572 at the London equities close Friday.

The euro stood at USD1.1327, lower against USD1.1343. Against the Japanese yen, the dollar was trading at JPY115.77, up from JPY115.64.

On the economic front, the unemployment rate in the eurozone continued to edge down in November. Figures released from Eurostat showed the euro area unemployment rate stood at 7.2% in November, down from 7.3% in October.

The reading, in line with market forecasts, also was down from 7.4% in November 2020 and the 7.3% reported for February 2020, the month before the pandemic began to hit Europe.

"The outlook for unemployment remains quite bright," Dutch bank ING said of the eurozone report. "Continued declines over the coming months are likely, although the re-entry of people to the labour market could slow the pace over the course of 2022. Nevertheless, this job market strength is set to feed through to wage negotiations and adds to medium-term expectations of inflation of around 2%. The ECB will take note as it considers the next steps in policy normalisation after its recent announcement of reducing asset purchases."

Brent oil was quoted at USD81.61 a barrel Monday at midday, down from USD81.99 late Friday. Gold stood at USD1,793.19 an ounce, marginally higher from USD1,791.80.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2022 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Bellway PLC 3,016.56 GBX 0.22 -
Avacta Group PLC 76.90 GBX -1.41 -
Experian PLC 3,083.00 GBX 0.72
Barratt Developments PLC 677.60 GBX 0.41 -
Taylor Wimpey PLC 161.30 GBX 0.44 -
Countryside Properties PLC 319.80 GBX -2.74 -
Plus500 Ltd 1,484.50 GBX 1.09 -
Berkeley Group Holdings (The) PLC 4,427.19 GBX -0.58 -
Persimmon PLC 2,569.65 GBX 0.30 -

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