Fed signals hikes, banks rise on interest rate outlook, oil close to $90, Tesla ‘breakthrough’
Shares are under pressure again after the US Federal Reserve put investors on standby for a series of interest rate rises starting in March.
No options appear to be off the table after last night’s Fed meeting focused on efforts to bring US inflation back from its 40-year high of 7%.
Wall Street was hit by selling pressure after the meeting but the FTSE 100 index held on to yesterday’s big gains thanks to progress by banking and defensive leaning stocks. Oil prices, meanwhile, continue to trade near a seven-year high of almost $90 a barrel.
FTSE 100 Live Thursday
Markets brace for series of US rate rises
Banking stocks keep FTSE 100 higher
Tesla hails ‘breakthrough’ year
Diageo reports strong profits
EasyJet halves loss ahead of travel lift-off
Major indexes up after Wall Street traders take courage in US GDP surge
14:56 , Brian McGleenon
Stocks were off to a solid start today after the news that Uncle Sam’s economic health is rapidly improving, despite inflation fears and the lingering Omicron variant of the coronavirus pathogen.
The gross domestic product in the US grew by 6.9% in the last quarter of 2021.
The US has now witnessed its largest one-year expansion in GDP since 1984.
After the opening bell on Wall Street, the Dow Jones Industrial Average rose 93.66 points, or 0.27%, at the open of trading in New York today, to 34,261.75.
The S&P 500 opened higher by 30.65 points, or 0.70%, at 4,380.58.
while the Nasdaq Composite gained 168.87 points, or 1.25%, to 13,710.99 at the opening bell.
Wall Street set to recover after US GDP exceeded forecasts and Tech stocks look buoyant
14:40 , Brian McGleenon
Wall Street is set to open higher today after the tech-heavy Nasdaq futures rose 0.4%.
Netflix also jumped 4% in premarket trading as billionaire investor William Ackman waded into the streaming giant with a new stake worth more than $1 billion.
The Dow Jones Industrial Average is now tipped to rise by 0.48% and the S&P 500 by 0.75%.
Investors will be bolstered by the news that gross domestic product in the US grew by 6.9% in the last quarter of 2021.
The Bureau of Economic Analysis said: “The acceleration in the fourth quarter was led by an upturn in exports as well as accelerations in inventory investment and consumer spending.
“In the fourth quarter, COVID-19 cases resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country.
“Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off.
Universal Music Group announces expansion of the companies’ agreements with Twitch and Amazon Music
14:30 , Brian McGleenon
The new agreement will give customers “exclusive experiences” and “enhanced access” to Universal Music Group’s (UMG) roster of artists.
Under the agreements, subscribers to Amazon Music Unlimited will have access to stream even more music from UMG’s expansive catalogue.
Michael Nash, EVP, Digital Strategy, Universal Music Group said, “With the breadth of their music services and products, and their dedicated focus on customers and creators, Amazon Music and Twitch are excellent strategic collaborators, committed to creating the best and most diverse experiences for fans across streaming music, live streaming, artist collaborations, and physical merchandise.
“With these agreements, we are proud to build on our track record of success in working closely with Amazon, and we’re looking forward to delivering even more incredible experiences for our artists and music fans everywhere.”
US economy surges in the fourth quarter as GDP exceeds forecasts – up 6.9%
14:18 , Brian McGleenon
Gross domestic product in the US grew by 6.9% in the last quarter of 2021.
The surge in economic activity came amid the rapid spread of the Omicron virus.
The US Commerce Department announced the gains were far above the median forecast of 5.5%.
Growth in US GDP has now shown a rate of acceleration as the third quarter of 2021 saw a rise of 2.3%.
The results reveal that the US economy grew by 5.7% in 2021, the largest one-year expansion since 1984.
Increased iPhone and Mac sales forecast to drive revenue growth in today’s Apple earnings report
14:01 , Brian McGleenon
Apple is set to report financial results for the last quarter of 2021 after the close of trading in New York on Thursday, 10pm (UK time).
The strength of demand for the iPhone 13 and Apple Mac is set to be the main factor in increased revenue for the tech giant.
However, supply chain issues due to the increased industry demand for materials after the lifting of Covid restrictions is forecasted as having the potential to have the biggest impact on financial results, with chip shortages suggested as a leading factor.
On Wednesday Apple shares closed down 0.1%, at $159.69.
Chief Financial Officer at Apple, Luca Maestri, in Quarter four of 2021 said that the company expects a “very solid” year-over-year growth report for the December quarter.
Evercore ISI analyst Amit Daryanani said sales for the iPhone 13 in the first quarter of the fiscal year, ending March 2022, are expected to fall 32% from the December quarter.
Why London has become a target for activist investors
14:01 , Oscar Williams-Grut
Activist investors used to be a uniquely American phenomenon: silverbacks like Carl Icahn and Paul Singer made billions stalking the boardrooms of Wall Street, noisily pushing for change.
But last year saw the highest number of activist campaigns targeting London-listed companies in half a decade. 2022 is off to an even stronger start: companies worth a collective $500 billion are in the crosshairs, according to Bloomberg.
Activists buy up chunks of a company’s stock and start lobbying for changes. Typical suggestions include selling off or shutting down under-performing parts of a business, cutting costs and staff to improve margins, or sacking the CEO and getting new management in.
They are, in essence, the ultimate back seat drivers.
GlaxoSmithKline, Shell and SSE are all currently fighting off pressure from US activists. Why is the UK now such an attractive hunting ground?
Read our feature on the trend to find out.
13:30 , Brian McGleenon
The official Etheruem homepage announced that the Ethereum Mainnet will “merge” with the beacon chain in the second quarter of 2022.
Today’s announcement read: “Eventually the current Ethereum Mainnet will “merge” with the beacon chain proof-of-stake system.
“This will mark the end of proof-of-work for Ethereum, and the full transition to proof-of-stake.
“This is planned to precede the roll out of shard chains, which we formerly referred to this as ‘the docking'”.rollout
The news comes as the crypto market has experienced significant growth in 2021, especially in relation to DeFI, NFTs and the launch of the first US Bitcoin futures ETF.
David Duong, Head of Institutional Research at Coinbase, commented: “Crypto has now come of age among sophisticated investors. They are now actively using crypto to deploy advanced trading strategies developed in established fields.
“We’re seeing quant firms looking to profit from cross-exchange arbitrage opportunities, yield-farming strategies focused on DeFi, and even NFT-specific funds who see the burgeoning market as a scalable trading opportunity.”
What is going to happen to interest rates?
13:16 , Oscar Williams-Grut
As of today, Thursday, is seems highly likely they will rise next week and perhaps three more times this year.
The Bank of England put rates up in December from 0.1% to 0.25%. The City thinks they will go to 0.5% at the Monetary Policy Committee meeting on Thursday.
Then from there to 1.25%, in stages.
Read more here
How a Tesla sceptic saw the light…
12:59 , Simon English
In 2015 Mercedes Benz sold its stake in Tesla, claiming the company had “achieved everything it was going to”.
I’m with them. Here’s my position: Tesla is an absurdly overvalued business whose stock is kept artificially high by gangs of fanboys who are in love with Elon Musk.
The electric vehicle revolution is never going to work – or if it does, not for decades yet.
read more here
Investors stick the boot in at Dr Martens
12:10 , Oscar Williams-Grut
Dr Martens took a kicking on the floor of the London Stock Exchange today despite reporting significant revenue growth from its e-commerce sales.
The bootmaker managed to outflank supply chain woes and lockdown restrictions to report an 11% rise in revenue in the final quarter of 2021.
But shares fell 45p to 277.68p in London, a drop of 14%.
Read the full story.
Fever-Tree overtakes Schweppes in the US
11:55 , Oscar Williams-Grut
Fever-Tree has seen its spirits rise in the US after overtaking Schweppes to become America’s top tonic water brand.
The London-based tonic and mixer maker today announced strong double-digit revenue growth in the US, with sales doubling since 2019.
Just over three after setting up its US operations, Fever-Tree is now the number one Ginger Beer brand in America.
The company finished 2021 by snapping up 26% of the US retail tonic water market share, compared to Schweppes’ 25%. It overtook the tonic giant for the first time ever in the final four weeks of 2021.
Tim Warrillow, CEO of Fever-Tree, said: “Most notably we finished the year as the No.1 Tonic Water brand by value at US retail, which is a significant achievement, matching an accolade that we have held in the UK for a number of years.”
Read the full story.
AO World poised to exit Germany
11:46 , Oscar Williams-Grut
AO World is poised to complete a humbling retreat from Europe after years of struggling to crack the continent.
The online white goods retailer today kicked off a “strategic review” of its Germanbusiness, as ongoing issues with costs and competition make its future within AO increasingly unlikely. Third-quarter revenues in Germany sank 24% due to increased local competition, rising marketing costs and supply chain issues.
AO said its board would “evaluate a range of options” for the German arm, with a focus on “maximising shareholder value”.
Jefferies said: “Given the apparently more enduring nature of the issues being faced, the balance of probability would seem to be meaningfully weighted towards closure/sale.”
Read the full story.
Rare profit upgrade from Hammerson
10:45 , Oscar Williams-Grut
Shopping centre owner Hammerson has delivered a rare profit upgrade.
The company, which owns Brent Cross shopping centre and the Whitgift centre in Croydon, said profits for the year were now on track to be up to £80 million, ahead of previous guidance of at least £60 million.
Hammerson said visitor numbers had “recovered strongly” across the year, with some shopping centres seeing more footfall than they had pre-pandemic.
It’s welcome relief after a tough couple of years for the shopping centre sector. Rival Intu collapsed in the early months of the pandemic.
Old economy stocks rescue FTSE
10:39 , Graeme Evans
Shelter from rising interest rate expectations came from London’s “old economy” stocks today as the FTSE 100 index continued its outperformance in 2022.
Banks led the way after a hawkish Federal Reserve chairman Jerome Powell last night signalled the potential for more frequent and larger hikes from March onwards.
The guidance fuelled speculation that the Bank of England might follow suit by lifting rates to 1% as early as June, rather than August as previously expected in the City.
Such margin-enhancing moves meant Standard Chartered shares jumped 4% in the FTSE 100 index, while HSBC, Barclays, NatWest and Lloyds all rose by 1% or more.
High dividend yield stocks such as tobacco firm Imperial Brands and insurer Aviva also appealed to investors as the London market defied initial expectations for a Fed-led sell-off.
The FTSE 100 index has often been criticised for its lack of “big tech” exposure, but its reliance on old economy companies is now providing comfort as rates uncertainty causes a rotation away from growth stocks.
The fallers board included industrial software business Aveva and warehouse technology firm Ocado, while Tesla-backer Scottish Mortgage Investment Trust was down 2% despite strong results from the electric car company last night.
The FTSE 250 index showed similar resilience to the FTSE 100 after limiting its decline to 79.14 points at 21,793.63. Outsourcing firm Mitie rose 5% or 3.5p to 63.1p as its latest trading update prompted analysts at Liberum to back the shares to reach 90p.
Mixers firm Fevertree Drinks came under pressure on AIM, despite delivering an “excellent top line performance“ as revenues for 2021 rose 23% to £311 million.
It reported significant momentum in the US, where it has become the leading tonic water brand, but investors were spooked by its warning that cost headwinds will be more severe than expected this year.
The stock fell 7% or 161p to 2199p, which compares with 2,800p earlier this month.
Fuller’s predicts strong bounce back
10:29 , Oscar Williams-Grut
Pub group Fuller’s said it was expecting a strong recovery in trade after an Omicron-induced slump over Christmas.
Omicron restrictions hit trade over the important festive and new year period, with sales falling to 72% of pre-pandemic levels, but the situation had been improving since then and sales are now at 81% of 2019 levels.
Simon Emeny CEO Said: “Recent trading patterns suggest that there is a strong desire among many workers to return to office working.”
Summer beach boom on the way for airlines
09:55 , Simon English
EASYJET declared itself ready for lift-off today as travel curbs ease and holiday bookings are poised to rocket.
A host of other UK businesses also reported feeling optimistic about this year on the day face masks stopped being compulsory at indoor public spaces.
Easyjet saw losses in the quarter to Christmas halve to £213 million while passenger revenue soared from £165 million a year ago to £805 million.
CEO Johan Lundgren said: “We believe testing for travel across our network should soon become a thing of the past. We see a strong summer ahead, with pent up demand that will see easyJet returning to near 2019 levels of capacity with UK beach and leisure routes performing particularly well.”
read more here
09:27 , Simon English
IG reported another set of record results today and said the $1 billion takeover of tastytrade is paying dividends.
Under CEO June Felix the business has been transformed from spread betting house to global fintech. Tastytrade, bought last June, allows retail investors to play the options and futures markets usually the preserve of City and Wall Street traders.
In the half-year client numbers jumped 42% to 320,000 largely thanks to the tastytrade deal. Profit is up 8% to £245 million.
While the boom in share trading during lockdown has eased, IG still grew. Rivals such as CMC have been hit by the end of that boom. Felix said: “Some others have had harder landings.”
read more here
Banks lead FTSE 100 turnaround
09:09 , Graeme Evans
The FTSE 100 index has continued its record of outperformance in 2022 by fighting back from a weak start to stand near its opening mark.
Banks provided a major helping hand as expectations for faster-than-expected interest rate rises on both sides of the Atlantic lifted shares.
Standard Chartered led the FTSE 100 with a gain of 4%, while HSBC, NatWest, Barclays and Lloyds Banking Group were all up 1% or more.
With mining giants BHP and Rio Tinto making progress, the FTSE 100 index bucked gloom elsewhere to stand 2.9 points higher at 7472.
Diageo tops the FTSE in early trade
08:46 , Oscar Williams-Grut
Diageo has jumped to the top of the FTSE 100 in early trade after a bumper update.
The drinks giant has reported soaring sales and profits thanks to the reopening of bars and restaurants around the world drives.
Diageo — which owns Guinness, Tanqueray gin, Johnnie Walker scotch and Captain Morgan’s rum among many others — said sales jumped jumped 20% in the six months to 31 December. The business saw “double digit growth” across all markets.
The relaxation of restrictions around the world saw sales at bars and restaurants rebound after being battered by lockdowns. Guinness sales jumped 30% in the UK as Brits returned to the pub.
At the same time, drinkers continued to buy bottles to enjoy at home, with no noticeable drop off in so-called “off trade”. People are increasingly buying “premium” bottles of spirits, which have healthy margins and help insulate the company against rising costs.
Operating profits grew 22.5% to £2.7 billion in the first half as Diageo’s margins improved despite an increase in marketing.
Read the full story.
FTSE 100 lower, Diageo rises after results
08:34 , Graeme Evans
The prospect of the US Federal Reserve tightening monetary policy with as many as five interest rate rises this year has sent growth stocks into reverse once again.
The FTSE 100 index had a strong session yesterday but fell back 0.6% or 46.12 points to 7423.66. The top flight’s reliance on oil and financial stocks helped limit the damage, with Barclays among those higher on the back of the interest rates outlook.
British American Tobacco and Sainsbury’s rose 1% and drinks giant Diageo lifted 23p to 3667p as investors sought out defensive stocks. Interest in the Guinness and Smirnoff firm was boosted by its robust interim results, which included a 5% dividend hike.
Richard Hunter, head of markets at Interactive Investor, said: “Diageo has again proved its worth as a core portfolio constituent, with a performance which has underlined both its pricing power and its ongoing growth potential.”
Tesla posts record sales in “breakthrough” year
08:06 , Graeme Evans
Tesla has reported record quarterly sales at the end of a “breakthrough” year for the electric car maker.
Total revenues jumped 65% to $17.7 billion (£13.2 billion) in the final three months of the year, leading to a net profit of $2.3 billion (£1.7 billion). This figure include the cost of a $245 million (£183 million) shares-based award for chief executive Elon Musk.
Deliveries rose 87% across 2021 and Tesla said there should “no longer be doubt about the viability and profitability of electric vehicles”.
It added: “While 2021 was a defining year for our company, we believe we are just at the very early stages of our journey.”
Tesla intends to ramp up production at new factories in Austin, Texas and Berlin and maximise output from established factories in Fremont, California and Shanghai. Its other primary area of focus will be the development of full self-driving software.
The better-than-expected results failed to inspire Tesla shares after the company’s valuation fell back below $1 trillion in recent weeks.
Laura Hoy, equity analyst at Hargreaves Lansdown, said the company had done all it could to impress investors, including by putting Musk on the earnings call.
She said: “Ultimately the fourth quarter was another good one for Tesla, but with a nosebleed valuation, the group’s been unable to escape the jittery tech sell-off as inflation and interest rate worries plague the wider market.”
Fed’s tough stance on inflation spooks markets
07:37 , Graeme Evans
The Federal Reserve’s hawkish stance on monetary policy is set to trigger a fresh wave of selling after policymakers signalled there is “quite a bit of room” for US rates to rise.
The FTSE 100 index rose above 7500 prior to the meeting yesterday, but is today expected to fall 110 points at 7359 as the recent volatility for global markets continues.
The tech-laden Nasdaq, which has borne the brunt of fears over the impact of rising interest rates, surrendered an initial 3.5% gain to finish broadly unchanged last night. More selling is expected when Wall Street markets open later today.
As expected, Federal Reserve chairman Jerome Powell indicated that rates will rise for the first time in three years from March. However, he refused to rule out the potential for future hikes as large as half a percentage point in the fight against inflation.
Michael Hewson, chief markets analyst at CMC Markets, said: “In essence it was the Fed saying to markets that the days of handholding are over; our priority now is inflation.
“His admission that there was quite a bit of room to raise rates before it hurts the labour market, sent the message of a Federal Reserve appearing ambivalent about the risks of moving too quickly to combat an inflation problem that they appear increasingly concerned about.”
The US 10-year bond yield rose above 1.85% at one point, close to its highest level since January 2020, while the two-year yield staged its biggest jump since the start of the pandemic.
Investors are also watching commodity markets after Brent crude futures yesterday touched a seven-year high of $90 a barrel due to supply tightness and geopolitical tensions. The price settled at $89.40 a barrel this morning.