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FTSE 100 and Wall Street in the red ahead of Fed decision, with US jobs market stronger than expected

FTSE 100 down 40 points Next leads the way after update BAT falls following downgrade 2.00pm: US markets open lower…

By financial2020myday , in Stock Markets , at November 2, 2022

FTSE 100 down 40 points
Next leads the way after update
BAT falls following downgrade
2.00pm: US markets open lower

US stocks dipped into the red at the open as investors eagerly await the outcome of the Fed’s latest rate-setting meeting, with the central bank expected to raise the interest rate by a further 75 basis points in its continued fight against inflation.

Shortly after the open, the Dow Jones Industrial Average had slipped 131 points or 0.4% at 32,522 points, the S&P 500 was down 19 points or 0.5% at 3,837 points, and the Nasdaq Composite had shed 56 points or 0.5% at 10,835 points.

In terms of major movers, entertainment giant Paramount Global had plunged about 9% at the open after posting a third quarter earnings miss, while CVS Health Corporation rose 3.1% on better-than-forecast third quarter earnings and revenue and the raising of its full-year profit forecast.

OANDA senior market analyst Craig Erlam said it was unsurprising to see some caution in financial markets as investors await the Fed’s rate decision.

He noted that markets had largely priced in a 75 basis point rate hike, and there didn’t appear to be any doubt about that outcome.

“The communication that accompanies it is where the interest is, with increasing numbers anticipating a hint at a slower pace from December,” Erlam said. “Investors are so desperate for anything remotely dovish at this point that even a hint could get a strong reaction.”

Back in the UK, the FTSE 100 has fallen further and is close to its low for the day, down 40.96 points or 0.57% at 7145.2.

1.06pm: Oil flat as China boost fades

Oil prices are fairly flat after Tuesday’s gains, which followed reports that China is looking at ways of easing its COVID-19 restrictions.

Such a move would boost its economy and increase demand, hence yesterday’s rise in crude.

But with no confirmation of such a plan, Brent crude is down 0.02% at US94.63 a barrel while West Texas Intermediate is off 0.06% at US $88.32.

Craig Erlam at Oanda said: “While I have no doubt the leadership will want to avoid the constant disruption of restrictions and lockdowns that have heavily weighed on economic activity and confidence, any significant change would be a huge shift from the last few years.

“And the fact these rumours haven’t been verified at all suggests there may not be much substance to them, or that any softening will be marginal and hardly effective…

“Oil prices are relatively flat, trading with some caution on Wednesday after another decent move higher the day before. The prospect of fewer restrictions in China is certainly a good reason for the move on Tuesday, assuming of course there’s any actual truth or substance to it.

“Broadly speaking though, it continues to trade around the middle of what appears to be the newly established range between US$90 and US$100, in the case of Brent. Should those rumours turn out to be well-founded and any changes significant, it will be interesting to see whether crude can test the upper end of this range.”

12.20pm: US employers add more jobs than expected

The latest US jobs figures have come in stronger than expected, another sign of the resilience of the economy as the Federal Reserve deliberates how much to raise interest rates by.

Ahead of the widely watched non-farm payrolls on Friday, the latest ADP (NASDAQ:ADP) private payroll report showed an unexpected rise to 239,000 in October, rather than the forecast fall to 185,000.

Last month’s number was revised down from 208,000 to 192,000.

ADP chief economist Nela Richardson said: “This is a really strong number given the maturity of the economic recovery but the hiring was not broad-based.

“Goods producers, which are sensitive to interest rates, are pulling back, and job changers are commanding smaller pay gains. While we’re seeing early signs of Fed-driven demand destruction, it’s affecting only certain sectors of the labor market.”

11.12am: Wall Street set to dip at open

US stocks are expected to edge lower at the open, extending the previous session’s weak start to the new month as investors cautiously await the latest Federal Reserve policy meeting decision.

Futures for the Dow Jones Industrial Average were 0.1% lower in pre-market trading, while those for the S&P 500 were also down 0.1%, and contracts for the Nasdaq-100 shed 0.2%.

The Federal Reserve Open Market Committee (FOMC) is widely expected to agree to raise US interest rates by another 75 basis points (bp) as the US central bank tries to cool inflation, which remains near 40-year highs, but the main focus will be on the Fed governor, Jay Powell’s accompanying comments.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank said: “Powell will probably hammer the dovish hopes, and the latest risk rally when he speaks following the FOMC decision today. This is, at least, what the latest economic data from the US suggests.

“Last Friday, the US core PCE index showed further advance in consumer prices. Though the rise was slower than analyst expectations, the core PCE in the US advanced above 5% in September. That’s twice the Federal Reserve’s (Fed) 2% policy target.

“And yesterday’s job openings report showed another 437,000 vacancies in September, pushing the number of total job openings to 10.72 million jobs.”

She added: “In summary, for now, the US jobs market is not tightening, and the US inflation is not easing. So, there is no reason for the Fed to announce the end of the tightening cycle, in a way to trigger a positive euphoria across stock and bond markets, which would, in return, boost both inflation and jobs in the US.

“Maybe Powell could hint that, with today’s 4th consecutive 75bp hike, the Fed could reduce the size of its rate hikes, but he can certainly not promise, when and where, the tightening will pause.”

Once the Fed rate decision and statement is out of the way, investors will still have Friday’s, always volatile, October US non-farm payrolls report to negotiate.

Ahead of that the ADP private payrolls report is out, a couple of hours before the Fed decision, and is expected to have eased below 200,000 in October.

“Any positive surprise will likely further boost the Fed hawks, and dampen the mood in risk assets,” Ozkardeskaya concluded.

11.00am: FTSE fall intensifies

Markets are heading further south as investors wait for the key rate decisions this week, starting later today with the US Federal Reserve.

The FTSE 100 is now down 29.51 points or 0.41% at 7156.65.

British American Tobacco PLC (LON:BATS) remains the biggest faller, down 4.36% after Goldman Sachs (NYSE:GS) cut its rating from buy to neutral, while Smurfit Kappa Group plc (LSE:SKG) is off 3.52% following a nine month trading update.

But the latest reports from GSK PLC, up 1.92%, and Next PLC (LSE:NXT), 1.91% higher, received a better response.

And British Gas owner Centrica PLC (LON:CNA) has climbed 2.41% to 79.78p after a buy note from Goldman, which edged up its price target from 128p to 130p.

9.49am: Aston Martin – and markets – go into reverse

Leading shares continue to drift, and have now drifted into negative territory.

After edging higher in early trading, the FTSE 100 is now down 7.21 points or 0.1% at 7178.95.

Meanwhile the FTSE 250 is performing slightly worse, down 0.4% at 18,122.92.

Aston Martin Lagonda Global Holdings PLC (LSE:AML) is the biggest loser in the mid-cap index, losing 14.51% after the luxury car maker cut its guidance for full-year sales and profit margins.

Victoria Scholar, head of investment at interactive investor said: “It now expects to deliver 6,200-6,600 vehicles this year falling from its previous forecast for more than 6,600. It also downgraded its EBITDA margin outlook to growth of 100-300 basis points from its previous estimate for 350-450 points.

“Problems with the global supply chain post COVID-19, the global chip shortage and Russia’s invasion of Ukraine that added to inflationary pressures have created major headwinds for Aston Martin, dampening its outlook for deliveries and margins.

“On top of the supply problems, fears of a global recession and stiff competition could weigh on demand for its luxury cars. The British automaker has been struggling with its turnaround plan despite new investment from Saudi Arabia’s Public Investment Fund. Although Aston Martin has been working to reduce its debt levels, net debt still stands at £833 million.

“Investors have had an extremely difficult time with the stock, which is down by more than 80% year-to-date and almost 98% since its IPO in 2018.”

Also among the fallers is Wizz Air Holdings PLC (LON:WIZZ), down 5.65% after the airline reported higher first half losses.

This seemed to weigh on easyJet PLC (LON:EZJ), down 4.44%.

9.11am: Eurozone manufacturing sees further contraction.

Over in the Eurozone, manufacturers continue to struggle, and are likely to be facing recession.

The S&P Global Eurozone Manufacturing PMI fell from 48.4 in September to 46.4, its lowest level since May 2020.

It is also the fourth month in a row with a reading below 50, which signals contraction.

S&P said output and new orders fell at rates rarely seen in 25 years of collecting PMI data. Export demand also sank sharply amid geopolitical uncertainty, high inflation and weaker economic conditions around the world.

Joe Hayes, senior economist at S&P Global Market Intelligence said: “The eurozone goods-producing sector moved into a deeper decline at the start of the fourth quarter. The PMI surveys are now clearly signalling that the manufacturing economy is in a recession

“In October, new orders fell at a rate we’ve rarely seen during 25 years of data collection – only during the worst months of the pandemic and in the height of the global financial crisis between 2008 and 2009 have decreases been stronger.

“Factors that are likely to aggravate the downturn include inflation, which remains stubbornly elevated despite continued evidence that supply-chain pressures are receding. Sentiment among manufacturing firms remained rooted in negative territory once again in October, suggesting that firms foresee these challenging conditions to stretch out long into 2023.”

9.02am: BAT leads the fallers

British American Tobacco PLC (LSE:BATS) is helping to hold back the leading index after a broker downgrade.

Its shares are top of the fallers, down 4.23% to 3318.5p after Goldman Sachs (NYSE:GS) cut its rating from buy to neutral and its price target from 4050p to 3800p.

But the FTSE 100 is still just about in the green, up 6.66 points at 7192.82.

Next PLC (LSE:NXT) continues to lead the way after its latest update, adding 3.7%.

GSK PLC (LSE:GSK, NYSE:GSK) is up 1.2% after it raised its full year guidance.

Derren Nathan, head of equity research at Hargreaves Lansdown (LON:HRGV), said: “Vaccines have stolen the show in GSK’s third quarter update today as Shingles vaccine, Shingrix, saw record sales. The continued roll-out is a key driver of the upgraded guidance for 2022, as are launches for the RSV (respiratory syncytial virus) vaccine. GSK also announced a third major regulatory milestone for the RSV older adult vaccine, which has been accepted for review in the United States. This follows recent acceptances in Japan and Europe.

“This is strong progress for GSK in the RSV race. where it’s going head to head with the likes of Pfizer (NYSE:PFE) and J&J. GSK thinks it’s candidate could reach US$4bn a year in sales, with the adult market for this currently unmet need, being the largest prize. GSK is making good progress on many levels. However, investor sentiment is being held back by ongoing lawsuits relating to the safety discontinued heartburn drug Zantac, and this is likely to remain the case until more assurances are given.”

8.15am: Cautious start for markets

Leading shares have made a cautious start as investors await the key interest rate announcements from the US today and UK tomorrow.

The FTSE 100 is virtually flat, adding just 4.02 points to 7190.18.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘’Investors are waiting for clues from the Federal Reserve about the path of rate rises, and in the meantime a slightly more wary mood has settled on the markets. The Fed is expected to bring in another super-size rate hike of 0.75%, but that has been priced in. Instead it is the words that chair Jerome Powell chooses to use, about the economic outlook and what the future may hold, which are set to be market movers.”

Before the US rate news, the latest jobs report from private payroll company ADP is due. This is expected to show 178,000 new jobs were added last month, down from 208,000 in September.

The ADP report is the precursor to the widely watched non-farm payroll numbers due on Friday.

Among the early risers Next PLC (LSE:NXT) is up 2.56% after the retailer – which warned on profits in September – maintained its lowered full year guidance.

Richard Hunter, head of markets at interactive investor, said: “Fortunately, there are no further shocks in a brief trading update which reveals marginal growth in the period.

“Following the unusual and unwelcome development of a profit warning at the half-year numbers, Next is maintaining its full-year pre-tax profit forecast at £840mln. Despite being marked down from a previous estimate of £860mln, the new figure would represent year-on-year growth of 2.1%, underlining the profitable yet challenging backdrop which Next is encountering.”

7.41am: Difficult time ahead as food inflation surges – BRC

Food prices in the UK soared at the fastest rate on record last month, according to the British Retail Consortium.

The cost of fresh food jumped by 13.3% in October, the highest figure since the BRC survey began in 2005, amid the energy crisis, the war in Ukraine and staff shortages.

Overall, food prices rose by 11.6% from 10.6% while total shop price inflation jumped from 5.7% in September to 6.6%, both more unwanted records.

Helen Dickinson, BRC chief executive, said: “It has been a difficult month for consumers who not only faced an increase in their energy bills, but also a more expensive shopping basket. Prices were pushed up because of the significant input cost pressures faced by retailers due to rising commodity and energy prices and a tight labour market.

“Even the price of basic items went up, with the price of the humble cuppa rising, as tea bags, milk and sugar all saw significant rises. While some supply chain costs are beginning to fall, this is more than offset by the cost of energy, meaning a difficult time ahead for retailers and households alike.

“With Christmas fast approaching, customers are looking for any sign of respite, but it is increasingly difficult for retailers to shoulder the ongoing supply chain pressures.”

7.02am: Footsie expected to open higher

The FTSE 100 is set to make a firmer start on Wednesday with investors looking ahead to central bank meetings on either side of the pond.

Spread betting companies are calling the lead index up by around 14 points.

The US Federal Reserve is set announce its rate decision today with a rise of 75bp expected.

However, the tone of the accompanying statement will be watched closely for any signs that the Fed may take its foot off the pedal with regard to the pace of interest rate increases.

Michael Hewson chief market analyst at CMC Markets UK said: “The Fed isn’t expected to surprise today when it is expected to raise the Fed Funds rate by another 75bps, pushing it up to 4%, following on from three similar moves in June, July and September.”

“The main focus of attention has shifted in the past few days towards what might be coming in December, as markets increasingly price the prospect of a policy pivot, pause or slowdown, as we head into year end.”

US markets fell for the second day in a row on Tuesday with the Dow Jones Industrial Average losing 80 points, or 0.24%, at 32,653, the S&P 500 ending 16 points lower, or 0.41%, to 3,856 and the Nasdaq Composite slipping 97 points, or 0.89%, to 10,891.

In China, markets continued to rally on the prospect of the Chinese government pivoting away from its zero-Covid policy. The Shanghai Composite was up 0.9%, while the Hang Seng index in Hong Kong also made strong gains.

Back in London and results from Next PLC (LSE:NXT) will give an indication as to the temperature on the UK’s high streets while GSK PLC (LSE:GSK, NYSE:GSK) and Weir Group PLC (LSE:LON:WEIR) are set to report results amongst others.

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