FTSE 100 starts in red after Powell’s hawkish tone, Admiral leads fallers

Date:

  • FTSE 100 falls 22 points in early trading
  • Markets reacting to hawkish comments from Fed chief Powell
  • Insurer Admiral leads fallers

9.26am: FTSE remaining on back foot, UK and US jobs in focus

UK jobs data was published overnight, with the REC/KPMG monthly permanent job placements index falling to 46.3 last month from 46.8 in January, falling for a fifth consecutive month.

The survey sent mixed messages, said Chris Scicluna, head of research at Daiwa Capital Markets, with a further moderating in jobs growth, but still strong wage pressures.

“Given the BoE’s concerns about notable recent strength in wage growth, today’s REC/KPMG report on jobs offered mixed messages about labour market conditions in February.

“Overall, recruitment consultancies suggested a further loosening in the jobs market, reporting a fifth consecutive drop in new permanent hires last month, with only modest growth in temporary staff too, as firms remained cautious amid ongoing economic uncertainty. And while there was a pickup in the number of permanent vacancies, this remained softer than the historical average.

“Admittedly, staff availability for permanent roles again improved slightly last month, with some recruiters attributing this to a recent increase in redundancies. However, candidate shortages persisted. And the survey indicator for growth in starting salaries for new permanent staff edged slightly higher.”

Beyond the economic data, a speech is expected this morning from Bank of England monetary policy committee external member Swati Dhingra, who in February voted to leave interest rates unchanged.

With London’s equity benchmark firmly in the red this morning, let’s see what else the market commentariat are saying. 

Victoria Scholar, head of investment at Interactive Investor says European markets are “taking their cues from last night’s Fed-driven sell-off on Wall Street… after Fed chair Powell indicated that there could be further and faster rate hikes to come.

“Risk-off sentiment is dragging oil prices lower with Brent crude inching closer to breaking below $83 a barrel. Brent and WTI suffered their biggest one-day drop since January while the dollar gained strength.” 

Neil Wilson said this Friday’s US jobs report is now “huge” after the comments from Powell.

“Today is the ADP nonfarm payroll data, hardly a great indicator but it will be watched closely. Also check the JOLTS job openings, which a month ago surged to 11m from 10.46m, cementing the Jan NFP report strength.”

He plucked out a quote from Ernest Hemmingway (“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly.”) 

Wilson said many traders will understand Hemingway “and so too it is with rates and recession, at least in the US.

“Gradually we have seen rates and bond yields rise and then barely a month after Fed chair Jay Powell was talking about disinflation, he suddenly comes out with a renewed hawkishness that pushed bonds and stocks lower and put a fire under the US dollar. It could also see the Fed slam the economy hard just as rate hikes start to take effect.

“Powell opened the door to a 50bps move this month and raised the prospect of further outsize hikes just as markets had assumed we were on a 25bps course. The pilot cut the engines coming into the harbour but has had to fire them up again – the risk is slamming into the mole at full tilt. Fed hikes are about to catch up just as it reaccelerates.”

The FTSE is down 22 points at 7896 but coming back from a recent low.  

9.05am: Airlines drag but light at end of tunnel in rail strikes

British Airways owner IAG and other airlines have fallen this morning amid confirmation that Heathrow Airport has been told by the UK air regulator that it must charge slightly more per passenger under a new temporary price cap.

The Civil Aviation Authority today published its final decision for the annual charges Heathrow levies on airlines using the airport until the end of 2026.

The average maximum price per passenger will remain fixed at £31.57 per passenger in nominal prices, which it set out in its interim decision issued earlier this year, up from £30.19 last summer.

Then it will then fall around 20% to £25.43 per passenger in 2024 and will remain broadly flat at that level until the end of 2026.

IAG shares are down 1.3% on the FTSE 100, while mid-cap rivals easyJet and Wizz Air are also in the red despite not having a presence at Heathrow, suggesting there could be other reasons weighing on the sector.  

Elsewhere in travel news, some rail strikes for later this month have been averted, at least temporarily, with some light at the end of the tunnel as Network Rail made a new pay offer.

The RMT union last night called off the walkouts, due to be part of wider action by rail staff, on Tuesday, providing hope that pay and condition disputes, which have seemingly become deadlocked, will be resolved.

A vote will be held among Network Rail workers at the union, it added.

However, trains operated by 14 companies are unlikely to run on 16, 18 and 30 March due to strikes planned by train drivers, with a further walkout on April 1, adding to 27 days of walkouts in the past year.

8.47am: FTSE edges lower

Losses for the FTSE 100 index have worsened slightly to around 20 points, down 0.25% to 7899.

Wider European markets are mixed, with France’s CAC also in the red, but benchmarks for Germany and Spain in the green.

London’s FTSE 250 index has also started lower, led by financials and travel and leisure stocks.

Following the blue-chip results today, read-across seems to be hitting Investec PLC (LSE:INVP) and Direct Line Insurance Group PLC (LSE:DLG), which both report next week, along with Jupiter Fund Management PLC (LSE:JUP) – all of which are down around 2%.

In travel and leisure, JD Wetherspoon, Wizz Air and Carnival are all down more than 2%.

Topping the mid-cap fallers is Tullow Oil PLC (LSE:TLW), despite full-year revenues of US$1.78bn beating estimates of US$1.7bn.

Top of the FTSE 250 leaderboard is Quilter PLC (LSE:QLT) despite reporting lower profit and slowing its profit margin improvement plans by two years.

Darktrace PLC (LSE:DARK) is also on the up after reiterating its earnings and revenue guidance for the year to June, having been under heavy scrutiny after a short-selling attack by a US hedge fund in January.

8.26am: FTSE starts in the red

The FTSE 100 has started where it left off yesterday, on the back foot, sliding 17 points or 0.2% to 7902 in the morning’s ice-and-snow conditions.

Leading the blue-chip decline is motor and home insurer Admiral Group Plc (LSE:ADM), down 7%, after it slashed its dividend.

The full-year dividend was cut 40% as full-year results showed pre-tax profits dropped 39% to £469mln as UK insurance profits plunged, with a particularly weak showing from its motor division.

Life company Legal & General has not risen as expected (see below), falling 1.4% so far.

Market analyst Richard Hunter at Interactive Investors pointed out “a couple of notes of caution to an otherwise healthy picture”.

Last year was tough for asset managers and LGIM was “no exception”, he said, with operating profit falling 19%, while the cost/income ratio rose to 65% from a previous 58%. More positively, he said, flows increased from £34.6bn to £49.6bn.

“The impending retirement of the CEO has also dampened some of the enthusiasm for company prospects. During his tenure, there has been a total shareholder return in excess of 600% and, while the replacement process and handover are likely to take around a year, there is always the risk of the loss of some momentum,” said Hunter.

He noted that the share price, which has risen by 11% over the last year as compared to a gain of 13.7% for the wider FTSE 100, has also comfortably kept its head above water over a three year period in which others have struggled.

“The recent downgrade of the market consensus to a hold, albeit a strong one, could be subject to more positive revisions given the general direction of travel which the group is displaying, and with mixed results coming from other parts of the sector.”

On the plus side for the blue-chip insurers, underwriter Hiscox Ltd (LSE:HSX) is one of the risers, up 1.8%, after its results have been better received so far. 

7.52am: Insurers out in force

The FTSE 100 should get a boost from Legal & General Group PLC (LSE:LGEN), which has reported stronger-than-expected growth in profit in 2022, raised its dividend by 5% and said it remained on track to deliver its five-year strategic ambitions.

“We have delivered another strong result in 2022, ahead of market expectations,” said chief executive Nigel Wilson.

The life insurer posted an operating profit of £2.5bn for the calendar year, up 12% from £2.262bn in 2021 and a bit higher than the £4.45bn that analysts had forecast. The dividend was increased 5% to 19.37p.

Return on equity improved slightly to 20.7% (2021: 20.5%) and the solvency II coverage ratio soared to 236% from 187% in 2021. L&G estimated that as at 3 March 2023, the coverage ratio had improved further to 240%.

Insurance sector peer Admiral is expected to start lower by analysts as it reported a 39% decline in pre-tax profit to £469mln. A special dividend of 45p was unveiled.

Another peer, Hiscox reported pre-tax profit of US$44.7mln and said it saw favourable conditions in 2023.

Elsewhere, Vodafone announced the completion of the sale of 50% of its German fibre-to-the-home company to Altice, for which European Commission approval was received last month.

7am: London blue chips to start lower 

The FTSE 100 is expected to open lower on Wednesday after US Federal Reserve Chair Jerome Powell’s hawkish testimony yesterday sent traders running for cover.

Spread betting companies are calling London’s blue-chip index down by around 18 points.

Powell told the Senate that US interest rates will likely peak at a higher level than previously anticipated due to economic data coming in stronger than recent trends suggested.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell commented.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he said.

Danni Hewson, head of financial analysis at AJ Bell, said: “He didn’t say anything surprising or anything we didn’t know already, but there was a steely quality to his testimony today and no sign of the dove some investors had been hoping to see fly. It’s made markets nervous, with that new year optimism now thin on the ground and today’s comments pretty much obliterating it for now.”

Ipek Ozkardeskaya at Swissquote Bank said: “Investors got a double shot of hawkishness from Federal Reserve (Fed) Chair Jerome Powell’s semi-annual testimony before the US Senate yesterday.”  

“This time, Powell left no place for doubt. He clearly said that nothing about the data suggests to him that they have tightened too much, and that ‘if the totality of the data were to  indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes’.”

The testimony, which continues today but moves from the Senate Banking Committee to the House Financial Services Committee, sent US markets sharply lower.

The Dow closed Tuesday down 575 points, 1.7%, to 32,857, the Nasdaq Composite tumbled 145 points, 1,3%, to 11,530 and the S&P 500 lost 62 points, 1.5%, to 3,986. The small-cap Russell 2000 index dropped 20 points, 1%, to 1,880.   

In Asia, the Nikkei 225 index was up 0.5%. In China, the Shanghai Composite was down 0.3%, while the Hang Seng index in Hong Kong was down 2.2%.

Back in London and results from insurers Legal & General and Admiral will be the early focus.

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