FTSE 100 improves, banking stocks recover
An unexpected break from selling pressure helped the FTSE 100 index to improve 32.7 points to 6992, while the FTSE 250 index jumped almost 1% to 19,350.
Big rises in the top flight included wealth management business M&G, which surged 12% after annual results included plans for a £500 million shares buyback.
There were also recoveries of 6% and 4% for Royal Mail and ITV shares, while banking giants NatWest and Lloyds improved 3% after Monday’s heavy losses.
Serviced offices business IWG jumped 14% in the FTSE 250 index as its annual results highlighted strong momentum at the start of 2022. Peru-based precious metals business Hochschild Mining lifted 7% after the gold price went over $2,000 an ounce.
GDP impact as fuel and energy prices spiral
Economic forecasts continue to be rewritten as commodity prices surge and fears grow about the squeeze on household spending.
Paul Dales, chief UK economist at Capital Economics, believes a rise in petrol prices from £1.52 a litre to almost £1.80 a litre and next month’s 54% increase in the utility price cap will raise CPI inflation from 5.5% in January to a peak of 8.3% in April.
In response to sharp rises in agricultural commodity prices such as wheat, the London-based consultancy now thinks that inflation will finish the year much higher-than-expected at 6.6%.
The impact on household budgets means Dales now sees GDP growth this year of 3.7%, down from 4%, and 2.4% for 2023 compared with 3% seen previously.
An alternative “worst-case” scenario, where there is a blanket ban on energy imports from Russia and oil and natural gas prices rise even further and stay higher for even longer, means CPI inflation peaks at 8.6% in April as petrol prices rise to above £2 a litre.
In both cases, Dales notes that Chancellor Rishi Sunak has room to boost borrowing in order offset the resulting squeeze on households’ real disposable incomes.
Gold above $2,000 an ounce, FTSE 100 lower
More big swings in commodity prices are set to mean further volatility for European stock markets today, with the FTSE 100 index forecast to open 90 points lower.
The latest downward lurch for London’s top flight comes as stagflation fears are fuelled by oil prices at their highest level since 2008 and wheat already at a record high.
In addition, nickel prices jumped sharply in Asian trading overnight amid the potential for supply disruption from Russia, which is the world’s third largest producer of the key component in electric vehicle batteries.
Gold also stood above $2,000 an ounce for the first time since the summer of 2020 as the geopolitical worries encouraged investors into safe haven assets.
This flight from risk contributed to the S&P 500 enduring its worst daily loss since October 2020 and its lowest close since June.
The FTSE 100 index closed 0.4% lower last night but this masked a wild session after initially falling nearly 3% on fears about the economic impact of soaring prices.
Brent crude had earlier peaked at $139 a barrel and natural gas surged to fresh records after the US said it was considering a potential ban on Russia oil exports. The Brent price today settled at about $127 a barrel, having been about $90 a barrel prior to the Ukraine invasion.
With Russia hinting that it may limit energy flows through the Nordstream One pipeline in retaliation for any oil export ban, CMC Markets is forecasting that the FTSE 100 index will fall 90 points to 6869.