FTSE 100 posts biggest fall in eight weeks; UK retail sales hit by Omicron – as it happened

Time to wrap up, after another lively week that finished with the Footsie’s worst day in two months.

Here’s today’s main stories:

Goodnight, and have a lovely weekend. GW

21 Jan 202213.00 EST

Energy bills crisis: UK business leaders demand urgent action

Larry Elliott

Five of Britain’s leading business groups have demanded urgent and decisive government help to tackle the UK’s energy crisis, warning failure to act will result in lower investment, an increase in poverty and the risk of an inflationary spiral.

In a letter to Rishi Sunak, the heads of the CBI, the British Chambers of Commerce, the Institute of Directors, Make UK and the Federation of Small Businesses said “rocketing” domestic and business bills would put the brake on economic recovery.

The letter says:

“As a collection of business groups, we are writing to ask you to act urgently and decisively to support consumers with spiralling bills and help business manage inflated costs over the medium term,”

Sunak and the business secretary, Kwasi Kwarteng, have been working on possible measures to soften the impact of an expected increase in energy bills of nearly 50% – amounting to £600 a year for the average household – when the price cap is lifted in April.

Ofgem, the energy regulator, will announce the new price cap early next month, and Kwarteng said Sunak would use his spring statement on 23 March to outline a support package.

In a reflection of the growing concern felt by companies of all sizes, the five business groups stressed the likely damage to household budgets if the government failed to act.

Here’s the full story:

European stock markets also had a rough day, with Germany’s DAX down almost 2% and France’s CAC losing 1.75%

David Madden, market analyst at Equiti Capital, says European markets have caught the bearish bug from Wall Street.

Bearish sentiment is dominating the markets as stocks, oils and metals are enduring large declines. The mood in the markets has been progressively getting worse recently as traders are preparing themselves for the prospect of the Federal Reserve hiking interest rates three or four times this year, there is speculation the first rise will be in March.

The pessimism peaked today as European equities buckled under the pressure that has been impacting US shares for the last few sessions.

London’s stock market has racked up its biggest fall in almost two months.

The FTSE 100 index of blue-chip shares has closed 91 points lower at 7494 points, down 1.2% today, amid the wider fall in markets.

That’s its biggest drop since 26th November, when concerns over the Omicron variant sent markets tumbling.

Gambling group Entain finished as the top faller, down 5.2%, followed by steel maker Evraz (-4.2%), tech-investor Scottish Mortgage (-3.9%), and hedge fund Pershing Square (-3.7%).

Only nine of the Footsie’s members avoided falling today, with banks, energy companies, and housebuilders also weaker.

On economic policy, Janet Yellen says the Biden administration is using a “modern supply side economics” strategy.

This approach prioritizes labor supply, human capital, public infrastructure, research and development, and investments in a sustainable environment.

Treasury secretary Yellen says this is superior to traditional supply side economics which focused on deregulation and tax cuts to encourage investment.

These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality.

So for example, the US government is trying to make it easier for working-age parents to participate in the labor market, and proposing “wide-ranging investments” in human capital — from early childhood education to community college, apprenticeships, and worker training.

Yellen also cites the changes to international tax rules agreed last year, to impose a global minimum tax on corporate foreign earnings.

She says:

This historic global tax deal will end this race to the bottom by ensuring that profitable corporations pay their fair share, providing governments with resources to invest in their people and economies.

At the same time, it will level the playing field so that all multinational companies will face a minimum tax on their foreign earnings, rather than just U.S. companies. This new system will improve productivity by incentivizing businesses to allocate capital to its most productive use, rather than to the use that produces that best tax result.

Some experts, though, have warned that Big Tech firms may still not pay their full fair share under the global tax deal:

US treasury secretary Janet Yellen is addressing the World Economic Forum’s Davos Agenda event now.

Yellen says that by most traditional metrics, the pace of the US recovery has exceeded even the most optimistic expectations, thanks to vaccine rollouts and the “robust support” provided to families, businesses, and state and local governments through the American Rescue Plan.

The US labor market is “exceptionally strong”, she continues - pointing to the six million jobs added last year as the economy recovered [but the labor market is still below pre-pandemic levels]

Household and firm balance sheets are even healthier than before the pandemic, Yellen continues, unlike after the 2008 crash:

To date, we have not seen large or persistent increases in long-term unemployment, indebtedness, evictions, or bankruptcies. This contrasts with the aftermath of the Global Financial Crisis.

And on inflation (which hit 7% last month), Yellen says professional forecasters think that inflation will substantially abate next year, with the White House trying to ease the supply chain crisis.

Part of this view is likely driven by the expectation that the Federal Reserve will continue to account for these pressures as it fulfills its dual mandate. And as the President has remarked many times, the Administration continues to tirelessly seek strategies to alleviate these pressures through actions such as easing congestion in our ports and expanding the labor supply.

But she warns:

Yet, even as policymakers continue to address rising prices, our economic recovery will face significant risks until we have moved more decisively past the pandemic.

Wall Street is recovering from that earlier drop, with the Nasdaq now flat on the day...

European stock markets have dropped deeper into the red, with the FTSE 100 now down 98 point, or 1.3%, in late trading.

After a torrid start to the year, analyst Dan Ives of Wedbush predicts tech stocks could turn the sentiment around....

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The US stock market has dropped, as the selloff in tech stocks yesterday continues to weigh on equities.

The S&P 500 index of US listed companies took an early hit, and is currently down 14 points, or 0.4%, at 4,468 points, taking its losses so far this year over 6%.

Netflix is the top faller, tumbling by 25% after shocking Wall Street by predicting that new subscriber growth will fall to its lowest in over a decade this quarter.

Walt Disney, which runs rival streaming service Disney+, has dropped by over 6%

The Nasdaq Composite index sunk deeper into correction territory, down 1.4% at one stage, but it’s now off 0.5%.

Communications, energy and materials are the worst-performing sectors, while consumer staple goods and real estate are higher.

The Bank of England must lean against inflation pressures and stop expectations of higher price growth from getting entrenched, policymaker Catherine Mann says.

In her first speech as a member of the Monetary Policy Committee, Mann argues that monetary policy needs to ‘temper’ expectations for wage and price increases.

That would prevent them from being embedded in the decision-making of firms and consumers, creating a dangerous wage-price spiral, she says.

The Bank’s regular survey of chief financial officers shows that current price and wage expectations are inconsistent with the UK’s 2% inflation target, she says. If realized in 2022 are likely to keep inflation strong for longer [it is already 5.4%, a three-decade high].

Mann explains that last month’s interest rate rise was part of that process of managing medium-term wage and pricing decisions, saying:

I know that here has been a lot of talk already about the cost-of-living squeeze. And to be clear, it is not my goal to make this worse than it already is – to the contrary, I aim to bring inflation back down to target such that workers can enjoy real wage gains from their labor.

The small Bank Rate rise that I voted for in December was to act on the commitment to the 2% target so as to influence the 2022 strategic decisions that workers, businesses, and asset holders are now making. Changing expectations is the first defence against a reinforcing wage-price dynamic.

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The Bank’s monetary policy committee is widely expected to raise interest rates again when it meets early next month.

The head of the International Monetary Fund has warned that interest rate hikes by the Federal Reserve could “throw cold water” on already weak economic recoveries in certain countries.

Speaking on a panel at the Davos Agenda, IMF managing director Kristalina Georgieva warned that the recovery is “losing some momentum.”

Rises in US rates could have significant implications for countries with higher levels of dollar-denominated debt, she explained, meaning it is “hugely important” that the Fed clearly communicates its policy plans to prevent surprises.

The losses across most equity markets in January been driven by concerns that the Fed would hike rates in 2022, probably starting in March, and possible four times before the year is out.

CNBC has the details:

On a panel moderated by CNBC’s Geoff Cutmore, Georgieva said the IMF’s message to countries with high levels of dollar-denominated debt was: “Act now. If you can extend maturities, please do it. If you have currency mismatches, now is the moment to address them.”

The IMF expects the global economic recovery to continue, Georgieva said, but stressed that it was “losing some momentum.”