UK factories plan price hikes; IMF backs support over energy prices – as it happened

Time to wrap up.. here’s today’s main stories.

Goodnight. GW

Back on Wall Street, stocks remain bogged down.

The S&P 500 index has stuck in the red all morning, now down 1.86% or 82 points at 4,328 points.

The tech sector is leading the selloff, followed by consumer discretionary stocks, communications, materials, and industrials. Only energy is higher.

Walid Koudmani, market analyst at financial brokerage XTB, sums up the situation:

“Markets are increasingly uncertain as contrasting signs continue to emerge and add to the already noticeable volatility perceived across a variety of asset classes.

While one of the main concerns continues to be rising inflation and the imminent monetary policy decision due from the Fed on Wednesday, rising tensions on the Russia-Ukraine border and some disappointing earnings in this latest Wall Street season have added fuel to the fire and caused even bigger moves.

While the instability seen across indices and stock markets may appear to be a technical correction, there is a risk that there might be more to come if these complex situations are not addressed in the appropriate manner.”

Other European markets have also closed higher tonight, but it’s a very modest recover.

Germany’s DAX and France’s CAC have gained 0.75%, after falling around 4% in yesterday’s stock rout.

The pan-European Stoxx 600 is 0.8% higher, after falling to its lowest since October last night.

David Madden, market analyst at Equiti Capital, says:

The markets have seen a lot of volatility in the past two sessions as mounting tensions about a possible war between Russia and Ukraine, along with chatter the Federal Reserve will issue a hawkish update tomorrow has been driving sentiment.

European stock markets suffered major losses yesterday as the possibility of an invasion of Ukraine rocked sentiment. The DAX and the CAC have pulled back some of the ground that was lost yesterday, but today’s gains are very small when compared with yesterday’s declines – which underlines the muted buying appetitive. While the headlines persist about a possible conflict in Eastern Europe, German, French and Italian markets might find it difficult to retest the peaks that were registered at the start of the month.

The prospect that the Federal Reserve reaffirm its hawkish position tomorrow, and plan to hike interest rates several times this year, is worrying investors, he adds:

It is widely believed the Fed will hike interest rates this year, but traders remain divided over how many rate hikes we might see, some predict three hikes, while others are forecasting four increases. There are concerns that if the Fed adopts an overly hawkish strategy, and raise rates too high too quickly, it could put pressure on the economic recover.

Here’s Naomi Rovnick of the FT:

The UK stock market has managed a modest recovery after its worst day in two months.

The FTSE 100 has closed 74 points higher tonight at 7371 points, up 1% -- which only claws back less than half of Monday’s 2.6% slide.

Online grocery tech business Ocado led the risers, up 5%. Oil companies also rallied, with BP up 4.3% and Shell gaining 3.6%, tracking the recovery in crude prices.

Financial stocks also had a good day, with Asia-Pacific focused bank Standard Chartered (+5%), asset manager Abrdn (+4.5%), HSBC (+3.5%) and NatWest (+3.4%) higher.

The FTSE hit a two-year high earlier this month, before being caught up in anxiety that the US central bank will withdraw its stimulus measures rapidly to tame inflation.

Oil has rebounded from yesterday’s losses, with Brent crude up 1.3% at $87.43 per barrel.

That takes it back towards last week’s seven-year highs, over $89 per barrel, lifted by rising geopolitical tensions and higher demand.

Investment banks are predicting that oil will keep climbing this year, which would add further inflationary pressure to the global economy.

Craig Erlam, senior market analyst at OANDA, explains:

Oil got caught up in the sell-everything panic at the start of the week, sliding more than 3% at one stage before recovering a little. There wasn’t much sense behind the move, but the fact that the dollar was strengthening and crude was already seeing profit-taking after peaking just shy of $90, probably contributed to it.

The market remains fundamentally bullish and conflict with Russia does nothing to alleviate supply-side pressures. If anything, the risks are tilted in the other direction, not that I think it will come to that. Nor does the market at this point, it seems.

Still, it was only likely to be a matter of time until oil bulls poured back in and prices are up again today. The correction from the peak was less than 5% so that may be a little premature, but then the market is very tight so perhaps not.

After that early dive, stocks on Wall Street are recovering a little ground.

The Dow is now down 1.2%, or 435 points, while the tech-focused Nasdaq is 2.3% lower. So not a turnaround - but another volatile session.

American Express has jumped 7.3% after beating profit estimates in the last quarter, while IBM are up 2.2% after posting its best sales growth in 10 years last night.

Big tech are weaker, though. Microsoft, which reports results after the closing bell, are down 2.8% while Apple are 1.8% lower.

US consumer confidence has ebbed, in another sign that Omicron and rising inflation have knocked the economic recovery.

The Conference Board’s consumer confidence index has declined this month, after three months of gains, with Americans’ growing less optimistic about short-term economic prospect.

The index dipped to 113.8 this month, from 115.2 in December.

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved to 148.2 from 144.8 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined to 90.8 from 95.4.

Lynn Franco, senior director of economic indicators at The Conference Board, explains:

“The Present Situation Index improved, suggesting the economy entered the new year on solid footing. However, expectations about short-term growth prospects weakened, pointing to a likely moderation in growth during the first quarter of 2022. Nevertheless, the proportion of consumers planning to purchase homes, automobiles, and major appliances over the next six months all increased.

Meanwhile, concerns about inflation declined for the second straight month, but remain elevated after hitting a 13-year high in November 2021. Concerns about the pandemic increased slightly, amid the ongoing Omicron surge. Looking ahead, both confidence and consumer spending may continue to be challenged by rising prices and the ongoing pandemic.”

Here’s a video from the IMF explaining how supply chain disruption and rising energy costs are hitting growth and pushing up inflation:

The US stock markets has fallen sharply at the start of trading, after Monday’s turbulent session.

All three major indices are deep in the red, having rebounded from heavy losses yesterday.

• The Dow Jones Industrial Average: down 782 points or 2.3% at 33,581 points
• S&P 500: down 122 points or 2.8% at 4,287 points
• Nasdaq Composite: down 414 points or 2.99% at 13,440.27

Anxiety that the US central bank will tighten monetary policy sharply to rein in inflation is sweeping Wall Street again, with the Ukraine crisis also a key worry.

Raffi Boyadjian, lead investment analyst at XM, says traders are concerned that the Fed could hurt the recovery, which may already be faltering:

The US Federal Reserve starts its two-day monetary policy meeting today and although no change is expected at tomorrow’s announcement, speculation is running high that Fed chief Powell will flag a sharp removal of accommodation at the next meetings.

Markets are now in no doubt that policymakers need to act quickly to get a grip on inflation. But there are worries that the Fed has fallen so behind the curve, it won’t be possible to bring inflation back under control without choking off growth.

Yesterday’s flash PMIs out of the US have already raised question marks about the strength of the economy as they pointed to stagnating growth in January.

The IMF has called on the UK government to consider more support for the poorest households who face a big increase in their energy bills when the price cap is next lifted in April.

“Very targeted, well-targeted support is important,” IMF deputy managing director Gita Gopinath said at a news conference today when asked if Britain’s government should provide more support for low-income households.

Presenting the Fund’s latest growth forecasts, Gopinath explained:

“This should be well-targeted support to highly vulnerable households who are having to face very high cost increases ...

That would be useful. These energy costs are going to go up in April further.”

Analysts have predicted UK energy bills could rise by 50% in April, following the surge in wholesale gas and electricity prices recently.

The International Monetary Fund says it cut its forecast for British economic growth this year due to disruptions from the Omicron variant of the coronavirus and supply constraints, but raised its estimate for growth in 2023.

The IMF said it now expected British gross domestic product would expand by 4.7% in 2022 and by 2.3% in 2023, compared with its previous forecasts - made in October - of 5.0% and 1.9%.

The new forecasts were made in an update of the IMF’s World Economic Outlook. The cut to Britain’s expected growth rate in 2022 was the smallest among the Group of Seven economies with the exception of Japan.

“In the United Kingdom, disruptions related to Omicron and supply constraints - particularly in labour and energy markets - mean that growth is revised down.”

25 Jan 202209.25 EST

Inflation and Omicron will dent world growth in 2022, says IMF

Larry Elliott

The International Monetary Fund has sharply cut its growth forecast for 2022 with a warning that higher-than-expected inflation and the Omicron variant have worsened the outlook for the global economy.

In a quarterly update to predictions made in October 2021, the IMF said it anticipated growth of 4.4% this year – down 0.5 percentage points – and emphasised the risks were of a weaker performance.

The Washington-based organisation blamed the downgrade on rising cost pressures and the rapid spread of Omicron, and said while the 2022 outlook was markedly worse for the world’s two biggest economies – the US and China – few countries would be spared a slowdown.

The UK is expected to grow by 4.7% in 2022, a cut of 0.3 points to the IMF’s forecast in its October 2021 World Economic Outlook.

Despite the reduction, the IMF anticipates the UK growing faster this year than the other six members of the G7 industrial nations – the US, Japan, Germany, France, Italy and Canada.

“News of the Omicron variant led to increased mobility restrictions and financial market volatility at the end of 2021. Supply disruptions have continued to weigh on activity”, the IMF said, noting bottlenecks had shaved between 0.5% and 1% off global growth in 2021.

“Meanwhile, inflation has been higher and more broad-based than anticipated, particularly in the US. Adding to these pressures, the retrenchment in China’s real estate sector appears to be more drawn out, and the recovery in private consumption is weaker than previously expected.”

In the shipping world, the Baltic Exchange’s dry bulk sea freight index has dropped again today, for the 13th session running.

That shows that the cost of transporting cargoes has dipped again. It could be a sign that supply chain problems are easing.

After an extraordinary rebound yesterday, Wall Street stocks are on track to open lower in an hour’s time.

Union has vowed to fight Royal Mail’s plan to axe 700 managerial jobs.

Unite says its members were being made the scapegoat for the bosses’ failure to maintain deliveries during the pandemic. The threat of an industrial action ballot was now on the cards, it warns.

Mike Eatwell, Unite national lead officer for the CMA sector, says:

“Unite managers were no more immune from the risks of the pandemic than anyone else, but that did not stop them helping on delivery rounds when postal operatives numbers were severely depleted.

The current leadership team’s fixation on headlines to shore up the share price is behind this latest attack on our members’ job security and we need to respond accordingly.”