London midday: Stocks rebound from lows after US and Asian selloff
London stocks were firmly in the red by midday on Tuesday, taking their cue from a bloodbath on Wall Street and in Asia as investors fret that rising inflation will force the Fed to hike rates more than initially expected this year.
The FTSE 100 was down 2.1% to 7,181.09, still sharply lower but up 102 points from its weakest point of the day, while the pound was down 0.1% against the dollar at 1.3941 and 0.4% weaker versus the euro at 1.1243.
Meanwhile, US futures were volatile, with Dow Jones futures down 216 points, and S&P 500 and Nasdaq futures off 11 and 32 points, respectively. On Monday, the Dow lost 4.6% or 1,175 points to 24,345.75, having fallen nearly 1,600 points intraday, while the S&P 500 ended down 4.1% at 2,648.94. The S&P and the Dow suffered their biggest declines since August 2011, while in Asia, it was a similar picture, with the Nikkei and Hang Seng closing down 4.7% and 5.1%, respectively.
US stocks had enjoyed record highs recently as investors welcomed President Donald Trump’s tax overhaul, but a strong non-farm payrolls report last Friday, which showed the best US wage growth in eight-and-a-half years, prompted fears that the Fed may need to hike rates more than previously anticipated.
Rabobank FX strategist Jane Foley said: "It is glaringly obvious from the tumbles in stock markets that the market is currently re-evaluating the risk of inflation and the outlook for financing costs. If inflation were to raise its ugly head in the US, this would clearly have ramifications for Fed policy and the value of the USD. That said, there is plenty of evidence that many investors in other assets classes are holding their nerve reasonably well."
Market commentators also suggested that automatic trades could have been behind the sharp move lower seen on Monday.
With major indices now down more than 10% from their recent highs, equity markets are in correction mode.
Chris Beauchamp, chief market analyst at IG, said: "A host of indicators, including market breadth, are at the kind of levels that signal short-term bottoms, suggesting that a bounce from here is entirely within the bounds of possibility, even if it is then followed by fresh declines."
Beauchamp said that for those investors with a horizon beyond the next 48 hours, the chance to pick up some stocks at cheaper prices should be too good to pass up.
"The relative calm seen in gold prices also points to the idea that this isn’t some kind of major risk-on/risk-off move as we were used to years ago. The speed of the correction, not its size, is the real shock, particularly to a market inured to low volatility. A crystal ball would be handy at this point, but in the absence of such a device it is possible that equities will resume their climb higher in due course, although not perhaps in the same quiet fashion."
However, as Neil Wilson at ETX Capital noted, attempts to 'buy the dip' were being thwarted by algorithm-based funds: "In this technically driven selloff, levels are playing a big part. Algos are battering the key levels forcing the market lower each time. This is fuelling the selloff and creates a powerful downdraft that catches buyers the wrong side every time.
"So far every time dip buyers come in they are being blown away – despite the fact that on a forward earnings basis stocks are looking more and more appealing."
The FTSE 100 was trading at less than 14 times earnings on a forward 12-month p/e basis, while S&P was below 16x and the Stoxx 600 below 15x.
"Versus current multiples this does not look bad at all and might help weighted buyers come in to shore things up," Wilson said. "On a forward earnings basis, equities haven’t looked this cheap in half a decade – the big guys might just be tempted but then again there could be a little further for this to go and they may decide to wait another day or two before hoovering up bargains. In many ways we’re seeing the same kind of situation as after the Brexit vote – a significant correction without any fundamental (ex-UK) reason for the selloff, presenting buyers with a boat-load of opportunities."
With stocks mired in the red across the board, it didn’t seem to matter too much whether individual company news flow was good or bad.
Oil giant BP was weaker even as it reported a surge in profit to $2.1bn (£1.5bn) in the fourth quarter from $400m a year earlier as the oil company increased production. Underlying replacement cost profit for the three months to the end of December jumped as BP increased production at its upstream business. For the full year profit more than doubled to $6.2bn from $2.6bn.
Hargreaves Lansdown was lower even as it said interim assets under administration rose 9% to £86.1bn and pre-tax profit was up 12%, and lifted its dividend by 17% to 10.1p per share.
Ocado slumped as it posted strong sales growth from a "transformational" year, but also asked investors for extra cash as profits in 2018 will be hit by investment in new facilities.
EasyJet flew lower after it reported an 8.7% jump in January traffic on Tuesday as the load factor ticked up, while Babcock International fell after saying that adjusted earnings for 2018 will be in line with management expectations, but revenue will fall short due to tough trading conditions.
Stagecoach shares crashed as the UK transport minister said on Monday that the government could take over the company’s running of the rail route between London and Edinburgh after it got its numbers wrong when bidding to run the franchise.
Sanne Group retreated as it said it still expects to report underlying earnings per share in line with the board's expectations for the year.
St Modwen Properties was on the back foot after posting a rise in full-year profit and announcing the retirement of chairman Bill Shannon.
Softcat, a provider of IT infrastructure products and services, managed to eke out gains after saying results are expected to be “slightly exceed” of previous expectations for the full year.
On the broker note front, LSE was upgraded to ‘overweight’ at JPMorgan, while Direct Line was lifted to ‘overweight’ at Barclays.
Market Movers
FTSE 100 (UKX) 7,181.09 -2.10%
FTSE 250 (MCX) 19,304.54 -1.96%
techMARK (TASX) 3,237.82 -2.12%
FTSE 100 - Risers
NMC Health (NMC) 3,228.00p 0.62%
Antofagasta (ANTO) 917.00p 0.07%
Randgold Resources Ltd. (RRS) 6,512.00p -0.18%
Sky (SKY) 1,047.50p -0.24%
Tesco (TSCO) 198.15p -0.30%
GKN (GKN) 407.30p -0.42%
BP (BP.) 479.85p -0.46%
Anglo American (AAL) 1,645.00p -0.52%
Fresnillo (FRES) 1,305.50p -0.57%
Compass Group (CPG) 1,431.00p -0.83%
FTSE 100 - Fallers
Scottish Mortgage Inv Trust (SMT) 416.00p -6.35%
Schroders (SDR) 3,503.00p -3.63%
Legal & General Group (LGEN) 255.38p -3.52%
Standard Life Aberdeen (SLA) 402.90p -3.45%
3i Group (III) 900.40p -3.33%
Kingfisher (KGF) 345.60p -3.27%
Standard Chartered (STAN) 785.10p -3.27%
Prudential (PRU) 1,785.50p -3.25%
Rentokil Initial (RTO) 279.20p -3.22%
Hammerson (HMSO) 461.20p -3.21%
FTSE 250 - Risers
Capita (CPI) 186.04p 6.86%
Investec (INVP) 550.80p 2.30%
Saga (SAGA) 113.50p 1.61%
AA (AA.) 124.60p 1.55%
Softcat (SCT) 525.00p 1.35%
Diploma (DPLM) 1,090.00p 1.21%
Redrow (RDW) 592.50p 0.51%
John Laing Infrastructure Fund Ltd (JLIF) 118.80p 0.34%
Halfords Group (HFD) 331.20p 0.24%
Millennium & Copthorne Hotels (MLC) 537.00p 0.19%
FTSE 250 - Fallers
Petrofac Ltd. (PFC) 463.00p -7.95%
Man Group (EMG) 195.45p -5.99%
Stagecoach Group (SGC) 136.80p -5.85%
Polar Capital Technology Trust (PCT) 1,035.56p -5.34%
Ocado Group (OCDO) 467.10p -5.16%
Fidelity China Special Situations (FCSS) 229.55p -5.14%
Rathbone Brothers (RAT) 2,620.00p -5.14%
Entertainment One Limited (ETO) 298.60p -4.60%
JPMorgan American Inv Trust (JAM) 381.61p -4.24%
Vietnam Enterprise Investments (DI) (VEIL) 454.00p -4.22%