FTSE 100 share index hits record high, as recession fears ebb despite housing slowdown

FTSE 100 hits new record

Newsflash: The UK’s FTSE 100 index has hit a new alltime high at the start of trading in London.

The blue-chip share index has hit 7926 points, as it surges over the record high set on Friday (which was the first since 2018).

As explained in the opening post, the rally comes as hopes build that the UK economy could fare better in 2023 than feared, with the NIESR thinktank predicting a recession could be avoided.

Shares are also benefiting from hopes that central banks could end their interest rate increases soon.

Victoria Scholar, head of investment at Interactive Investor, tells us:

The FTSE 100 has hit a record high again, surpassing Friday’s peak. Following a wobbly start to the week in which global equities were hit by concerns about a more hawkish path from the Fed after a strong US jobs report as well as heightened US-Sino tensions, the UK large-cap index has restored its bullish momentum.

Yesterday Fed Chair Jerome Powell said inflation is easing, raising hopes that the US could be approaching the peak for interest rates. A strong close on Wall Street with the Nasdaq closing up by 1.9% has helped drive a positive start to the European session.

Over a one-year period, Pearson is the best performing stock on the FTSE 100 followed by BAE Systems and Antofagasta. Over the past one month, JD Sports is the top performer with IAG and 3i in second and third place.

The pound is trading higher against the greenback driven by US dollar weakness against most European currencies today following Powell’s relatively hopeful remarks about the outlook for US inflation.”

Key events

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European shares have hit their highest level in over nine months this morning.

Investors are cheered by Federal Reserve Chair Jerome Powell’s remarks overnight about inflation starting to ease.

German gas giant Linde and Dutch paints maker Akzo Nobel have jumped 2.4% and 6.5%, respectively, after giving higher 2023 earnings forecasts, Reuters flags.

In CopenHagen, the OMX share index has hit a record high.

The pound is also having a decent morning, up half a cent against the US dollar to $1.2095.

Yesterday sterling hit a one-month low against the dollar, but is perkier today as the dollar languishe on the back foot.

Hopes that US inflation is easing are hitting the dollar, as Ricardo Evangelista, senior analyst at ActivTrades explains:

The greenback’s weakness started late on Tuesday, after a public address by the Federal Reserve Chairman, Jerome Powell, who mentioned that interest rates may end up climbing higher than previously thought but also acknowledged an ongoing disinflation process.

The markets chose to focus on the second part of Powell’s message, finding reasons to be cheerful in the fact that the Fed remains data dependent and therefore a pause, and even a monetary policy pivot in the not-too-distant future, could still be on the cards should inflation continue to stabilise.

With moderate optimism returning to the markets, the US dollar lost ground to other major currencies, halting the rally that followed Friday’s monster jobs report.

The FTSE 100 since it launched in 1984

UK equity markets remain on the front foot today, says Neil Wilson of Markets.com.

Wilson says China’s economic reopening has lifted the FTSE 100, and predicts the index could soon reach 8,000 points. He adds:

Bulls pushed the FTSE 100 to a new record intraday high at 7,926 in early trading as investors continue to shrug off just about most things. 8,000 looks assured.

The UK’s smaller share index, the FTSE 250, has jumped by over 1% this morning.

The FTSE 250, which is more domestically-focused than the FTSE 100, is approaching the 10-month highs it reached last week.

Optimism that China’s relaxation of Covid restrictions has also pushed the FTSE 100 index higher in recent weeks.

The share index is packed with major multinationals, such as mining companies and financial stocks, whose fortunes could benefit from a pick-up in China’s economy, after it weakened in 2022.

China’s slowdown in growth is “almost certainly behind it”, predicts Craig Erlam, senior market analyst at trading firm OANDA, adding:

In fact, the transition from zero-Covid to living with it is reportedly going very smoothly which could boost the economy earlier and by more than expected, leading to higher growth forecasts for 2023.

While that could support the global economy through a difficult period, it may also worsen the inflation problem due to much higher demand for commodities including crude oil. Oil prices have been trending higher in recent days on these improved forecasts, although they still remain around the middle of the range they’ve traded within since early December.

Oil giant BP is the top riser on the FTSE 100 this morning, up 3.2%.

BP shares have hit 533.5p, the highest since August 2019.

Yesterday BP smashed its annual profits record, with earnings more than doubling to $27.7bn (£23bn) as fossil fuel prices soared following Russia’s full-scale invasion of Ukraine.

BP also lifted its shareholder dividend by 10%, and slowed its plans to cut oil and gas production.

FTSE 100 hits new record

Newsflash: The UK’s FTSE 100 index has hit a new alltime high at the start of trading in London.

The blue-chip share index has hit 7926 points, as it surges over the record high set on Friday (which was the first since 2018).

As explained in the opening post, the rally comes as hopes build that the UK economy could fare better in 2023 than feared, with the NIESR thinktank predicting a recession could be avoided.

Shares are also benefiting from hopes that central banks could end their interest rate increases soon.

Victoria Scholar, head of investment at Interactive Investor, tells us:

The FTSE 100 has hit a record high again, surpassing Friday’s peak. Following a wobbly start to the week in which global equities were hit by concerns about a more hawkish path from the Fed after a strong US jobs report as well as heightened US-Sino tensions, the UK large-cap index has restored its bullish momentum.

Yesterday Fed Chair Jerome Powell said inflation is easing, raising hopes that the US could be approaching the peak for interest rates. A strong close on Wall Street with the Nasdaq closing up by 1.9% has helped drive a positive start to the European session.

Over a one-year period, Pearson is the best performing stock on the FTSE 100 followed by BAE Systems and Antofagasta. Over the past one month, JD Sports is the top performer with IAG and 3i in second and third place.

The pound is trading higher against the greenback driven by US dollar weakness against most European currencies today following Powell’s relatively hopeful remarks about the outlook for US inflation.”

Charlie Huggins, Head of Equities at Wealth Club, says the housing market is very difficult to call right now.

There has clearly been a marked slowdown in housing market activity in the last six months. Faced with higher mortgage costs and soaring bills, it’s no surprise that new home buyers are exercising greater caution.

Barratt has responded by battening down the hatches, significantly reducing land approvals and placing restrictions on hiring and new site openings. This is sensible in the circumstances.

However, the picture is not looking as grim as it was back in the Autumn, following the disastrous mini budget. Despite rising interest rates, mortgage rates have fallen in recent months due to intense competition between lenders. And there is a growing sense that interest rates are close to peaking. If that turns out to be the case, confidence in the housing market could quickly return.

David Thomas, chief executive of Barratt Developments, warns that the economic background has “clearly been challenging” for housebuilders.

Thomas tells shareholders this morning:

“We have delivered a strong operating performance for the six months to 31 December 2022. This was possible because of our significant forward order book at 30 June 2022 and the tremendous efforts of our employees, sub-contractors and supply chain partners.

However, the economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter.

Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.

Barratt: Marked slowdown in UK housing market

Britain’s largest homebuilder, Barratt Developments, is warning this morning that high mortgage rates are hitting the housing market, as demand slows.

Barratt’s latest half-year results, for the six months to 31 December 2022, also show that the drop in UK house prices has hit its sales and profit margins, as its costs also rise.

Barratt reports that there was a “marked slowdown in the UK housing market” in the first half of its financial year (the second half of 2022), as the mini-budget hit confidence and drove up borrowing costs.

The company tells the City:

Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.

Barratt completed 8,626 homes in the second half of last year, a 6.9% increase on a year earlier. Gross profits rose 15.2%, but its gross profit margins dropped to 23.3% from 25% in the six months to 2021.

Barratt, July to December results show pre-tax profits up 15.9% to £501m over same period in ‘21 generated from completions up 6.9% to 8,626 from 8,067. Critical driver of profit rise was 23.9% rise in revenues to £2,783m gained from full order book and higher prices. But…… pic.twitter.com/AqPjuZStiP

— Peter Bill (@peterproperty) February 8, 2023

Demand has been weaker in 2023, although Barratt does say that trading has picked up a little in January.

In January, Barratt’s net private reservations per active outlet per average week has fallen by 45%, due to “more tentative demand”. This slowdown prompted the company to freeze hiring in January.

Forward sales are down too. On 29th January, they were 10,854 homes, worth £2.665bn, compared with over 15,000 at 30 January 2022 (which were worth £4,109.7m).

Barratt sales collapsed by 45.6% since January 1st from 0.9 to 0.49 sales per outlet per week. Forward sales are down from 15,736 to 10,854. Boss, David Thomas, seen ‘early signs of improvement” but, ‘need to see continued momentum before agreeing ‘challenging conditions easing,’

— Peter Bill (@peterproperty) February 8, 2023

Yesterday, Halifax reported that UK house prices were roughly flat in January, having fallen in the previous four months.

Introduction: UK may avoid recession, as FTSE 100 heads towards record

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s FTSE 100 share index is heading back towards last Friday’s record high, as hopes build that the UK economy could avoid a recession.

The blue-chip index is rallying in premarket trading, and on track to open just below Friday’s intraday record high of 7906.58 points.

This would extend the Footsie’s gains in 2023, as stock markets rally on hopes that central banks will slow, or stop, their interest rate increases soon.

Last night, the Federal Reserve chair, Jerome Powell, warned, though, that more US interest rates rise will be needed to cool inflation and the red-hot US jobs market.

“We think we are going to need to do further rate increases,” Powell said on Tuesday at the Economic Club of Washington. “The labor market is extraordinarily strong.”

Investors were cheered, though, that Powell said he US was in the “very early stages of disinflation.”

European markets are also set for a higher open, as shares continue to rally in 2023.

Indices Update: As of 05:00, these are your best and worst performers based on the London trading schedule:
Germany 40: 0.98%
France 40: 0.89%
FTSE 100: 0.59%
US 500: -0.02%
Wall Street: -0.05%
View the performance of all markets via https://t.co/2NUaqnUPED pic.twitter.com/0B9aiJE1fG

— DailyFX Team Live (@DailyFXTeam) February 8, 2023

The FTSE 100 is dominated by multinational companies, so its strength does not reflect the UK’s economic state.

But there are hopes that Britain may avoid a recession this year, despite the gloomy forecasts from the Bank of England and the International Monetary Fund.

The National Institute of Economic and Social Research (NIESR) predicts this morning that the UK economy will grow marginally in 2023 despite high prices hitting household budgets.

But it warned while the UK may not fall into recession, it will feel like one for at least seven million households.

According to NIESR, households in Britain will suffer a hit to their finances of up to £4,000 this year, with low and middle-income households facing the biggest financial hit from the cost of living crisis.