Written by: Susannah Streeter | Hargreaves Lansdown
- Inflation unease still hangs over financial markets
- Bitcoin’s fall accelerates following jobs report
- GameStop shares surge on NFT speculation
- Miners and energy giants higher on stronger commodity prices
- House price rises fail to lift house builders
The headache of inflation shows little sign of easing for the US economy, with an air of uneasiness still hanging over financial markets at the end of the trading week following the release of the latest data on the labour market. The number of new jobs in December came in significantly lower than expected, with leisure, hospitality and retail clearly struggling. Wage growth continues to be the niggling pain threatening to turn into a severe migraine for policymakers who are keen to try and put a lid on soaring inflation. Average hourly earnings rose by 0.6% in December, higher than forecast and year-on-year earnings are up 5.8%.This reading comes even before the hit from Omicron took hold but with so many people isolating, it’s likely to make worker shortages even worse, potentially pushing up wages even further. The realisation has dawned on investors that the drug of cheap money is set to be withdrawn a lot sooner than first forecast. The minutes of the latest Federal Reserve meeting indicated the likelihood of an earlier rate rise in 2022, and the starting gun being fired more quickly on a race to offload bonds from the bank’s balance sheet and this data will bolster these expectations.
The crypto world is still highly sensitive to central bank policy and has been pushed higher in the era of fast and easy money, so expectations of monetary tightening have spooked fans further. Bitcoin dropped by another 2% with the jobs report, accelerating the fall it’s experienced since the publication of the Fed’s minutes. Bitcoin has fallen back to $41.771 dollars, back at the level it languished at in September, and has fallen by more than 31% since its November high. Unrest in Kazakhstan, a centre of Bitcoin mining appears to have exacerbated the volatility and nervousness among investors.
Bitcoin’s fall hasn’t diminished demand for GameStop shares, which have soared on expectations the video game retailer is working on expanding its NFT marketplace and partner with crypto companies to develop games on blockchains. With big brands from the realms of music and fashion entering the gaming space with their own NFTs, speculation is swirling about the prospects for the company. It seems the a rollercoaster ride for GameStop is far from over, as traders pile into the company in yet another buying frenzy, sending shares up 18%. This is a highly risky play given that the market for NFTs is so nascent, and many sought after assets today, could end up becoming worthless.
On the London market mining stocks have been the top gainers with Rio Tinto, Anglo American, BHP, Glencore and Antofagasta jostling for pole position on the FTSE 100 as copper and iron ore prices rose and expectations of a surge of demand for commodities in 2022 continue.
Energy stocks joined the winners’ enclosure, celebrating a surge in the price of oil as Brent crude lifted close to five year highs. Investors showed exuberance for BP shares, which lifted 1.6%, but Shell took more of a back seat at the party, with muted gains following its confirmation that it would buy back $5.5 billion of shares, following the sale of its US shale business and some bumper profits from soaring gas prices. That’s likely to be due to slower fuel sales reported due to the hit from Omicron and disruption to LNG production. Investors perhaps also smelt a whiff of reputational trouble following that share buy-back announcement given the eye watering price of domestic energy bills. With many household budgets stretched to breaking point, bumper pay-outs to shareholders are leading to a clamour of calls for a windfall tax on North Sea producers, which would hurt the bottom line. It’s likely another form of compromise in the form of reducing energy bills will be reached first, with the taxpayer more likely to foot the bill for green subsidies rather than customers, but there is still the outside chance that energy companies get clobbered in the future, although it runs the risk that they will invest less in renewable R&D as a result.
UK house prices surged yet again in December according to the Halifax house price index but there is a risk that inflation could bring a sudden cooling to the ultra-hot market. Fresh rate rises are expected from the Bank of England in the coming months, and with the ongoing income squeeze saving for a deposit or a property move is likely to become more difficult in 2022. That’s likely to be why there’s been a negative response from house builders to the latest reading of the market. After an initial small lift, shares in Taylor Wimpey, Barratt Development and Persimmon have gone into reverse.
Inflation fears also appear to be affecting consumer goods companies and retailers today with B&M European Value Retail the top faller on the FTSE 100. The retailer had been a pandemic winner, with its stores based mainly in retail parks a popular choice for scrimping shoppers. But concerns are growing that higher manufacturing and labour costs may also eat into margins. Although the discounter should benefit from a further consumer downgrade to cheaper products amid an income squeeze, sales of discretionary goods like homewares might take a hit.