FTSE 100 falls as Taylor Wimpey leads housebuilders lower, while UK inflation eases to 10.7%

Proactive Investors - TUI AG, the world's largest holiday company, may have moved back into profit last year but investors remain cautious, and its shares have fallen back.

They are currently down 8.33%, making them the biggest faller in the mid-cap FTSE 250.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown (LON:HRGV), said: "For all the progress, TUI is mindful of the unforgiving economic uncertainty. A cost-of-living crisis means it’s almost impossible to map demand accurately. Sunny getaways are far from front of mind for much of TUI’s core demographic these days, and exactly what this will mean for the first quarter is yet to be seen.

"Strikes from Border Force officials is another spanner in the works, with disruption on an operational and demand level highly likely in the coming weeks.”

Richard Hunter, head of markets at interactive investor, said: "Investors will need to see evidence of an established trend before warming to the prospects of the company. In the meantime, inflation, disruptions, labour shortages and competition from lower-cost operators which could well capture the imagination of cash-starved consumers could all provide headwinds."

8.48am: Housebuilders among the fallers

Housebuilders are under pressure after broker downgrades.

With the sector affected by the recent rises in mortgage rates, analysts at JP Morgan have cut their rating on Taylor Wimpey PLC (LON:TW.) from overweight to neutral and their price target from 170p to 110p.

The move has left the builder the biggest faller in the leading index, down 2.26% to 101.85p.

The analysts have also moved their recommendation on Redrow PLC (LON:RDW) from neutral to underweight and their price target from 550p to 390p, leaving its shares 4.06% lower at 453.2p.

Meanwhile Barratt Developments PLC (LON:BDEV) has also fallen back, down 1.57%.

8.38am: Inflation remains historically high

Inflation may be easing but it is still historically high, as former monetary policy committee member Andrew Sentance indicates.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdow, said: ‘’Inflation may be past the peak but given that prices for UK consumers have scaled a mountain, there is still a vertiginous descent to navigate before it’s back down to less dangerous levels.

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"Lower fuel and second-hand car prices have helped bring down the headline CPI rate but price pain continues in many parts of the economy with increases in alcohol costs in pubs, cafes and restaurants particularly onerous.

"The Bank of England is still expected to raise rates by 0.5% tomorrow, increasing borrowing costs yet again for households and businesses, to try and shove away demand and push prices down. The dark clouds hovering as a recession rolls in are likely to hasten the path lower, but policymakers will still want to tread carefully, fearful that the economy could be shoved into a deep crevasse of contraction if rate rises are too steep

"It’s likely that the next moves by the Bank of England will be more moderate 0.25% hikes with an expectation of reaching 4.75% by the middle of 2023."

7.00am: Early falls expected in London

FTSE 100 expected to open slightly lower ahead of UK inflation figures and the key interest rate decision by the US Federal Reserve later in the day.

Spread betting companies are calling the lead index down by around 7 points.

US markets ended the day in positive territory, but off earlier highs, as weaker than expected inflation figures suggested pricing pressures may be on the wane.

At the close the Dow Jones Industrial Average was up 104 points, or 0.3%, to 34,109, the S&P 500 rose 29 points, or 0.74%, to 4,020 and the Nasdaq Composite advanced 113 points, or 1.01%, to 11,257.

The weak data boosted hopes that the Federal Reserve will signal a lower peak in interest rates, and a slower pace of increases, than previously forecast when it makes its latest rate call today. A rate rise of 50bp is still expected.

“We expect this will open the door for Fed Chair Powell to discuss a further step down in the pace of rate hikes at his post-FOMC meeting press conference” said Mickey Levy at Berenberg.

“Chair Powell is likely to lay the groundwork for a 25bp rate hike at the FOMC’s February meeting,” he suggested.

In Asia on Thursday, the Japanese Nikkei 225 index was up 0.7%. In China, the Shanghai Composite was down 0.2%, while the Hang Seng index in Hong Kong was up 0.6%. The S&P/ASX 200 in Sydney closed up 0.7%.

Back in London and results are due from travel company Tui while CPI figures are also set to be reported.

"On the headline CPI numbers we are expecting to see price pressures slowdown from 11.1% to 10.9%, although when inflation is well above 10%, perhaps slowdown isn't the correct term” commented CMC Market’s Michael Hewson.

“It also isn't likely to affect the calculus for the Bank of England tomorrow when they are also expected to raise rates by 50bps, although any decision is unlikely to be unanimous," he added.

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