Closing post Time to wrap up - here are today’s main stories: Danni Hewson, AJ Bell financial analyst, sums up the day in the markets: “Will this be the tale on repeat for early 2022? Banking and Energy shares heading up and rate sensitive growth stocks heading down? Investors shouldn’t have been surprised by the increasingly hawkish tone being employed by the US Federal Reserve and yet just the anticipation of seeing its most recent comments in black and white prompted a tech stock sell off yesterday which has just kept on rolling. It certainly feels like the piper is calling to be paid, inflation numbers for the next few months look pretty nailed on if Germany’s latest update is anything to go by. “And that squeeze on households isn’t a good look for any government, particularly those looking to raise taxes to pay for some of the battering Covid inflicted. Pressure might be mounting on the UK Chancellor to U-turn on his plans to boost the NHS but at the moment it seems Rishi Sunak is not for turning. But how can consumers be expected to keep spending the country out of the pandemic if their cash reserves are dwindling? And how will this government’s popularity cope with people’s mounting discomfort as energy bills climb higher and higher. Homeworking on a day when temperatures are plunging takes on a new hue, and there will be many donning extra layers in order to keep icy fingers from thermostats. “What’s also been noticeable today is the lack of enthusiasm from investors for past performance. Next might have racked up the sales and raised its earnings guidance for a rather spectacular fifth time in ten months but the big story fast becoming a familiar one. Prices are set to rise to deal with the double threat of higher wages and increased shipping costs. How will the decision to pass on costs impact consumer sales? That’s the big question many businesses will have to wrestle with over the next 6-12 months. If this Christmas was about making up for lost ground, Spring might look more like clawing back lost savings. “Businesses that provide vital services and those must haves are looking mighty fine to many investors right now. Walgreens’ stocks enjoyed a nice bump in early trading before falling back slightly as the company raised its profit forecast. Sales jumped to a twenty year high as those coming to get their Covid jabs stayed to peruse the aisles and found a lot more to tempt them than in previous years. But overall US investors are feeling jumpy, looking for that sliver of silver amongst the dark clouds as last year’s tech rally retreats.” European markets close in the red After a choppy day, European stock markets have closed firmly lower tonight. In London, the FTSE 100 has dropped by 66.5 points, or 0.9%, to 7450 points, easing away from Wednesday’s 22-month peak. Industrial software group Aveva (-5.8%) led the fallers, followed by veterinary pharmaceuticals group Dechra (-4.8%), IT analytics firm RELX (-4.8%) and gambling group Flutter (-4.5%). Among smaller firms, Greggs tumbled 8% despite predicting it would beat expectations this year. The bakery chain said it had raised prices between 5p and 10p on items across its range of sausage rolls and cakes. Footwear maker Dr Martens got a shooing, with shares dropping over 10% after major investor, private equity firm Permira, sold 6.5% of the company at a discount last night. Banks had a solid day, though, while commercial property firms also rallied on hopes that the pandemic could be easing despite the damage to the economy last month. The pan-European Stoxx 600 fell by 1.3%, while France’s CAC lost 1.75%. The slump in tech stocks has hurt a popular fund which focuses on growth companies. US investment manager Cathie Wood’s flagship Ark fund had a stellar 2020 as innovative technology companies boomed in the pandemic. But it weakened in 2021 as the boom in disruptive, but currently unprofitable, tech firms faded, and has suffered fresh losses this year as some of its investments continued to slide. The Financial Times has the details: Ark Invest’s flagship fund has dropped 9 per cent so far this year, following a sharp fall in 2021, as a strong shift by investors out of the unprofitable technology stocks that powered its extraordinary rise dealt it a fresh blow. Investors have pulled more than $300m this year on a net basis from fund manager Cathie Wood’s Ark Innovation exchange traded fund, known by its ticker ARKK, as its bets on riskier tech companies have soured, according to Bloomberg data. The $14.4bn vehicle, which combines an ETF structure with an ability to pick stocks, has now tumbled about 45 per cent from its February peak. Ark did not immediately respond to a request for comment. Travel firms and airlines have reported surging bookings following the relaxation of Covid testing requirements for travellers returning to the UK. EasyJet said there were almost three times as many flights bought in the UK in the hours following the prime minister’s announcement on Wednesday than in the same period the week before, while holiday firm TUI said there had been “an immediate and strong uptick in bookings”. British Airways Holidays said searches for holidays on its websites increased by nearly 40% compared with the week before. From 4am on Friday, international arrivals or holidaymakers returning to England will not need to produce a negative pre-departure test, nor self-isolate until they receive a further negative PCR test result from the first two days on arrival. Global economic growth hits three-month low The global economic recovery slowed slightly at the end of 2021, as a weaker increase in services activity offset faster growth at factories. The JP Morgan Global Composite Output Index, which includes surveys of purchasing managers across the world, dipped to 54.3 in December. That shows the slowest growth in three months. Almost all of the nations covered registered economic growth during December. Signs of slowdown were widespread, however, although China did see an acceleration in groth. The US grew most rapidly, followed by Ireland and then India. But Germany lagged behind -- it was the only countr surveyed to register a contraction, ending a 17-month sequence of growth. Omicron has hit growth in America’s service sector too. The US services PMI produced by the Instutute of Supply Management fell to 62% in December, down from the alltime high of 69.1% in November. Services firms reported that new order growth and business activtiy both slowed last month, as the Covid-19 variant weighed on the economy. But still, the Services PMI had now exceeded 60% for the 10th consecutive month, which shows solid growth. Companies also reported that they were suffering from shortages of materials and labor, supply chain delays, and higher prices. Here’s some examples: “Supply chain challenges to procure supplies for our restaurants remains our greatest obstacle at present, along with staffing needs. We are considering another price increase after just one in 2021, in August.” [Accommodation & Food Services] “Supply chain issues continue, but our business is adapting.” [Agriculture, Forestry, Fishing & Hunting] “The escalation in costs for materials, fuel, labor, lodging and the like continues to negatively impact margins in an unsustainable direction.” [Construction] “Higher than normal employee attrition within our own company and at our suppliers, which is causing disruptions and delays.” [Finance & Insurance] Gatwick IT glitch stops flights landing or taking off during peak period A computer glitch at the Gatwick control tower left flights unable to land or take off at Britain’s second biggest airport during the morning peak. Three planes were diverted to other London airports as controllers from Air Navigation Services were forced to shut down the malfunctioning IT and guide planes in under a backup system. Passengers on British Airways flights returning from Antigua in the Caribbean and Tampa in the US found themselves landing 45 miles away at Heathrow at the end of their overnight flights. After a delay of more than two hours, the planes refuelled and continued on to the Sussex airport. An easyJet flight from Belfast was diverted to Luton airport, on the other side of London. The three flights were diverted during the “switch down” of the IT system, which started at 7.25am. Other planes were left circling and delayed until the normal systems were restored at 9.10am. Millions of people have been given financial breathing space after HM Revenue and Customs effectively extended the tax self-assessment deadline by a month, until 28 February. HMRC is postponing late-payment penalties for self-assessment taxpayers until 1 April because it “recognises the pressure” individuals and businesses are facing because of Covid-19. The move – a repeat of concessions made last year – is good news for the estimated 5.7 million people who have still not filed their 2020-21 tax return. Almost 6.5 million people have already done so..... Markets still under pressure After that cautious start, Wall Street has now turned lower as anxiety over looming US interest rate rises grips investors. The S&P 500 is now down 0.3%, while the Nasdaq Composite has slipped by another 0.6%. European stocks are weakening too, with the UK’s FTSE 100 now down 80 points or around 1% at 7437. Last night’s hawkish minutes of December’s Federal Reserve meeting continue to hit markets, as investors ponder how soon, and how fast, the Fed might tighten monetary policy. Melissa Davies, chief economist at Redburn, says that the US central bank is considering when it might unwind its massive bond-buying programme (a process called quantitative tightening, or QT). What we learned from last night’s Minutes is that the Fed is more than ready to proceed with QT once the first rate hike has taken place, and that they are prepared to go quickly with balance sheet reduction. Rate hikes may be de-emphasised relative to QT to avoid putting too much flattening pressure on the curve. The existence of the ON RRP in particular means the Fed has a large amount of headroom to carry out swift balance sheet reduction without causing a meaningful tightening of financial conditions. This can take place while the inflation outlook becomes clearer. US factory orders rose 1.6% last month, extending an almost-unbeaten run of gains since the first lockdowns in 2020. New orders for manufactured goods in November rose by $8.4bn to $531.8bn, the U.S. Census Bureau reports. This followed a 1.2% October increase, and is the 18th rise in the last 19 months (they fell slightly last April). Shipments also rose, while unfilled orders jumped for the 10th month in a row, showing that high demand and shortages of materials and workers may still be holding back production. In New York, shares have opened cautiously after yesterday’s hawkish Federal Reserve minutes spooked markets. The S&P 500 index of US companies has gained 12 points or 0.25% to 4,712, with energy stocks and financial firms rallying. Industrial stocks are higher, as are some technology companies. The tech-focused Nasdaq has gained 66 points or 0.44% to 15,166 points, after tumbling 3.3% yesterday after Fed officials signalled interest rates could rise sooner or faster than expected. The Dow Jones industrial average of 30 large US companies is flat.