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FTSE 100 set to end the week in volatility as metal tariffs hit Turkish lira

The quarterly update on the health of the UK economy showed something of a recovery from the snowed under first quarter.
trader
The UK economy grew by 0.4%
  • FTSE 100 index sheds 70 points

  • Pound weakness continues

  • First UK Q2 GDP reading show 0.4% growth

  • British economy picks up

  • Rolls-Royce dives on Caz downgrade

 

3:30pm: FTSE 100 set to end the week in volatility as metal tariffs hit Turkish lira

The FTSE 100 looked set to close on the week on the back foot as a late spurt of volatility hit global equities.

Trading at 7,675 the London index was down 70 points or 0.91%.

Perhaps unsurprisingly, the word tariffs wasn’t too far from the headlines.

This time, it is Turkey. The lira slumped 20% against the dollar on Friday as Donald Trump doubled metal tariffs on Turkey.

“The slide in the Turkey’s lira picked up steam and can now rightly be described as a full-blown run on the currency,” said Neil Wilson, analyst for markets.com.

Wilson added: “Erdogan failed to calm nerves with his speech. Calling on citizens to exchange dollars, euros and gold for lira is a sign of a full-blown crisis.

“Donald Trump added to the pressure on the currency by announcing a doubling in tariffs. The situation remains on edge and we do not know whether there is any chance of a stabilising influence – the Turkish central bank now appears completely toothless in this fight.

“It does not look likely – at present – that Turkey will announce anything to calm the markets. However it cannot be allowed to continue in this way.”

2:30pm: FTSE 100 widens losses as market looks past heat wave boost

The FTSE 100 extended the morning’s losses somewhat into the afternoon, losing 68 points or 0.88% to 7,673.

At the same time, the pound was down 0.52% at US$1.2757.

Evidently, the financial markets can see past the ‘barbecue and beers’ that boosted the headline UK GDP number to see the weaker industrial activity beneath.

“The economy can give it’s thanks to the summer months as the good weather increased consumer spending, particularly food and drink sales,” said Graham Spooner, analyst at The Share Centre.

“There was even a nod towards Britain’s growing obsession over football in the form of preparing for the World Cup.

Spooner added: “Nonetheless, economists view the figures as being a mixed bag as manufacturing and industrial production fell off, placing the UK below other economies as Brexit uncertainty grows.

“With many investors away on holiday these numbers are unlikely to focus their attention away from reading the latest blockbuster on the beach.”

12:15pm: FTSE 100 remains on back-foot, pound also weaker

The FTSE 100 was trading around 48 points or 0.62% lower at 7,694 by midday, while the pound also remained weak.

Unsurprisingly, attention is focused on the sterling following this morning’s quarterly GDP stats. The pound was up 0.41%, changing hands at US$1.2771.

“News that the UK’s second quarter growth doubled that seen in Q1, with the preliminary reading coming in at 0.4%, meant little to the pound on Friday,” said Connor Campbell, analyst at SpreaEx.

“With investors fleeing to the safe haven of the dollar, cable plunged 0.5% as the day went on, sporadically hitting levels not seen in over a year.

“And the thing is, the afternoon could make things worse for sterling, with July’s US inflation reading set to rise from 0.1% to 0.2%, a boost for the greenback ahead of September’s potential Fed rate hike.

Campbell added: “As for the FTSE, the market-wide trade war fears sending the UK index 0.8% lower, forcing it under 7700 having almost hit 7800 earlier in the week.”

10:50am: No party for FTSE 100 and pound after heat wave boosted GDP

An evident improvement in UK economic growth failed to stoke a rally in either the FTSE 100 or the pound.

New stats showed that UK GDP growth of 0.4% in the second quarter, up from 0.1% in the preceding three-month period.

The FTSE 100 was down 56 points or 0.73% trading at 7,684, while the pound was down 0.33% at US$1.2782

10:45am: Beers and BBQ show the economy ‘sunny side up’

Today’s GDP stats literally show a ‘sunny side up’ version of the British economy, according to stockbroker Hargreaves Lansdown.

Analyst Laith Khalaf, in a note, suggested that beer and barbecues buoyed economic activity during the heatwave months of summer.

‘The UK economy has gathered momentum in the second half as the World Cup, the Royal Wedding and warm weather got consumers spending their pennies on beers and barbecues,” Khalaf said.

“Not everyone makes hay when the sun is shining though, with energy suppliers seeing a 2.7% decline in production as the warm weather meant reduced demand for household heating.

The analyst added: “In today’s economic climate 0.4% quarterly growth draws a small cheer from the crowd, though it would have been deemed below par prior to the financial crisis.

“In the ten years running up to the crisis, UK economic growth averaged 0.73% per quarter.

“Indeed a rather less than encouraging assessment of the UK’s economic prospects can be found in the performance of the pound, which has slipped back below $1.30 against the dollar in the last week, despite a rise in UK interest rates.

“Fears over the potentially negative impact of Brexit clearly play a part in this, however we shouldn’t ignore the fact this particular coin is two sided, and dollar strength is a contributing factor alongside sterling weakness.”

10:10am: FTSE 100 stuck on back foot as markets react to latest UK GDP stats

The FTSE 100 was on the back foot in Friday’s dealing, as the financial markets reacted to the latest UK GDP growth statistics.

Trading at 7,692, the London index fell 49p or 0.64%.

Shortly after 10:00am, the pound was weaker – down 0.36% to US$1.2778.

10:00am: UK GDP grew by 0.4% in June quarter

The British economy seemingly improved during the second quarter, with figures from the Office of National Statistic showing that the UK GDP grew by 0.4%, up from the improvement in the May quarter which was revised to be stated at 0.1%.

“The economy picked up a little in the second quarter with both retail sales and construction helped by the good weather and rebounding from the effects of the snow earlier in the year,” said Rob Kent-Smith, ONP’s head of national accounts.

“However, manufacturing continued to fall back from its high point at the end of last year and underlying growth remained modest by historical standards.

“The UK’s trade deficit noticeably worsened as exports of cars and planes declined sharply while imports rose.”

Elsewhere, chief business economist Chris Williamson said: “The UK economy rebounded from a weak start to the year in the second quarter, according to official data, but the latest survey data hint at the pace cooling again in the third quarter.

“Gross domestic product rose 0.4% in the three months to June, according to the Office for National Statistics. The rise was in line with expectations and double the rate of growth seen in the opening quarter of the year.

“The rebound means that, after the cold snap earlier in the year, growth returned back in line with the pace of expansion seen in the second half of last year.”

8.40am: Footsie sees early drop

The FTSE 100 opened on the back foot, taking its cue from Wall Street and Asian markets, with US sanctions on Russia denting sentiment.

The index of blue-chip shares was down 40 points at 7,701.31, with miners once again leading the retreat.

The day’s main set-piece news comes in just under an hour as UK second-quarter GDP figures are unveiled.

Analysts expect growth to rebound to 0.4% in the three months to June, from a measly 0.2% the period earlier.

“The second-quarter was altogether brighter, with good weather, a royal wedding and the World Cup all driving consumer behaviour,” said Laith Khalaf, senior analyst at investment firm Hargreaves Lansdown.

Down 2.3% early on was aero-engine maker Rolls-Royce (LON:RR.), which was hit by a downgrade ‘underweight’ by JP Morgan Cazenove. This follows a run-up in the share price from 829p to more than 1,100p since mid-June.

There was some relief for travel companies after TUI’s (LON:TUI) lacklustre trading update on Thursday. Cruise giant Carnival (LON:CCL) led the way with a 1% rise.

Proactive news headlines:

Arix Bioscience PLC (LON:ARIX) said it had seen a significant uplift in the value of one of its investee companies and updated on the progress of three other drug developers in which it holds interests. The book value of its stake in Artois Pharma was boosted 26% to £15.3mln following a Series B financing round that was backed by the venture capital arms of industry giants Pfizer and Novartis.

RM Secured Direct Lending PLC (LON:RMDL) is well positioned to benefit from the recent increase in the Bank of England’s key lending rate. The quarter-point rise in interest rates will see additional income flow through on that part of the portfolio - 55% of the total - that has sterling floating rate loan exposures and which does not have a Libor floor.

Diversified Gas & Oil PLC’s (LON:DGOC) integration of the large batch of oil and gas assets acquired from EQT in the Appalachian Region is on track. The acquisition, in June, cost US$575mln and more than doubled production to around 60,000 barrels a day equivalent. At the time, DGOC estimated the purchase would have boosted 2017 earnings by 289% on a pro-forma basis.

Real Good Food PLC (LON:RGD) announced it has raised gross proceeds of £1.0mln under its recently announced open offer, which it said was heavily oversubscribed. The group added that qualifying shareholders will receive their application in full and those who have validly applied for excess shares will receive approximately 60.78% of their application on a pro rata basis.

Scancell Holdings PLC (LON:SCLP) has announced that Kate Cornish-Bowden will be stepping down as a non-executive director of the company as of 31 August 2018 after seven years on the board.

Premier African Minerals Limited (LON:PREM) announced that Russel Swarts decided not to stand for reappointment and therefore ceased to be a director with effect from the close of the AGM yesterday. The group added that Swarts will continue to act as a consultant to the company and to provide ongoing financial oversight as may be required.

hVIVO PLC (LON:HVO) said it was notified yesterday that on 9 August 2018, its executive chairman Trevor Philips purchased 23,500 ordinary shares in the company at a price of 65.0p each. Following this transaction, the group said, Phillips' total interest in the company has increased to a total of 32,535 ordinary shares, representing approximately 0.04% of the issued share capital.

6.45am: FTSE 100 expected to retreat

The FTSE 100 index is expected to modestly extend Thursday’s falls in early trade on Friday, tracking overnight retreats by US and Asian markets, with all eyes on a batch of key UK economic data.

Spread betting firm IG expects the blue-chip index to open about 5 points lower at 7,736, having shed around 35 points on Thursday – albeit with all of that fall reflecting ex-dividend factors.

Overnight on Wall Street, the Dow Jones Industrials closed around 74 points lower at 25,509 with the other main US indexes also finishing weaker amid US/China trade war angst and after the imposition of further US sanctions against Russia.

Asian markets were depressed by the same factors today, with Japan’s Nikkei 225 index losing 0.5%, while oil and metal prices were essentially flat.

On currency markets, the pound remained weaker against both the dollar and the euro as ‘hard’ Brexit uncertainties held sway and as traders awaited the week’s main economic pointers.

The highlight should be the first reading for UK second-quarter GDP,  due at 9.30am, with expectations for economic growth during the period to have been higher than in the first quarter when severe weather conditions had their part to play.

UK growth to rebound

Laith Khalaf, senior analyst at Hargreaves Lansdown expects second-quarter growth to rebound to 0.4%, up from 0.2% in the first quarter when the ‘Beast from the East’ shut down much of the country for a few days in February and March.

He said: “The second quarter was altogether brighter, with good weather, a Royal Wedding and the World Cup all driving consumer behaviour.”

But, the analyst added, if the growth number proves disappointing, “the Bank of England could find some pretty instant egg on its face after its decision to raise interest rates last week.”

Aside from the GDP numbers, UK industrial and manufacturing production data are also due out on Friday, with both expected to jump by 1.9% year-on-year during June, possibly partly supported by a weaker sterling.

However, UK construction activity is expected to once again lag behind and possibly fall by 0.5% while housebuilding activity moderates.

On the corporate front, at the end of a fairly busy week, Friday’s results diary is almost bare, with just a handful of small-cap numbers on the agenda.

Significant events expected on Friday August 10:

Interims: Afrak Group PLC (LON:AFRK), Vitec Group PLC (LON:VTC) Trading update: Volution Group (LON:FAN)

Economic data: UK Q2 GDP; UK industrial and manufacturing production; UK construction output; UK balance of trade

Around the markets:

  • Sterling: US$1.2831, up 0.1%
  • Gold: US$1,212.10, an ounce, up 0.01%
  • Brent crude: US$66.85 a barrel, up 0.01%

City Headlines:

  • The Anglo-Australian mining giant BHP Billiton will pay out US$50mln to settle the class action with the US investors who lost out when its stock fell following a deadly accident in Brazil – Daily Telegraph
  • The Chinese-owned department store group House of Fraser must secure a funding lifeline in less than two weeks to avoid a collapse into administration that could put more than 17,000 jobs at risk – Daily Express
  • Poundworld could be saved after all as it was snapped up by the Dublin retailing family who opened Ireland's first store – Daily Mail
  • Mounting scepticism that Elon Musk can muster the US$82bn he will need to take Tesla private has wiped out losses for the hedge funds betting on a slump in the carmaker’s share price – The Times
  • US securities market regulators are reportedly set to examine Tesla as pressure builds on chief executive Elon Musk to show he has raised US$70bn to take company private, as claimed in his extraordinary tweet – The Guardian
  • News Corporation has registered a 29% increase in the fourth-quarter revenues to US$2.7bn, thanks to a further rise in digital subscribers to its newspapers and a strong performance from the online real estate division – The Times
  • Dropbox shares plunged in extended trading despite revealing a forecast-beating revenue for the second quarter, as it revealed one of its key executives would be leaving next month – Daily Telegraph
  • Unions have challenged Ryanair in a court for allegedly violating labour laws during a row with striking workers – The Guardian
  • Topshop’s global ambitions were dealt a major blow yesterday after its deal with a Chinese online retailer ShangPin ended. – Daily Mail
  • Ailing Deutsche Bank has taken several measures in its cost cutting drive, like axing free daily fruit supplies for its staff, curbing first class travel on a train for its workers and restricting them from attending conferences – Daily Mail
  • Adidas Investors yesterday shrugged off a €475mln impairment charge for 2016 related to the botched acquisition of Reebok and focused instead on its better than expected second-quarter results – Financial Times
  • Ikea is investing US$1.5bn to develop a retail business in India, which the Swedish furniture group sees as one of the world’s most promising growth opportunities – Financial Times

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