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FTSE 100 closes in the red; Carnival cruises to the bottom of the pile

Last updated: 18:03 05 Jun 2018 BST, First published: 06:39 05 Jun 2018 BST

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  • FTSE 100 closes down 54 at 7,686

  • Pound higher

  • Carnival top Footsie laggard

  • Nasdaq sets sights on back-to-back record as other US indexes open flat

 

FTSE 100 finished the day lower, weighed on by a stronger pound, with Carnival Corp (LON:CCL), the cruise operator, sailing to the bottom of the heap.

The UK's index of leading shares finished down around 54 points at 7,686, while FTSE 250  was also lower - off 58 points at 21,051.

In the rest of Europe, the IBEX 35 dropped nearly 64 points in Madrid, while the CAC 40 in Paris, shed nearly 12 points.

Brent crude is down 1.95% to stand at US$75.29 a barrel at the time of writing, while the pound is ahead by 0.34% against the Euro and up 0.50% against the US dollar.

Investment heavyweight  Morgan Stanley warned that Carnival could endure a slowdown in the fourth quarter because of overcapacity, hurricane risks and higher fuel costs, which sent shares 6.4% lower to 4,561p.

Top riser on Footsie was copper giant Antofagasta (LON:ANTO),  which added 2.67% to stand at 1,114p.

4pm: US job openings in April hit new record

A report from the US Labor Department said job openings rose to a fresh high in April to 6.7mln, up from 6.63mln in March.

By sector, there were more openings for durable-goods manufacturing and information sector positions, while openings in finance and insurance decreased.

Across the Atlantic, IHS Markit’s Final Composite PMI for the eurozone dropped to an 18-month low of 54.1 in May from 55.1 in April.

Chris Williamson, chief business economist at IHS Markit, said: “With the economic indicators turning down at the same time as political uncertainty has spiked higher, the euro zone’s outlook has darkened dramatically compared to the sunny forecast seen at the start of the year”.

2.45pm: US stocks open around break-even levels

Wall Street opened at around breakeven levels, with the tech-heavy Nasdaq proving to be the exception of the main indexes as technology heavyweights lifted it following a record close on Monday.

The Dow Jones was down around 17 points at 24,796 shortly after open while the S&P 500 was up 0.48 points at 2,747.

The Nasdaq however, was the breakaway, up 17 points at 7,625 following the open.

In other news, Rupert Murdoch’s 21st Century Fox has received clearance from the UK government to purchase the remaining 61% of Sky that it does not already own, with the provision that it sells off its Sky News arm to “a suitable third party”.

 

Fox shares were up 0.16% at US$38.50 at the US open, while Sky shares on the FTSE 100 were up 0.33% at 1,354.5p in mid-afternoon trading.

1.40pm: Wall Street to open lower but tech stocks expected to lead gains

US stocks are expected to open slightly lower this morning, however tech stocks will be in focus as they are poised to lead gains on the heels of a record finish for the Nasdaq.

Investors appear to be looking for fresh catalysts to keep yesterday’s gains going after the market shrugged off trade war tensions and Italian political upheaval, although both fronts could cause stress as they continue to develop.

The tech sector seems to be providing the most inspiration at the moment, with shares in Apple Inc (NASDAQ:AAPL) creeping up in premarket trading after a record finish on Monday as it released details from its software-focused Worldwide Developers Conference.

Twitter Inc (NYSE:TWTR) is also in the spotlight with its shares receiving a boost after news that it will be become part of the S&P 500 index.

Additionally, a smattering of economic data is en route, including the Institute for Supply Management’s nonmanufacturing survey.

Stephen Innes, senior trader at OANDA, said: “So far, investors remain focused on a broader subset of U.S. economic data, while concluding that U.S. earnings and the economy are sufficiently robust to keep the equity bull market intact. And for now, putting the prospects of higher U.S. interest rates and global trade wars, which usually scare investors stiff, on the back burner”.

1.00pm: Franklin Templeton’s Zahn: ECB rate rise unlikely before 2020

The head of European fixed income at US investment firm Franklin Templeton, David Zahn, has said that recent weak economic data and the volatility in Italian politics are pointing towards an extension of the European Central Bank’s (ECB) stimulus scheme, with an interest hike unlikely before 2020.

Ahead of the ECB’s meeting next week, Zahn said: “The recent flare-up in Italy only reinforces our view that the ECB will extend the asset-buying programme into 2019. And, we think the likelihood of rate hikes is now pushed out much further into the future,”

He added that an interest rate hike in the eurozone before 2020 was “difficult to see”, in contrast to current money market pricing which suggests investors expect a rate rise by September 2019.

Meanwhile, the permanent secretary at HMRC, Jon Thompson, has said companies could face an extra £20bn a year in costs to comply with a customs arrangement arising from a ‘no-deal’ Brexit.

Speaking to lawmakers, Thompson said leaving the EU with no deal would cost the same as a maximum facilitation, or ‘max fac’, arrangement as companies would have to fill in customs declarations.

Thompson said: “If we move to WTO (World Trade Organization) rules, that would definitely require customs declarations so it would be similar in terms of costs,”

12.15pm: Carnival PLC sinks as Morgan Stanley cuts estimates

FTSE 100-travel and leisure company Carnival PLC (LON:CCL) sank to the bottom of the index in lunchtime trading after investment bank Morgan Stanley cut its estimates for the group after a cautious update for the cruise sector.

In a note to clients, Morgan Stanley’s analysts said: “Our channel checks show solid booking volumes but at flat prices, and agents cite concerns about the Caribbean and general Q4 demand.

“We cut forecasts for fuel/FX, with FY19e EPS -11% for CCL, -5% for NCLH and -3% for RCL, and stay cautious on the cruise space due to oversupply risk.”

Carnival’s shares were down 6.4% at 4,560p.

In other news, the warm Early May Bank Holiday and the feel-good atmosphere of the Royal Wedding appeared to galvanise a consumer spending boom.

UK consumers spent 50.3% more in garden centres over the three days, 19.7% more in DIY stores, 19% more in pubs and 10.1% more in supermarkets during the period.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “There was plenty to make us feel warm and fuzzy in late April and early June as the warmest Early May Bank Holiday on record saw people flock to garden centres, DIY stores, pubs, restaurants and supermarkets. We were keen to spend money enjoying ourselves and booking holidays and non-essential spending rose at its fastest pace in a year. Spending at travel agents was up 13.1% in a year and on flights was up 9.2%.”

She added: “The period closed with a boost from the Royal Wedding, which didn’t just drive sales of commemorative mugs and tea towels, it also gave us an excuse to celebrate. Supermarket sales bounced back from sluggish 1.6% growth in April to 5.7% in May, as the nation snapped up BBQ supplies and Prosecco.”

Despite the positive atmosphere, Coles ended on a more cautious note: “The warm weather certainly cheered up the May figures, but there’s a risk that the fortunes of the high street may be as variable as the weather this summer. The proportion of people saying they were confident in their household finances fell slightly from 62% to 57%. This isn’t a major drop, but at a time when fears of interest rises have eased, unemployment continues to fall, and the sun is out, the lack of overwhelming optimism is notable.”

11.30am: FTSE 100 still in the red going into lunchtime as services PMI and RBS share sale weigh

The FTSE 100 was still in the red heading into lunchtime trading as the services PMI and RBS sell-off news weighed heavily on the market in this morning’s trading.

The UK’s services PMI for May hit a three-month high, however the latest increase in overall new work received by service sector firms was still one of the weakest seen since the summer of 2016.

 

Chris Beauchamp, chief market analyst at spread betting firm IG, said: “A strong services PMI and weakness across the banking sector have conspired to keep the FTSE 100 from making further gains this morning. While the services index of activity rebounded from the difficult March reading, there is little good news in the figure beyond the headline. New work is only coming through at a slow rate, and inflation appears to be on the up, due in no small part to the weaker pound.

He added: “However, sterling managed to leap higher following the news, continuing the steady recovery from the lows of last week. Despite this, near-term upside for the currency looks limited given the BoE’s caution on rates. GBPUSD is 7% lower than it was back in April, when Threadneedle Street seemed keen on higher rates – today’s rebound is just a drop in the ocean.”

Analysts at Dutch bank ING were a little more optimistic on the services data: “The Bank of England appears to have a preference to raise interest rates sooner rather than later based on a belief that wage growth will respond to a tight labour market, keeping inflation higher for longer. As such these data releases keep the prospect of an August rate hike firmly on the table. But, if they do indeed go for it, we doubt it will be followed quickly with additional hikes given the economic threats from rising fuel costs, stagnant real wages, Brexit uncertainty and a reluctance amongst firms to invest in the UK.”

The big news in the blue-chips was the UK government’s sale of what amounted to 7.7% of RBS’s issued share capital at a price of 271p each, raising around £2.51bn.

Beauchamp commented: “The sale hardly removes the crushing hand of state ownership, since the bank is still 62% owned by taxpayers. Still, with the bank inching towards a new dividend and having reached a deal with US lawmakers recently, perhaps it is worth looking beyond the share price impact. RBS still has plenty of problems, but the slow return to public ownership still makes sense.”

Following the sale, RBS shares dropped 3.5% to 270.9p in late-morning trading, just below the government’s sale price.

10.30am: UK new car sales tick up in May in second successive rise

New car sales rose 3.4% year-on-year in May, the second successive rise following a 10.4% jump in April after 12 months of decline.

However, despite the successive rise in May, new car sales were still down 6.8% y/y over the first five months of 2018.

The decimation of diesel car sales, down 23.6% year-on-year in May on pollution concerns had also contributed heavily to weak car sales overall, although it was outweighed by higher demand for alternative fuel vehicles, which were up 36.1%.

Howard Archer, chief economic adviser to the EY ITEM Club, said that while uncertainty over government policy on diesel cars had clearly affected fleet sales, businesses appear to be cautious in their car purchases amid significant economic uncertainties (business sales fell 0.7% year-on-year in May).

He also said car sales are likely to be hampered by mounting pressure to restrict car finance deals and unsecured consumer credit, and that the Bank of England had shown mounting concern and was keen for a more responsible approach to be adopted.

This was magnified by concerns over the resale value of cars at the end of Personal Contract Purchase (PCP) deals, he added.

10.00am: UK government to rule on Fox’s Sky bid later today

The UK government has said it will give its verdict on the proposed takeover of Sky PLC (LON:SKY) by Rupert Murdoch’s Twenty-First Century Fox Inc (NASDAQ:FOX) later today.

Fox launched a bid to acquire the 61% of Sky that it does not currently own in December 2016, but the takeover has been held up by concerns from politicians and regulators that it will give Murdoch too much influence in British media.

If the bid is cleared, Fox will then have to compete with a rival bid from fellow US media conglomerate Comcast Corp (NASDAQ:CMCSA).

9.50am: UK Services PMI hits three month high in May

The UK Services PMI rose to 54 in May, up from 52.8 in April and the highest for three months as business activity in the service sector turned strongly upwards.

Improved sales volumes were attributed to competitive pricing strategies, greater business investment and successful new product launches in May. However, the latest increase in overall new work received by service sector firms was still one of the weakest seen since the summer of 2016.

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “It felt as though the sector was losing its lifeblood this month as Brexit worries continued to claw away at confidence, new orders and business margins. The survey revealed clients and consumers were reluctant to spend with one of the lowest rises in new orders in the last two years, and though overall activity increased, it was at a restrained pace.

He added: “The sector will be looking for an urgent dose of clarity and direction from policymakers with Brexit less than a year away, because without a sound pipeline of new work coming through this creeping slowdown could become a state of stagnation, or worse.”

David Morrison, senior market strategist at GKFX, commented: “That completes the UK’s PMI triple for last month with Manufacturing and Construction also coming in above expectations. All three were comfortably above 50 indicating expansion in these key sectors of the UK economy.

He added: “However, Manufacturing remains patchy and has been slipping since the end of last year. More worrying perhaps, both Services and Construction have been trending down for the past four years. While the Euro zone is also struggling, last Friday’s US Manufacturing PMI was surprisingly strong. Add in those blow-out Non-Farm Payroll numbers and it’s no surprise that the GBPUSD has failed to bounce significantly following its recent sell-off.”

9.30am: BRC and Barclaycard surveys reveal jump in May retail sales

UK retail sales jumped in May according to two new surveys by the British Retail Consortium (BRC) and Barclaycard, suggesting that the economy may be recovering from its slowdown in early 2018.

The survey data from the BRC said that total retail sales values had jumped by an annual 4.1% in May, while Barclaycard, the credit and debit card division of Barclays PLC (LON:BARC), said its measure of consumer spending rose by 5.1% year-on-year, the biggest increase in 13 months.

Both of the surveys indicated an uptick in spending on non-essential items, a sign that pressure on households from rising inflation and weak wage growth may be easing.

Elsewhere, the chief executive of International Consolidated Airlines Group S.A. (LON:IAG), Willie Walsh, told the CAPA-Centre for aviation summit in Sydney that air traffic control (ATC) strikes were a bigger threat to European airlines in 2018 than a rise in fuel prices.

Walsh said that every ATC strike affected millions of passengers and cost airlines tens of millions of pounds.

The statement follows a slashing of airline profit forecasts for 2018 as high fuel prices piled more pressure on margins.

8.40am: FTSE falls in early deals as investors primed for RBS share sale

The FTSE 100 edged lower in early trade, taking its cue from Asia rather than Wall Street with the index of blue-chip shares down 22 points at 7,719.62.

This was the result largely of the weakness of the financial sector in the wake of news the government is ready to offload another tranche of Royal Bank of Scotland (LON:RBS) stock.

RBS was the Footsie’s biggest casualty, down 3.5%, as institutions and trading rooms were primed to expect 925mln shares to hit the market imminently.

Buyers of the government’s holding looked to be liquidating positions in Lloyds Banking Group (LON:LLOY) and Barclays (LON:BARC), with both under pressure in the first hour of trade.

“We note now that with the government acting as a 'forced' seller for a prolonged time it might be hard for the shares to do much in the short term, and could retreat back towards the government price at 271p,” said Neil Wilson, chief analyst at Markets.com. “Longer term the bank looks in decent shape.”

Share in AO World (LON:AO.), up 1.5%, were remarkably resilient following the cautious outlook statement from the electrical retailer.

In the next hour, the markets will be updated on the health of the service sector with a monthly survey expected to show a modest expansion in activity. Economists are predicting the UK PMI number will come in at 53.4 for May, up from 53.2 for April.

Proactive news headlines:

Europa Oil & Gas (Holdings) PLC (LON:EOG) has a major upgrade to its prospective resources in the South Porcupine Basin, Atlantic Ireland, following the analysis of new 3D seismic data. The inventory for the Frontier Exploration Licence 3/13 increases by 93% to 2.9bn potential barrels of oil equivalent.

discoverIE Group PLC (LON:DSCV) saw profits more than treble last year as the customised electronics supplier and manufacturer reaped the rewards of its efficiency and cost reduction programme.

Sound Energy PLC (LON:SOU) has launched a farm-out process for the Sidi Moktar onshore gas project, in central Morocco, which is believed to have multi-TCF (trillion cubic feet) exploration potential. The AIM-quoted explorer currently owns 75% of the project alongside the Moroccan state petroleum company (ONHYM) with the other 25%.

Global project management and technical consultancy WYG PLC (LON:WYG) said a strengthening order book provides a sound basis for current year expectations and medium-term confidence.

FairFX Group PLC (LON:FFX) has hailed “continued strong growth” in the first part of 2018 as it issued a statement to be read at its annual general meeting on Tuesday. Chairman of the AIM-listed international payments provider, John Pearson, said in the statement that the acquisitions of CardOne and City Forex earlier in the year had been “transformational” for the company and had enabled the company to broaden its growth opportunities.

Widecells Group PLC (LON:WDC) said trading had been strong as it published its full-year results. The stem cell specialist said following the release of its figures, it was working with the Financial Conduct Authority to have its share suspension lifted.

88 Energy Ltd (LON:88E, AS:88E) told investors that analysis of the fracture system in the Icewine-2 well suggests there’s been no degradation during the winter shut-in period. As result, no remedial work will be needed prior to the restart of the well programme. The company added that it remains on-track to resume well testing operations next week, on June 11.

Cash shell Kin Group PLC (LON:KIN) is back in business, having agreed to invest £400,000 in software company, bidstack, a company with technology that places tailored advertising in real-time into computer games.

Custodian REIT PLC (LON:CREI) has reported a 34% increase in profit and raised its 2019 target dividend as the company released its annual results for the year ended 31 March 2018. The UK commercial and real estate investment company said its profit after tax jumped 34% to £528.9mln from £418.5mln a year ago, while portfolio value rose to £528.9mln from £418.5mln.

OPG Power Ventures PLC (LON:OPG) has reported a record production year in 2018 as well as tariff increases for the coming year.

Southend Airport owner Stobart Group Limited (LON:STOB) has received a nomination for a new chairman from former chief executive Andrew Tinkler and Woodford Investment Management.

Arc Minerals Ltd (LON:ARCM) has increased its ownership of Zamsort Limited, following the acquisition of a 6% interest from Terra Metals Limited. The acquisition of the additional stake in Zamsort is on the same commercial terms as Arc’s acquisition of a 35% stake in a deal announced on 15 May 2018.

Metminco Ltd (LON:MNC) has commenced diamond exploration drilling on its Tesorito gold prospect in the Quinchia district, Colombia. The 1,500 metre diamond drilling program is designed to confirm and expand the gold mineral system previously intersected in drilling by a previous operator.

African Battery Metals PLC (LON:ABM) has now completed two auger programmes at its 53 square kilometre Kisinka permit in the Katanga Province of the Democratic Republic of Congo. The company has now made over a second US$50,000 payment to give it 70% of the property, although work on potential dealflow elsewhere has meant it has opted to defer a further payment to the same vendor due on another property.

Premier African Minerals Limited (LON:PREM) has entered into a loan agreement with a company owned by a trust of which George Roach is a beneficiary, for a gross value of US$300,000. The loan is non-interest bearing and has a maturity of 60 days. It will provide additional general working capital while the company looks to conclude negotiations currently underway in Zimbabwe in respect of both the Zulu lithium project and the RHA tungsten project.

Acquisitive Keywords Studios PLC (LON:KWS) said it has completed the new €105mln revolving credit facility it flagged in its results statement in April.

6.45am: Slow start predicted 

The FTSE 100 is expected to ease back in early trading pausing after solid gains yesterday despite an overnight jump from US stocks with Asia markets more sanguine today.

Spread betting firm IG expects the FTSE 100 index to open about 15 points lower at 7,725 having closed around 39 points higher on Monday.

Overnight on Wall Street, the Dow Jones Industrial Average closed 178 points higher at 24,813 boosted by strength in tech stocks excited by Microsoft's US$7.5bn purchase of GitHub and as worries over a global trade war were offset by economic fundamentals after Friday's strong US jobs report.

But in Asia today, markets were more mixed after recent strong gains reflecting a rise in the dollar and higher oil prices, with Japan's Nikkei 225 up O.2% but Hong Kong's Hang Seng down the same amount.

On currency markets, the pound held steady overnight against both the dollar and the euro ahead of the release of the final UK PMI report for May, with the two previous releases – for manufacturing and construction – having beaten expectations.

At your service

The service sector PMI is forecast at 52.8, higher than the previous month’s reading but still the second-lowest reading since September 2016.

A reading above 50 is generally indicative of growth in the industry, and economists will be looking for the UK’s dominant sector to justify the view that the UK economy’s feeble 0.1% first-quarter growth rate was as much the result of snow and bad weather as it was underlying weakness.

On the corporate front, Royal Bank of Scotland Group PLC (LON:RBS) is expected to see its shares decline on Tuesday morning following news after the close on Monday, that the UK government is selling around 925mln shares in the state-controlled lender for about £2.6bn.

UK Government Investments Limited (UKGI), the unit managing the taxpayer’s stake in the FTSE 100-listed bank said the shares being sold amount to 7.7% of RBS's issued share capital, reducing the government's stake to 62.4% from 70.1%.

Beware electricals

Meanwhile full-year results from online electricals store AO World PLC (LON:AO.) comes with the company having announced in an April updated that its European business is reaching an inflection point.

The FTSE SmallCap firm said then that its full-year group revenues are expected to be around.£796mln, with an adjusted underlying loss (EBITDA) of £6mln.

In a preview note on AO, analysts at Morgan Stanley pointed out that the main focus will be on AO’s current year outlook, particularly after Dixons Carphone PLC (LON:DC.) - the largest electrical retailer in the UK – issued a profit warning recently, partially due to a shrinking market for electrical goods.

Repeating an ‘underweight’ stance on AO World, they concluded: “Given the UK is the only part of the business close to profitability, any significant slowdown could affect AO's ability to invest in Europe.”

Fast fashion wanted

Staying with retail, Quiz PLC (LON:QUIZ), the omni-channel fast fashion womenswear brand, will also report final results on Tuesday.

In a trading update in April, the group – which floated on AIM at the end of July 2017 – said its revenues rose by 30% in the year ended March 31, with its online business driving the clothing group.

Quiz said its online revenue grew by 158%, making it the group’s second-largest operation with sales of £30.6mln, though it is still less than half the size of its UK stores and concessions business which turned over £64.6mln.

The group, which was founded in Glasgow in 1993, was valued at £200mln when it floated last year, having raised around £100mln in the process, mainly for the company’s founding investors.

Significant events expected on Tuesday June 5:

Finals: AO World PLC (LON:AO.), Quiz PLC (LON:QUIZ), Altitude Group PLC (LON:ALT), Carclo PLC (LON:CAR), DiscoverIE Group PLC (LON:DSCV), Fulcrum Utility Services PLC (LON:FCRM), GB Group PLC (LON:GBG), KCOM Group PLC (LON:KCOM), Vianet Group PLC (VNET), VP (LON:VP), WYG PLC (LON:WYG)

Interims: Driver Group PLC (LON:DRV), Gooch & Housego PLC (LON:GHH), Summitt Therapeutics PLC (Q1) (LON:SUMM)

Economic data: UK PMI services index; US ISM non-manufacturing index; US PMI services index; US JOLTS

Around the markets:

  • Sterling: US$1.3312 up 0.01%
  • Gold: US$1,292.30 an ounce, down 0.1%
  • Brent crude: US$65.10 a barrel, up 0.5%

City Headlines:

  • Starbucks chairman Howard Schultz to quit amid rumours of run for office – The Independent
  • Advisers’ gaffe disrupts Mothercare rescue plan – BBC News
  • Tesco Direct launches major discounts amid online store's closure – Mirror Online
  • Frozen food brand Aunt Bessie's to be sold to Birds Eye owner Nomad Foods in a deal worth £210mln – BBC News
  • Philips to buy heart rhythm disorder specialist EPD Solutions for US$292.1mln - Reuters
  • Global airlines slash profit forecast as costs soar – BBC News
  • Shop closures hit UK's smaller retail centres hardest – BBC News
  • Petrol prices in record monthly rise, says RAC - BBC News
  • UK car sales up nearly three percent in May, preliminary data shows – Reuters
  • UK consumers hit the shops after early 2018 freeze, say surveys – Reuters
  • Water bosses' £58mln pay over last five years a 'national scandal' – The Guardian

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