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FTSE 100 closes firmly lower as miners lag and attention turns to BoE rate decision

Last updated: 17:17 01 Aug 2018 BST, First published: 06:45 01 Aug 2018 BST

Mark Carney
  • FTSE 100 closes 96 pts lower

  • UK house prices gain momentum 

  • Big miners lower; Smurfitt Kappa up 

  • Lloyds shares jump, Next slumps 

 

FTSE 100 closed firmly lower on Wednesday as investors were put off by disappointing manufacturing figures from China amid trade worries and ahead of tomorrow’s Bank of England rate decision.

The Footsie closed almost 96 points lower at 7,652.

The FTSE 250 was also well down, shedding over 76 points at 20,801.

Miners were among the big fallers on FTSE 100, with Glencore PLC (LON:GLEN), the commodities giant, a notable casualty, dropping 3.78% to 321.85p.

"The latest round of tough rhetoric from the US regarding its trading relationship with China has rattled investor confidence," said David Madden, at CMC Markets.

The Caixin survey of Chinese manufacturing fell to 50.8 in July, down from 51 in June. Rio Tinto (LON:RIO) was also down today - 3.4%  to 4,054p.

The copper mining titan also revealed that first half profits had surged 12% as it unveiled a £5.49bn return to shareholders in buybacks and asset sales.

Top riser on Footsie was Smurfit Kappa Group (LON:SKG), which added 2.75% to 3,216p as the packaging company saw its first-half profit jump.

The group – which earlier this year fought off an attempted takeover by US giant International Paper Co. (NYSE:IP) – said its operating profit before exceptional items for the six months to the end of June rose by 48% to €529mln (£471mln) as revenue increased by 5% to €4.4bn.

Tomorrow is the Bank of England’s so-called 'Super Thursday' when it releases its policy decision, meeting minutes and inflation report.

The 'Old Lady of Threadneedle Street' is expected to raise interest rates by 25 basis points to 0.75% - the first time it’s been above 0.5% since the financial crisis.

3.50pm: What's so super about Bank of England's 'Super Thursday'?

Tomorrow is a big day for markets – it’s the Bank of England’s so-called 'Super Thursday' when the central bank releases its policy decision, meeting minutes and inflation report.

The Bank is expected to raise interest rates by 25 basis points to 0.75% - the first time its been above 0.5% since the financial crisis.

“However it doesn’t actually change too much on the ground,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

“Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because UK economic growth is so fragile."

Khalaf added: “We could see some reaction from sterling though, which has remained resolutely weak against the dollar, despite rising expectations of a rate rise. That probably reflects the fact that economic data hasn’t been resoundingly positive in the lead up to this interest rate decision, plus of course the prospect of a no-deal Brexit has raised its head in recent weeks.”

3.20pm: Bitcoin volatility 'could attract speculators'

Bitcoin has fallen more than 7% in the last week, trading just above US$7,500.

The cryptocurrency had reached a high of US$8,480 on July 25, recovering from a low of US$6,081 earlier in the month.

“Bitcoin volatility has started to spike. This could attract speculators who breathe on higher volatility,” said Naeem Aslam of Think Markets.

Aslam said it is key to look at the US Commodity Futures Trading Commission report, released each Friday, showing Bitcoin’s active future.

“The report breaks down the short and long positions. Moreover, it further categorises them as non-commercial, commercial and non-reportable positions.”

2.50pm: US stocks higher in early trading

US stocks are slightly higher in early trading with Apple pulling technology shares higher after well-received quarterly results.

The Dow Jones Industrial Average added 11 points to 25,425, the S&P 500 increased 3 points to 2,819 and the Nasdaq grew 19 points to 7,691.

Apple shares are up 4% after reporting record revenue in the three months to the end of June, although not enough to push its market cap to US$1trn.

Investors were also digesting jobs data from the ADP, which beat expectations, and the final reading from Markit on US manufacturing.

Markit’s purchasing managers index for US manufacturing in July was unexpectedly revised down to 55.3 from 55.5, though it remained above the 50 level that indicates expansion.  In June the reading stood at 55.4.

2.10pm: US private sector adds more than expected jobs in July 

US employers in the private sector added more jobs than expected in July, according to a report from ADP.

The report showed a 219,000 increase in private sector jobs last month, compared to expectations for a 185,000 rise.

“The labour market is on a roll with no signs of a slowdown in sight. Nearly every industry posted strong gains and small business hiring picked up,” said Alu Yildirmaz, co-head of the ADP Research Institute.

However, a potential trade war poses a threat, according to Mark Zandi, chief economist at Moody’s Analytics, which held compile the report.

 “Tariffs have yet to materially impact jobs, but the multinational companies shed jobs last month, signalling the threat.”

1.40pm: Tesla boss facing two lawsuits

Tesla chief executive Elon Musk is facing two lawsuits from former employees.

Martin Tripp, a former technician at Tesla's Nevada factory, has launched a counter-claim against Tesla on accusations of “dangerous and wasteful” behaviour after the company filed a lawsuit accusing him of hacking into its systems and passed on confidential information to third parties.

Tripp’s lawsuit was filed in the federal court in Nevada and he is seeking at least $1mln in damages for defamation, invasion of privacy and intentional infliction of emotional distress.

The other case involves three former employees of Telsa’s SolarCity sUBSidiary who claim they were wrongfully dismissed after uncovering evidence of fake sales records that were used to inflate the company's valuation and justify bonuses for certain employees. They said they told Musk and other managers about their concerns but were then fired in May 2017.

Their lawsuit was filed in the San Diego Superior Court.

12.50pm: US stock futures struggle for direction

US stock futures are mixed ahead of the Federal Reserve’s interest rate decision later and amid fresh worries over trade tensions between the US and China.

Dow Jones Industrial Average futures fell 42 points to 25,353, S&P 500 futures declined 3.10 points to 2,814 while Nasdaq futures rose 11 points to 7,256

The Trump administration is reportedly considering raising its proposed tariffs on Chinese goods, adding to fears about a trade war. The news contradicts reports that the US and China could potentially restart trade talks in a bid to de-escalate tensions.

“These latest developments have yet again displayed how inherently unpredictable the Trump administration has been on trade,” said Lukman Otunuga, research analyst at FXTM.

“While there is a possibility that investor complacency kicks in as trade developments drag on, it must be kept in mind that a trade war presents a major threat to global stability.”

Later today, the Fed announces its latest policy decision but is expected to keep rates unchanged. The focus instead will be on any hints about future monetary tightening.

Company-wise Apple Inc (NASDAQ:AAPL) gained in pre-market trading after reporting its highest-ever revenue in the three months to the end of June.

Restaurant Brands International Inc (NYSE:QSR), on the other hand, was on the back foot after posting second quarter revenue that missed estimates.

12.00pm: FTSE 100 plunges as trade war fears grow

The FTSE 100’s losses steepened in lunchtime trading following reports the Trump administration is considering more than doubling proposed tariffs on Chinese goods.

CNN reported that the US plans to impose 25% tariffs on US$200bn Chinese goods, higher than the 10% the government had previously indicated.

Weaker-than-expected UK manufacturing data and lower oil prices weighed on commodity stocks, including Rio Tinto PLC (LON:RIO), BHP Billiton PLC (LON:BHP) and Glencore PLC (LON:GLEN).

Brent crude is down 1.3% to US$73.24 per barrel and West Texas Intermediate is down 1.1% to US$67.99 per barrel.

Next PLC (LON:NXT) remained the biggest faller in midday trading as its second-quarter sales missed expectations despite a boost from the warm weather.

Lloyds Banking Group PLC (LON:LLOY) gained after reporting a 23% increase in first-half profits as PPI provisions fell.

Smurfit Kappa Group PLC (LON:SKG) rallied as it said the company has seen a rise in the number of customers asking for alternatives to plastic packaging as businesses seek eco-friendly ways to transport goods.

11.00am: Ryanair boss gives up bonus as Sweden pilots prepare to strike

Ryanair Holdings PLC (LON:RYA) boss Michael O’Leary has decided to forego his annual bonus for 2017-18 after a pilot scheduling mix-up last September resulted in a labour dispute and 20,000 flight cancellations.

The airline said in its annual report that O’Leary had decided not to take the bonus he was entitled to, which can be worth as much as a year’s salary. O’Leary’s salary was about €1mln for the year. Last year’s bonus was €950,000.

The news came as the Swedish Airline Pilots Association said its members working for Ryanair will strike on August 10 because management had failed to meet union representatives for more than eight months.

Last week, the company faced strikes by cabin crew in Italy, Spain, Belgium and Portugal. On Monday, Ryanair pilots in Germany voted in favour of striking.

10.20am: UK manufacturing PMI falls in July

UK manufacturing growth slowed to a three-month low in July.

The IHS Markit/CIPS manufacturing purchasing managers index fell to 54.0 from a downwardly revised 54.3 in June. Analysts had expected a reading of 54.2.

A reading above 50 indicates expansion in sector activity while a level below that suggests a contraction.

ING Economics said life for manufacturers is unlikely to get any easier amid trade tensions and Brexit negotiations. 

"The recent escalation in trade tensions is clearly a challenge, but increasingly the biggest headache for businesses is likely to be the threat of a ‘no deal’ Brexit. This scenario would likely see huge congestion at ports and disruption to supply chains," it said.

"While we suspect the probability of the UK leaving without an agreement in March next year is relatively low, an agreement may not come until late in the day."

9.40am: UK house prices gain momentum 

UK house price growth accelerated in July after rising at the slowest annual rate in five years in June, according to Nationwide.

House prices rose by 2.5% to an average of £217,010 in July compared to a year ago, up from the 2.0% increase posted in June and higher than forecasts for a 1.9% gain.

But compared to a month ago, prices edged up 0.6% in July after a 0.7% increase in June. Economists were expecting a month-on-month rise of just 0.1%.

Nationwide continues to expect prices to rise 1% this year.

The Bank of England is expected to raise interest rates on Thursday but Nationwide economist Robert Gardner said this is likely to only have a modest impact on the housing market since most mortgages issued in recent years were on fixed interest rates.

Jonathan Samuels, chief executive of property lender Octane Capital, said: "If this week's rate increase happens, it could be perceived as heralding more hikes, which could create an environment of even greater caution.

"The direction of inflation and wage growth will be key to how the property market accommodates rates rises, however small, during the course of the next year.

"While the jobs market overall is strong, many households are feeling the pinch. With Brexit negotiations in a state of disarray, confidence is being further eroded."

9.00am: Big Footsie falls

The FTSE 100 dropped back in early morning trading, wary ahead of the central bank rate decisions and amid a welter of corporate news, despite some transatlantic cheer that really should have lifted London.

After an hour of trading, the blue-chip index was down 45 points at 7,703, with traders ignoring a record quarterly performance from US tech giant Apple Inc. (NASDAQ:AAPL) and instead fixating on interest rates.

It’s decision day for US monetary policy, although the Federal Reserve's latest meeting is likely to pass with little fanfare. But in the UK, rising borrowing has set the scene for a hike to loan costs on Thursday, analysts said.

On the markets, Lloyds Banking Group PLC (LON:LLOY) enjoyed a rare day in the sun as its shares rose 2% in the wake of its interim results.

“The key metrics are in very good shape, with a rise in net interest margin, improved earnings per share and a cost-income ratio which now sits below 48%,” said Richard Hunter of Interactive Investor.

“In addition, the return on equity number is robust and the capital cushion healthy, enabling an increase to the dividend which puts the projected yield at 5.4%, a clear attraction in itself.

“Meanwhile, the supportive share buyback programme is nearing completion, with further schemes a distinct possibility. Unsurprisingly, these factors have all combined to drive the profit figure sharply higher.”

But Next PLC (LON:NXT) shares were down almost 6% after the retailer warned the positive impact of the summer heatwave might be short-lived.

Dropping down to the FTSE 250, an encouraging half-term report lifted shares in the temporary generator specialist Aggreko (LON:AGK) more than 8%.

The challenger banks – Virgin Money (LON:VM.) and CYBG (LON:CYBG) – were dragged higher in the wake of the solid results from Lloyds.

Down 16% was BBA Aviation (LON:BBA), which services and supports private jet fleets, after it sounded the earnings alarm.

Proactive news headlines:

Mosman Oil And Gas Limited (LON:MSMN) hailed the successful completion of the Stanley Development well in Texas, which hit multiple pay zones. Stanley-1’s primary reservoir was host to gross pay (an oil-bearing section) 19 metres thick with a porosity of around 18%. Porosity defines the capacity of the reservoir rock to hold oil.

Haydale Graphene Industries PLC (LON:HAYD) has supplied graphene-enhanced prepreg material for the world’s first graphene skinned aircraft. The AIM-listed nanomaterials developer said the material had been applied to Juno, a three-metre wide graphene-enhanced composite skinned aircraft, that was revealed as part of the Futures Day at the Farnborough Air Show 2018.

Arc Minerals Limited (LON:ARCM) has noted visible signs of copper and cobalt from early-stage drilling at Kabala in Zambia. Kalaba is part of the company’s Zamsort project. Arc is drilling to produce both ore for a pilot plant and a maiden resource estimate for the deposit.

Portfolio analytics platform provider StatPro Group PLC (LON:SOG) is trading in line with expectations in 2018 after a first-half of solid revenue growth.

Anglesey Mining PLC (LON:AYM) is looking to beef up the projected mine life of its Parys Mountain project in Wales. A scoping study last year by consultant Micon indicated Parys Mountain could be mined at the rate of 1,000 tonnes per day.

Cradle Arc (LON:CRA) has thrashed out a deal to redeem £1.28mln of its convertible loan notes at a cost of £1.59mln. Holders of the notes have waived their conversion rights.

Tekcapital PLC (LON:TEK) said its portfolio company, Salarius Ltd, has appointed Victor H. Manzanilla as its chief executive (CEO).

Savannah Resources PLC (LON:SAV), the AIM-quoted resource development company, announced that further to the recent placing, the company's major shareholder, Al Marjan Ltd has now sUBScribed for 11,111,111 new ordinary shares at a price of 9p each raising cash proceeds of £1mln. It added that, following the sUBScription, Al Marjan’s holding in the company will be 24.18% of the issued share capital.

6.45am: London set for dull start

Despite a solid day yesterday for US stocks, topped off by an upbeat statement from Apple, London is expected to open on the back foot.

Having risen 48 points yesterday to close at 7,749 yesterday, the FTSE 100 was predicted to give back some of those gains, opening at around 7,740.

There was mixed news on the trade war front on Tuesday, with news agency Bloomberg reporting that the US treasury secretary Steven Mnuchin and Chinese vice premier Liu He are having private conversations about resuming trade talks.

The same agency also reported that the Trump administration is mulling bumping up tariffs on Chinese goods from 10% to 25% in the next round of talks in an attempt to put the squeeze on China.

Positive reaction from US markets to trade conflict developments

US markets reacted positively, with the Dow Jones average rising 108 points to 25,415 and the broader-based S&P 500 climbing 13.7 to 2,816.

Attention today will switch to the Federal Reserve's interest rate decision. The economists at RBC expect the August FOMC meeting and press statement to come and go with very little fanfare.

In a preview, they said: “For one, it is quite rare to see significant tweaks in a meeting that is not accompanied by a press conference.

“But more importantly, things have not shifted significantly enough to warrant any notable alterations. Indeed, the idea that economic activity remains “solid” and that inflation is at/near the 2% target remains true.”

After the bell yesterday, technology behemoth Apple Inc (NASDAQ:AAPL) beat earnings and revenue expectations with its fiscal third-quarter results.

READ: Apple crushes estimates in its fiscal third quarter, reporting a boost in services revenue

In screen-based trading, the shares were up 4% at US$197.95, a record level for the stock.

In Asia, markets are mixed.

The Nikkei 225 in Japan was up 194 at 22,748, heading towards the close but in Hong Kong, the Hang Seng was down 26 at 28,557.

A busy day ahead in London

Closer to home, the big event in London will be interim results from Lloyds Banking.Group PLC (LON:LLOY).

The lender continues to mop up the mess of its past misconduct; it has set aside £100mln to compensate victims of fraud at its HBOS unit in Reading and it also faces further claims for the payment protection insurance mis-selling scandal ahead of the Financial Conduct Authority’s August 2019 deadline. Lloyds has so far paid out £18.8bn in PPI claims.

Analysts at UBS expect Lloyds to report statutory pre-tax profit of £887mln for the second quarter, including £410mln for PPI provisions, £262mln in restructuring costs and a £110mln loss on the disposal of its Irish residential mortgage portfolio.

Half-year results from defence company BAE Systems PLC (LON:BAE) are likely to see the company’s wheels spinning just to stand still.

At its annual general meeting in May, the company reiterated its forecasts for flat earnings over the full-year, since then, it has announced a couple of big contract wins – one for £20bn with the Australian navy and one for £2.4bn from the UK.

Deutsche Bank has forecast half-year revenues of £8.6bn, which would account for 47% of its full-year expectation; last year, 49% of BAE’s revenues came in the first half.

The bank has predicted underlying earnings (EBITA) of £860mln, which implies a margin of 10%.

Once again, the latest trading news from clothing and homewares retailer Next PLC (LON:NXT) is expected to show continued strength online, offsetting further declines in its store sales, although it will be interesting to see what the firm has to say about the impact of the recent very warm weather.

Back in May, Next raised its full-year profit forecast after a bout of sunny weather led to better-than-expected first quarter sales.

The FTSE 100-listed firm saw its full price sales in the 14 weeks to May 7 rise by 6% as an 18.1% increase in online sales offset a 4.8% decline at stores.

For the second quarter, analysts at UBS are forecasting Next to report a 6.5% drop in Retail like-for-like (LFL) sales, but expect a 12.5% jump in Online full price sales, which would give total full price sales up 2.8% in the period.

Over the first-half, UBS forecasts Retail LFL sales falling by 6.0%, with Online full price sales up 15.5% giving total full price sales growth of 4.1%.

Next lifted its central guidance for annual pre-tax profit to £717mln in May, up from a previous estimate of £705mln, which represents a 1.3% decline on the prior year, and the analysts expect this to be maintained.

Significant announcements expected on Wednesday:

Federal Reserve US rate decision

Trading update: Next PLC (LON:NXT)

Interims: Lloyds Banking Group PLC (LON:LLOY), BAE Systems PLC (LON:BA.), Rio Tinto PLC (LON:RIO), St James’s Place PLC (LON:STJ), Smurfit Kappa PLC (LON:SMFT), Direct Line Insurance Group PLC (LON:DLG), Aggreko PLC (LON:AGK), Capita PLC (LON:CPI), Man Group PLC (LON:EMG), BBA Aviation PLC (LON:BBA), Dignity PLC (LON:DTY), Getbusy PLC (LON:GETB), StatPro Group PLC (LON:SOG)

Finals: Hargreaves Services PLC (LON:HSP)

Economic data: BRC shop price index; UK manufacturing PMI; US ISM manufacturing; US manufacturing PMI; US construction spending; ADP employment report

Around the markets:

  • Sterling: US$1.3099, down 0.28 cents
  • 10-year gilt: 1.332%
  • Gold: US$1,229.40 an ounce, down US$4.20
  • Brent crude: US$74.25 a barrel, down 72 cents
  • Bitcoin: US$7,506.12, down US$185.58

City headlines:

Daily Mail

Apple last night stunned Wall Street after it announced a third-quarter revenue of $53.3 billion, cementing its place in the race to become the first $1 trillion company.

Jayne-Anne Gadhia, the boss of Virgin Money, will be handed £7.9 million payout when she leaves after the company is acquired by rival Clydesdale and Yorkshire Banking Group.

Taylor Wimpey yesterday revealed that it would take a £30 million hit from replacing flammable Grenfell-style cladding on some of its builds.

The UK government raked in a record £5.2 billion in inheritance tax receipts over the last year, as rising house prices pull more families into the net.

The Times

Jaguar Land Rover slumped to a £264 million pre-tax loss in the second quarter, blaming Chinese manoeuvres on trade, uncertainty from Brexit and a backlash against diesel engines.

The Guardian

Carillion has been slammed for laying off just over 340 construction apprentices amid a shortage of skilled workers in the construction industry.

The credit ratings agency Moody’s has marked the troubled department store group House of Fraser as in “limited default” on its loans as the company struggles to avoid financial collapse.

The electronics retailer Dixons Carphone has revealed that data breach last year might have affected 10 million customers, nearly 10 times as many as initially thought.

Theresa May might have to settle with further politically difficult concessions to the EU to minimise damage to the economy caused by Brexit, a leading think tank, the National Institute for Economic and Social Research, has said.

The Daily Telegraph

Energy market newcomer Octopus Energy will pick up 100,000 customers at a stroke from the collapsed Iresa Energy.

The US fiscal deficit is ballooning at an alarming pace as Donald Trump's tax cuts hit federal revenues; the US Treasury is forced to issue $769 billion of new debt in the second half of the year, far higher than expected just months ago.

The Independent

Two leading train operators - Eurostar and the Gatwick Express – have been told to change their advertising after complaints that their claims are “misleading” about low fares and fast journey times.

Ryanair has grounded at least 40 flights to and from Stansted due to what the airline calls “thunderstorms” and staff shortages at air traffic control centres in Europe. 

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