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FTSE 100 closes deep in red as Turkey/US worries escalate

Footsie closed down 1.49%, or around 114 points, at 7,497 on the day
Falling chart
FTSE 100 closed firmly lower on Wednesday
  • FTSE 100 index closes 114 pts down

  • Dollar climbs after US retail sales rose more than expected in July

  • Big diggers weigh on Footsie

 

FTSE 100 joined the global rout to finish almost 114 points down on Wednesday, as big miners weighed on the index.

Footsie closed down 1.49%, or around 114 points, at 7,497.

The mid-cap FTSE 250 also fell, shedding nearly 190 points at 20,320.

In the currency markets, the pound lost 0.14% against the Euro and was down 0.15% against the US dollar.

On Wall Street, the Dow Jones Industrial Average is down over 246 points at 25,053, while the S&P 500 is over ten points lower.

Fiona Cincotta, senior market analyst at City Index, said: "After a relatively quiet start to the trading day, it didn’t take long before the FTSE was once again careering downhill, wiping off over 1.7% across the session."

She said that while Ankara in Turkey had taken measures to stop the run on the Lira, there was still the issue of confrontation with the US.

"The heightened geopolitical tensions, in addition to strong US retail sales has sent the dollar soaring which is ultimately dragging metal prices lower and weighing on miners. Given the heavy weighting of miners on the FTSE, the index didn’t stand a chance," she said.

Top laggard on FTSE 100 was silver giant Fresnillo (LON:FRES), which lost 7.79% to stand at 897p, while top riser was insurance firm Admiral Group plc (LON:ADM), which added 3.20% to stand at 2,062p.

Profit impressed in the first half as several of the insurer's European businesses broke into profit and the UK motor insurance division also did well.

3.00pm: US market opens sharply lower

As expected, US markets opened lower – lower than expected, in fact – providing more reason to ditch UK equities.

At 3.00pm, the Dow Jones was down 233 at 25,067 and the S&P 500 was down 26 at 2,813. On this side of the pond, the FTSE 100 was 91 points in the hole at 7,521.

Miners continue to drag down the UK's blue-chips index while concerns over the situation in Turkey linger, with Wells Fargo Securities wondering whether Turkey is a canary in the emerging market coal mine.

Leaving aside the question of whether a turkey can be a canary, the US firm's Economics group reckons many developing economies are better equipped to deal with their external debt loads than they were 20 years ago.

“For starters, most developing economies allow their currencies to float at present, rather than maintain fixed exchange rates, as they did heading into the financial crises of 1997-1998. Consequently, central banks can allow the exchange rate to adjust gradually downward, and they do not need to jack up interest rates to defend their currencies to the same extent as they would under fixed exchange rate regimes,” Wells Fargo observed.

“Less monetary tightening means that their economies are more resilient than they would be under fixed exchange rates,” it observed, adding that the ability of many emerging market economies to service their debt is “a bit better” than it was two decades ago.

Ken Odeluga's verdict on Turkey is succinct.

The City Index mouthpiece said, “Turkey is nowhere near fixed, so risk appetite is struggling to make a comeback.”

Just seven Footsie constituents are showing gains on the day, two of which – Admiral and Direct Line Group PLC (LON:DLG) – are insurance companies.

Marketing and advertising agent WPP group PLC (LON:WPP) is getting a bit of love for once, having been in freefall since it parted ways with its founder, Sir Martin Sorrell.

The company announced a bolt-on acquisition yesterday and is also probably enjoying a lift from the US dollar's strength.

Royal Bank of Scotland Group PLC (LON:RBS) largely shrugged off a US$.494bn pay-out to settle US claims that it misled investors over the sale of residential mortgage-backed securities in the run-up to the credit crunch in the last decade.

The shares were down 1%, in line with the wider market.

2.00pm: Dollar strengthens after stronger-than expected retail sales data

The Footsie has just started to show signs of pulling out of its nose-dive.

US retail sales data has not been helpful to the cause and the FTSE 100 index finds itself down 84 at 7,528 ahead of the US open, just 10 points above its intra-day low.

Mining companies are responsible for a large chunk of those losses with Fresnillo, Antofagasta, Anglo American and Glencore all down 4% or more.

“The pain for the precious metal hasn't improved after the US retails sales data. The data shows that the retail industry is solid and consumers are feeling comfortable in digging deep in their pockets. This has strengthened the dollar index which is maintaining the pressure on the metal,” noted Naeem Aslam, the chief market analyst at ThinkMarkets.

One of the top risers this morning was Feedback plc (LON:FDBK), which was up 22% at 2.2p after landing its first contract under its partnership deal with imaging giant GE Healthcare.

Middle East-focused drugs maker Hikma Pharmaceuticals PLC (LON:HIK) was wanted after it raised its full-year guidance on the back of a strong first half.

The generic drugs company said first-half revenue was up 10% on a constant currency basis to US$989mln.

Each of its three business segments achieved revenue and profit growth and full-year guidance for two of them – Injectables and Generics – has been increased.

The shares climbed 147p to 1,794p.

12.30pm: Weak start expected on Wall Street

The Footsie's losses are starting to pile up now, driven by heavy losses on miners.

The FTSE 100 was down 74 at 7,538, with seven of the top eight fallers all miners, while the eighth is fellow traveller, the steel-maker, Evraz PLC (LON:EVR), which is down 4.6%.

Across the pond, the Dow Jones is expected to open at around 25,122, down 178 points, and the S&P 500 at around 2,821.4; down 19 points or so.

“Miners are hurting from the combination of stronger USD [US dollar] and sharply lower metals prices (copper at 12-month lows, gold close to 13-month lows), while the oil majors BP and Royal Dutch Shell are weighted down by the unexpected build in private API crude oil stocks last night, which sent Brent Crude international marker lower,” commented Artjom Hatsaturjants, a research analyst at Accendo markets.

“Investors are also nervous over the geopolitical back-and-forth between US and Turkey, as neither side appears ready to back down over recent confrontation that sent the Turkish lira to new lows and raised a spectre of FX contagion across Europe,” the analyst added.

It was not the best day for Latin American miner Hochschild Mining PLC (LON:HOC) to release results but the FTSE 250-digger is faring better than most of its peers, with its shares down just 1.3% at 166.8p.

Adjusted underlying earnings (EBITDA) climbed to US$161.9mln in the first half of 2018 from US$136.0mln the year before while profit before tax and exceptional items almost doubled to US$54.9mln from US$28.9mln.

11.30am: Footsie finally gets its skates on ... and careers downhill

Inflation may be rising but those of us who are house owners can always rely on house price inflation to offset it, can't we?

Well, up to a point.

The Land Registry reported that UK house prices rose 0.4% month-on-month in June, while the year-on-year rise slowed to 3.0%, which is its lowest level since August 2013.

London house prices fell 0.6% month-on-month and 0.7% year-on-year – but don't bother checking, twenty-somethings, you probably still can't afford to live there.

“The annual increase in UK house prices was dragged down by prices in London falling 0.6% month-on-month and 0.7% year-on-year in June. This was the largest annual drop since September 2009,” commented Howard Archer at the EY ITEM Club.

“Despite housing market activity recently coming off its 2018 low point, we doubt that the housing market is starting to see a marked upturn. We expect house price gains over 2018 will be limited to around 2.5%,” Dr Archer said.

Coincidentally, the EY ITEM economist also expects consumer inflation to hover around 2.5% for a while.

“At this stage, we expect prices to rise no more than 3% in 2019,” he added.

Jonathan Samuels, the chief executive of self-described “property lender” – that's a provider of loans to people looking to buy properties, not an organisation that lends properties to people – Octane Capital, said London has gone “from hero to below zero in a matter of a few years”.

"There's a widespread caution in the property market at present, caused by the uncertainty of Brexit and the ongoing squeeze on household income, as revealed by the latest July inflation data,” Samuels declared.

"Households are wary of taking on more debt, all the more so following the recent interest rate rise, which could further undermine sentiment.

"The jobs market might be holding up but if inflation maintains its grip on UK households, it's hard to see much improvement in the UK property market during the rest of the year.

"As for 2019, a no-deal Brexit could wreak further havoc amid UK bricks and mortar,” he declared.

Meanwhile, the FTSE 100 has finished dithering and decided to move lower, sliding 30 points to 7,582.

Admiral Group PLC (LON:ADM) defies the trend, topping the Footsie leader-board with a 3.5% rise at 2,067p after releasing solid interims.

READ Admiral sees strong UK demand drive 9% rise in first-half profits, but cautions over ‘hard’ Brexit risks

“Investors should be pleased with the 7% increase in the dividend to 60 pence and further encouragement should be found in the increasing customer base up 14% to 6.23m as well as the enlarged overall turnover up 14% to £1.66bn,” suggested Graham Spooner, an investment research analyst at The Share Centre.

“However the Cardiff-based group, which owns brands including Elephant and Confused.com, did report that the Beast from the East earlier this year had a detrimental impact on the group’s UK household division, pushing it into the red.

“The share price has trended rather sideways over the last two years; however we continue to recommend the shares as a ‘hold’, for medium risk investors geared to income due to the strength of the motor business in the UK, improving overseas operations and the strong capital position,” Spooner said.

10.15am: No need to panic over rising inflation

As expected, the great and the good are weighing in on this morning's inflation data, which seems to have had little impact on equities.

Howard Archer, the chief economic advisor to the EY ITEM Club, said the rise in the headline inflation rate was “disappointing but not unsurprising news for consumers” as the inflation rate headed north for the first time since last November.

“Upward pressure on inflation in July primarily came from higher prices for transport and computer games. There was also an upward impact from motor fuel prices which fell less in July than a year ago. This was partly countered by lower prices for clothing and footwear,” Dr Archer noted.

“Core inflation was stable at 1.9% in July, which was down from 2.1% in May/April, 2.3% in March and 2.4% in February,” he continued, adding that he expected inflation to hover around 2.5% in the near-term, with upward pressure coming from recent increases in oil prices and the weaker pound.

James Smith, an economist focused on developed markets, does not expect the rising trend to last and is therefore not expecting another rate hike before May 2019 at the earliest.

“Fuel costs have begun to stabilise, and the price of petrol, in fact, fell by 0.6% last month. Barring any further gyrations in oil prices, we think July’s figure represents a peak, and we expect CPI to begin trending downwards over the next few months gradually,” Smith said.

That will be good news for hard-pressed bosses of FTSE 100 companies, who got by with an 11% increase in pay last year, according to the High Pay Centre's annual review of top pay.

A worker on a median salary of £23,474 would have to work 167 years - – up from 153 years in 2016,- to earn the median annual pay of a FTSE 100 boss, according to the report.

In the wake of the inflation data, the FTSE 100 dipped one point into the red at 7,610 but as it was only a couple of points in credit before the data release, it is hardly a cataclysmic change.

9.45am: The Footsie gives a "so what?" shrug to as-expected inflation figures

Maybe the Bank of England was right to hike interest rates all along, as the inflation rate is back on the rise.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.3% in July 2018, unchanged from June 2018.

Using another measure, however, inflation has risen for the first time this year; the Consumer Prices Index (CPI) 12-month rate was 2.5% in July 2018, up from 2.4% in June 2018.

The data has had minimal effect on the FTSE 100, which like yesterday morning, is giving every indication of being like the average teenager and doing nothing very much in the morning.

The top-shares index was up 2.7 at 7,614, with the weakness of miners impeding progress.

“The FTSE leader board of fallers is populated by eight mining companies this morning as traders count the effects of the stronger dollar on the companies’ earnings. A stronger dollar spells bad news for miners, affecting not only commodity prices but also companies’ outgoings,” observed Fiona Cincotta at City Index.

“However, the market may be overreacting to the current dollar strength as this will also translate into higher earnings along the line,” she suggested.

 

8.40am: Quiet start for Footsie

The FTSE 100 made a quiet start to proceedings as traders kept their powder dry ahead of inflation figure in the next hour with the index of blue-chip shares registering a two-point gain to 7,614.03. 

The consumer price index (CPI) measure of inflation is set to read out at 2.5% year-on-year in July, up from 2.4% in June.

“The rise in CPI is most probably down to oil prices which have risen around 12% year on year, something that the Bank of England tends to look through when considering whether or not to hike interest rates,” said Jasper Lawler, markets guru at London Capital Group.

Near the top of the Footsie leader board was GlaxoSmithKline (LON:GSK), whose offshoot ViiV has come up with a once-a-month injection for HIV sufferers that replaces the current daily cocktail of pills.

The shares advanced 1.5% on news of a successful conclusion of clinical trials of the treatment.

The miners, which report in dollars, were all in retreat following the rise of the US currency overnight.

The copycat drugmaker Hikma (LON:HIK) was the leading riser on the FTSE 250 with a 10% jump after it upgraded its full-year earnings guidance following the publication of interim results.

Publican Mitchells & Butlers (LON:MAB) was up 3.5% after HSBC moved to ‘buy’ on the stock and raised is price target.

Proactive news headlines:

Feedback PLC (LON:FDBK) has received its first order from GE Healthcare for TexRAD, its image texture technology. The contract is the first from a distribution agreement signed in April with the American diagnostics giant. The end-user will be the Post Graduate Institute of Medical Education & Research, Chandigarh, India.

AIM-listed miner Vast Resources PLC (LON:VAST) has acquired an indirect 29.41% interest in the Blueberry project, which is host to highly prospective polymetallic mineralisation and sits in a prolific part of western Romania.

Coinsilium Group Limited (NEX:COIN) has invested US$125,000 in Bundle Network Limited, a company developing an online platform to facilitate trading in cryptocurrency exchanges.

Minds + Machines Group Limited (LON:MMX) said that its ‘.work’ top level domain (gTLD) is the most investment supported new gTLD for start-ups in the current year to date.

NetScientific PLC’s (LON:NSCI) portfolio company, Wanda, has launched its new digital health app Wanda CareLink. The app allows the Wanda Patient Management solution to be used on a wide variety of internet-enabled devices including iOS and Android devices.

Frontier IP Group PLC’s (LON:FIPP) portfolio company, The Vaccine Group (TVG), has been awarded a £50,000 grant to develop a vaccine to combat mastitis in cows.

Kibo Energy PLC's (LON:KIBO) has moved outside of its normal sphere of operations to buy a stake in a UK power project company in a deal that could provide a revenue stream for Kibo in the near future.

ECR Minerals PLC (LON:ECR) has told investors it intends to “become more proactive” in Argentina after management visited the country, meeting with the Department of Mining and being presented with multiple new opportunities.

Canadian Overseas Petroleum Limited (LON:COPL) chief executive Arthur Millholland told investors that the company is “very pleased” with its progress towards securing a vital financing package.

Chaarat Gold Holdings Limited (LON:CGH), the AIM-quoted exploration and development company with assets in the Kyrgyz Republic, announced that Linda Naylor today stepped down as its finance director. As previously announced, the group said Chris Eger is taking on many of her finance responsibilities as CFO.

Bluejay Mining PLC (LON:JAY), the AIM and FTSE-listed company with projects in Greenland and Finland, has announced the appointment of Ian Henderson as a non-executive director with immediate effect. The group noted that Henderson has spent over 20 years at JP Morgan during which time he ran both the UK Global Financials Fund and the firm's Natural Resources funds.

APQ Global Limited (LON:APQ), the AIM-listed emerging markets growth company announced that as at the close of business on 31 July 2018, its unaudited book value was 109.26 US cents per share, equivalent to 83.29p.

6.45am: Inflation numbers provide set-piece news

Ahead of today's inflation figures, UK equities were expected to open higher, helped by the dollar's resurgence.

Having shed 31 points yesterday to close at 7,611, the FTSE 100 was expected to claw back just over half of those losses and open at around 7,633.

Sterling was losing ground against the greenback on foreign exchange markets this morning, which will give a lift to the Footsie's sizeable contingent of big dollar earners.

US markets broke their losing streak yesterday with the Dow climbing 112 to 25,300 and the broader-based S&P 500 18 points better at 2,840.

In Asia, heading towards the close, Japan's Nikkei 225 was down 193 at 22,163 and Hong Kong's Hang Seng was down 497 at 27,256.

After Tuesday’s labour market report saw a drop in the UK unemployment rate to a 40-year low, offset by weakness in average earnings growth, traders will be looking for the latest inflation figures to provide better justification for this month’s Bank of England interest rate hike.

The June UK consumer price index (CPI) measure of inflation surprised the markets by coming in lower than expected at 2.4%, and RBC Capital’s economists are forecasting CPI to have increased by 2.6% year-on-year in July.

Insurers have been in fashion this week following the take-out of esure by Bain Capital so results from fellow car insurer Admiral should attract extra attention.

Data from the motor insurance sector suggests the firm saw a good underwriting performance last year and may achieve a fairly good outcome this year as well.

However, new car sales have been falling steeply and after several years of rising premiums, competition has increased, so it will be interesting to see if that is reflected in Admiral’s figures.

The price comparison websites have also seen more in the way of competition so the market will be keeping an eye on profits in that area as well.

Elsewhere in the cars sector, car dealer Lookers will be reporting interims.

Significant announcements expected on Wednesday:

Interims: Admiral PLC (LON:ADML), Balfour Beatty PLC (LON:BBY), Hikma Pharma PLC (LON:HIK), Hochschild Mining PLC (LON:HOCH), Lookers PLC (LON:LOOK, CLS Holdings PLC (LON:CLI) , Riverstone Energy Limited (LON:RSE)

Economic data: UK CPI, RPI, PPI, HPI inflation; UK construction output; US retail sales; US industrial production; US Empire State manufacturing survey; US housing market index

Around the markets:

  • Sterling: US$1.1329, down 0.15 cents
  • 10-year gilt: yielding 1.265%
  • Gold: US$1,194.20 an ounce, down US$6.40
  • Brent crude: US$72.61 a barrel, down 29 cents
  • Bitcoin: US$6,309.39, up US$228.82

City headlines:

The Guardian

  • Homebase is planning to close at least 42 DIY outlets by early next year, putting more than 1,500 jobs at risk.
  • The eurozone economy has shrugged off growing trade tensions to revise GDP growth higher from 0.3% to 0.4% between April and June, mainly due to strong consumer and government spending in Germany.

The Daily Telegraph

  • The jobless rate fell to 4% in the three months to June, its lowest level in more than 40 years as the rebounding economy created tens of thousands of new jobs.
  • Esure founder Sir Peter Wood said he will stay at the insurance company for some time, after it agreed to be sold to Bain Capital for £1.2 billion.
  • India’s currency dramatically fell to an all-time low, reaching 70 rupees against the US dollar on Tuesday in the wake of Turkey's currency crisis.

Daily Mail

  • Royal Mail has been fined £50 million by the communications regulator for abusing its dominant position by discriminating against Whistl, its only major competitor.
  • Two in three pension schemes in the UK are in the red, opening up a black hole of nearly £190 billion in the retirement plans of millions of workers.
  • A special committee set up by Tesla to examine Elon Musk’s plans to take the company private says it has yet to receive an offer.

The Independent

  • The pay of company chief executives has soared by 11% in the past year, as compared to 2% for full time workers, despite criticism from investors over excessive payments.

The Times

  • The number of buy-to-let mortgages completed in June dropped by just under a fifth compared with a year earlier due to tax changes and tougher borrowing conditions.
  • Royal Bank of Scotland said it would be paying an interim ordinary dividend of 2p a share on 12 October after agreeing last night to pay US$4.9 billion to settle American claims that it misled investors on residential mortgage-backed securities between 2005 and 2008.

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