- FTSE 100 closes 105 points lower
- US markets expected to make a bright start
- Dr Martens slides as RBC puts the boot in
4.45pm: FTSE 100 sinks to 8-week low
At the close, the UK's main index had suffered a 1.4% loss on the day to finish at 7,522 points.
That represents an eight-week low, IG's Chris Beauchamp noted.
“A reshuffle at Unilever and major weakness in oil and other commodities has meant that the FTSE 100 has retreated on a broad front," Beauchamp wrote earlier.
"Even without the fresh uncertainty about the debt ceiling the index has at a fresh two-month low. It looks like stocks will have to face another wave of rate hikes around the globe, hitting global demand and knocking earnings.”
3.45pm: FTSE set to close in the red
London’s blue-chip index looks set to close the day in the red, currently down 83 points, or 1.05%.
Unilever is the index’s largest faller, shedding around 3%, while Rolls-Royce is down around 2.7% and Ocado 2.6%.
Leading the index towards the close of play is Frasers, up 2.8%, with BT closely behind, up 2.1%.
3.31pm: US open
AI-linked stocks were pushing US indices as Nvidia became just the ninth-ever company to reach a market cap of US$1tn.
The S&P was up 0.12%, while the tech-laden Nasdaq gained 0.4%.
Alongside Nvidia, Advanced Micro Devices, Intel and Qualcomm were all in the green.
Tesla also gained almost 4% after Elon Musk told the Chinese foreign minister, Qin Gang that he was willing to expand business in the country.
2.53pm: Gold hovers
Gold continues to hover around two-month lows of US$1,950 an ounce with the precious metal weighed down by hawkish US Federal Reserve bets and talks that a US debt ceiling deal was agreed over the weekend.
Stronger than expected US economic data bolstered expectations of further interest rate hikes from the Fed, with gold highly sensitive to rate outlook.
Higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal.
2.23pm: Nvidia set for US$1tn market cap
Nvidia is on course to become the first US$1tn chipmaker as it looks to capitalise on the booming artificial intelligence markets.
Shares in the US company jumped 4% in pre-market trading, taking it past the US$1tn mark.
In the year so far, the stock is up 172%, boosted by last week’s first-quarter earnings that shattered expectations.
The company posted revenue of $7.2bn, above the consensus analyst expectation of $6.5bn.
1.57pm: Sterling bounces back
Sterling rose back above $1.24, recovering from a two-month low of $1.2306 reached on May 25th.
The currency was bolstered by expectations of additional interest rate hikes by the Bank of England, following data which indicated that inflation was not easing as initially anticipated.
Although the annual inflation rate dropped to 8.7%, marking its lowest level in over a year, it still surpassed market expectations of 8.2%.
Notably, the core inflation rate, which excludes food and energy prices, surged to 6.8%, reaching its highest level in 31 years.
1.30pm: London's movers
A quick glance at some of today’s movers in London:
Drumz- up 7% to 5.4p
Shares in Drumz, the risk management services provider, jumped after announcing its subsidiary entered a partnership with an award-winning cyber security firm.
Acuity Risk Management entered a new partnership with Nettitude, which will join Acuity’s network of partners as a reseller of STREAM Integrated Risk Manager
CleanTech Lithium- up 7% to 46.7p
CleanTech Lithium saw shares nudge higher after it unveiled promising results from its pump test programmes at Laguna Verde and Francisco Basin.
Furthering its efforts, it is also set to begin a brine reinjection test at Laguna Verde - a first in Chile's lithium sector.
Hunting- up 14% to 230p
Engineer group Hunting surged after the company secured a US$91mln contract and increased its earnings guidance.
The new business is with Cairn Oil & Gas in India and brings the sales order book to US$575mln.
Malvern- up 16% to 19.2p
Shares jumped after the learning and skills development company announced a surge in student intake numbers and revenue, evidence that the industry is bouncing back from the Covid-19 pandemic.
1.02pm: US futures point to firm start on Wall Street
Wall Street is likely to open in the green as traders return from the Memorial Day long weekend to news that US President Joe Biden and House Speaker Kevin McCarthy reached a final agreement on Sunday to raise the country’s debt ceiling, now at $31 trillion.
Futures for the Dow Jones Industrial Average rose less than 0.1% in Tuesday pre-market trading, while those for the broader S&P 500 index gained 0.6% and contracts for the Nasdaq-100 jumped 1.4%.
Ahead of the extended weekend break, the main US indexes closed higher on Friday on optimism that a resolution would be reached. The S&P 500 ended 1.3% at 4,205, the Dow was 1% higher at 33,093 and the Nasdaq was 2.2% higher at 12,976 points.
Central to the debt-ceiling agreement is a two-year budget deal that would essentially cap spending for 2024, while increasing it for defense and veterans, and holding increases at 1% for 2025.
“While the initial reaction is likely to be positive, sentiment will be tempered fact that the deal is not yet over the line, with the next hurdle being Congress where there have already been some rumbles of dissatisfaction,” commented Richard Hunter, head of markets at interactive investor.
“In any event, further developments will be keenly awaited this week as the political saga continues to unfold, and until a definitive agreement is reached, markets are likely to resume something of a holding pattern.”
If a debt ceiling agreement were to be reached this week, Hunter said investors will return to business as usual, with the non-farm payrolls report due on Friday.
The expectation is for 180,000 jobs to have been added in May, as compared to the previous month’s reading of 253,000, he noted.
The release will be one of the last pieces of data input for the Federal Reserve before the upcoming June meeting, where the consensus remains split between a pause and a further hike of 0.25%, given the ongoing strength of recent economic numbers,” Hunter added.
“On Friday, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index came in higher than expected, further muddying the waters.”
12.30pm: Rolls-Royce and BAE hit by Indian bribery claims
Rolls-Royce Holdings PLC (LSE:RR.) and BAE Systems PLC have been struck with allegations of corruption by Indian investigators over previous fighter jet deals.
Commissions were allegedly paid by the manufacturers to Indian defence ministry officials and two middlemen who exerted “undue influence” on the government to sign deals for Hawk training jets.
Rolls-Royce said the claims, which focus on deals made between 2003 and 2012, had already been disclosed in 2017, when the FTSE 100-listed firm paid £497mln to Britain's Serious Fraud Office.
"We will not tolerate business misconduct of any sort and are committed to maintaining high ethical standards," Rolls-Royce said, adding the company was now “fundamentally different”.
BAE said it was “committed to maintaining high standards of ethical conduct,” but added it would be “inappropriate” to discuss the ongoing investigation.
Shares in Rolls-Royce were 2.3% lower while BAE was down 0.5%. The FTSE 100 is down 0.6% at 7,579.
12.20pm: Pick up in number of buy-to-let properties being sold
The latest data on the housing market from Zoopla shows landlords are adding to supply levels by selling their properties to rationalise their portfolios and avoid the impact of higher mortgage rates.
The property website said its index showed that 1 in 10 (11%) of homes currently listed for sale were previously rented out.
This figure peaked at 14% in 2020 during the pandemic and has gradually decreased since then, it noted.
Five years ago, around 50% of these rental properties listed for sale returned to the rental market - either unsold or bought by another investor. However, only a third are returning to the rental market more recently.
These ex-rented properties are 25% cheaper in asking price than owned homes (£190,000 vs £250,000 which could be appealing to first-time buyers, Zoopla said, particularly in light of tougher buying conditions this year.
Meanwhile, losses in the FTSE 100 have accelerated, with the index now down over 50 points.
11.41am: Jefferies highlights value in Babcock
Shares in Babcock International Group PLC gained 0.9% after Jefferies assumed coverage with a buy rating and increased price target of 460p (up from 450p).
The broker believes that Babcock is at a turning point of its equity story, with the free cash-flow recovery, driven by both EBITA margin recovery and a drop-off in one-off cash headwinds, making its value appeal clearer.
It feels a financial year 2024 free cash flow guide would represent a “key catalyst.”
“Babcock is a recovery story, as execution issues have pressured its margin, and unwinding of window-dressing practices pushed FCF into negative territory,” it said.
Babcock is now a value name, it said, trading at a steep discount to its UK defense peers BAE Systems and QinetiQ.
“We anticipate a re-rating, once the group starts to deliver on its FCF recovery (lower WC, pensions headwinds), which should allay concerns on its balance sheet and reopen the window for cash returns to shareholders,” the broker continued.
Jefferies accepts Type 31 & inflation represents the main risk to its positive view on the name.The broker said it was mindful of the risks on Type 31 and inflation and include £250mln of provisions compared to the £50-100mln guided by the firm.
11.30am: Purplebricks continues to favour Strike deal despite rival bid
Purplebricks Group PLC (AIM:PURP) has received a 12th hour bid approach from one of its top investors, Lecram Holdings, although it continues to favour an alternative approach from Strike Ltd, unveiled two weeks ago.
The embattled online estate agency said Lecram, which owns nearly 5.2% of Purplebricks and is run by activist investor Adam Smith, has tabled a bid of 0.5p per share in cash, valuing it at around £1.5mln.
Earlier this month Purplebricks signed a deal with Strike that would see it sold for a token price of £1, with the takeover effectively wiping out all Purplebricks shareholders.
But in a statement Purplebricks said: "The Board does not currently consider that the proposal reflects an improvement on the proposed sale of business and assets to Strike Limited, particularly as regards anticipated return to shareholders and certainty for the company's other stakeholders."
11.15am: Retail analyst slams reports of food price controls
Reports that ministers are working with supermarkets to voluntarily cap the price of basic food items were slammed by Clive Black at Shore Capital.
“It looks like when it comes to food policy at least, there are no grownups around in 10 Downing Street or DEFRA,” he said.
The well-respected retail analyst was scathing in saying the Prime Minister's interest in food price controls “beggars' belief” in terms of being two-faced (we want farmers to be paid more but shopper to pay less) amidst wider policy failure.
“No one in Whitehall, it seems, has the wit to look in the mirror and think how Government directly and indirectly contributes to inflation,” he added.
Black felt the UK Government should reflect on how its “frankly poor energy strategy, crazy immigration policies, poor education and skills delivery, and at times inappropriate legislation have contributed to the cost base of industry that must be collected back from the market if business is to survive.”
For the grocers, Black said the talk of potential price controls was frankly a “bizarre and depressing narrative,” the impact of which can have all sorts of wider ramifications through the supply chain whilst not doing anything to help with supply-side cost pressures, much of which comes from Government.
“Forked tongue, two-faced, whatever one calls it, the UK Government is just not doing it for business,” Black continued.
“The wider reputation of the UK as a place to invest is also not assisted by supply-side failure, poor administration and frankly, hair-brained policy ideas,” he added.
10.35am: Dr Martens slips 5% ahead of results, RBC downgrades
Dr Martens PLC (LSE:DOCS) is a notable faller ahead of its full year result on Thursday.
Shares fell 5.1% to 153.12p as RBC Capital Markets downgraded the stock to sector perform from outperform and reduced its price target to 180p from 230p.
“Whilst we view the longer term growth potential for Dr Martens as attractive, we are mindful of nearer term challenges particularly for the US market (37% revenues), which do not appear to be adequately reflected in company FY24E revenue guidance or consensus,” the broker commented.
RBC admitted its call on Dr Martens “has not been the best” up to now, and for a variety of reasons (de-rating, UK exposure, US DC execution) it sees the potential for further deceleration/earnings downside.
“The US is the least attractive region currently from a consumer discretionary growth perspective for well flagged reasons, whilst wholesale distribution which is higher in the US vs group average is contending with elevated inventories, more cautious buying and promotional activity,” RBC said.
It highlighted the recent read-across from US (footwear) peer group reporting has been unfavourable, with Hibbett Sports (NASDAQ:HIBB), VF Corporation and Foot Locker all lowering guidance on slowing US retail trends in the past week.
The broker has lowered estimates by 8%/9% for financial year 2023 revenue and EPS and sits 8%/4% below consensus.
9.55am: WPP gains on Nvidia link-up
Shares in WPP PLC (LSE:WPP) jumped 1.7% after the world’s biggest advertising agency said it is teaming up with Nvidia Inc, the American chip company, to develop a platform that will create automated digital adverts using artificial intelligence.
WPP said that integrating 3D tools with generative AI would allow its creative teams to produce commercial content, such as images and videos, more quickly.
The tool will be based on Nvidia’s Omniverse Cloud platform, an end-to-end suite of cloud services built for designing and publishing 3D internet applications.
Jensen Huang, the billionaire founder and chief executive of Nvidia, announced the engine during his keynote address at Computex, an annual conference in Taipei.
"“With Omniverse Cloud and generative AI tools, WPP is giving brands the ability to build and deploy product experiences and compelling content at a level of realism and scale never possible before,” he said.
Nvidia was in the news last week after forecasting-busting results which saw shares jump 25% in one day.
9.35am: Aston Martin chair cashes in
The chair of Aston Martin Lagonda Global Holdings PLC (LSE:AML) has cut his stake in the Gaydon, England-based luxury car manufacturer.
Lawrence Stroll sold 34.9mln shares at £3.35 per share via British Virgin Islands-incorporated Yew Tree Overseas Ltd in a deal worth £117mln in total, the car maker said.
Shares slipped 2.1% to 259.60p while the FTSE 100 is now 12 points at 7,615.
9.18am: Spanish inflation falls more than expected
Envious glances from the Bank of England as they look at inflation figures coming out of Spain.
Spanish inflation has dropped to 2.9%, its lowest level for almost two years, boosting hopes that price pressures will ease quickly across Europe.
Annual consumer price growth in Spain decelerated from 3.8% in April and was better than the 3.4% figure predicted by economists.
Spain’s statistics office said the main factor pulling down inflation was a fall in fuel prices. A slowdown in the growth of food and non-alcoholic drink prices “also played a role, although to a lesser extent”, it added.
Susannah Streeter at Hargreaves Lansdown noted: "The gult between price growth in the UK and Eurozone nations appears to be widening, with prices in Britain proving much more stubborn."
"The snapshot from the British Retail Consortium showed that shop price inflation increased to 9% in May up from 8.8% in April but the latest reading through from Spain showed that consumer price inflation had dropped to 3.2% in May from 4.1% in April, a sharper fall than expected."
Inflation data for May in Germany and France is due to be published on Wednesday. Eurozone inflation figures will be published on Thursday.
8.50am: Hunting raises guidance after new $91mln deal
The FTSE 100 has rallied to trade little changed, just the right side of the line, up 1 points.
Hunting PLC (LSE:HTG) shares have soared after it raised earnings guidance after securing a $91mln contract with Cairn Oil and Gas, Vedanta Ltd.
The contract is for an estimated 100 wells and is to extend up to three years and is a record for Hunting's Oil Country Tubular Goods division.
"With this order, Hunting's sales order book now is c.$575mln, which represents a material increase since the year-end," the firm said in a statement.
Hunting now expects 2023 full year EBITDA will be in the range of $92-$94mln, a further increase to the guidance issued alongside full year results in March. Guidance for cash remains unchanged.
Jim Johnson, Chief Executive, said: "US market activity remains stable and with the orders received for China, Guyana, Brazil and now India, Hunting continues to see a strong growth profile given our standing and recognition with major energy companies, coupled with the strong international market sentiment being reported in many regions."
Shares leapt 14.5% to 230.70p.
Babcock International Group PLC shares spiked 1.7% higher to 313p supported by positive comments from Jefferies.
The broker has increased its share price target to 460p from 450p. Initiating coverage of the company, Jefferies set a 'buy' rating and believes "that Babcock is at a turning point of its equity story."
Heading the other way were shares in Dr Martens PLC (LSE:DOCS) which slipped 3.5% as RBC Capital Markets downgraded its rating to sector perform from outperform.
The broker cut its price target to 180p from 230p.
8.15am: FTSE 100 moves lower as shop price inflation hits new peak
The FTSE 100 has opened lower as shop price inflation hit a new high and ahead of votes in the US to approve the debt ceiling deal brokered over the weekend.
At 8.15am London’s lead index stood at 7,615.65, down 11.55 points, or 0.15% although the mood was brighter in the broader FTSE 250 rising 34.45 points, or 0.18%, to 18,828.54.
Richard Hunter, head of markets at interactive investor, commented “US markets have not yet had a chance to react to the news that an agreement in principle to the debt ceiling conundrum was reached over the weekend, having been closed on Monday."
"While the initial reaction is likely to be positive, sentiment will be tempered fact that the deal is not yet over the line, with the next hurdle being Congress where there have already been some rumbles of dissatisfaction."
"In any event, further developments will be keenly awaited this week as the political saga continues to unfold, and until a definitive agreement is reached, markets are likely to resume something of a holding pattern."
There was better news on food price inflation which eased in May, according to figures from the British Retail Consortium, although overall shop price inflation hit a new high.
According to the BRC shop price inflation increased to 9.0% in May, on an annual basis, up slightly from 8.8% in April. This is above the 3-month average rate of 8.9% and takes shop price growth to a fresh high.
Helen Dickinson, chief executive of the BRC said: "While overall shop price inflation rose slightly in May, households will welcome food inflation beginning to fall."
Food inflation decelerated to 15.4% in May, down from 15.7% in April but was still the second highest rate on record.
Dickinson added: "The slow in inflation was largely driven by lower energy and commodity costs starting to filter through to lower prices of some staples including butter, milk, fruit and fish."
Bunzl PLC (LSE:BNZL) eased 0.7% after the firm unveiled two more bolt-on deals making it 200 acquisitions since 2004.
Shore Capital said the acquisitions in Spain and Brazil "can be expected to drive further upgrades as the year progresses."
"Bunzl remains a quality cash compounding play," in the broker's view, reiterating its buy rating.
7.50am: Asda confirms EG petrol stations deal
Supermarket Asda Group has confirmed it will acquire petrol station operator EG Group's UK and Ireland business, in a £2.27bn deal, creating a company with combined revenues of nearly £30bn.
Asda is the UK's third-largest supermarket, and - like EG - is owned by brother Zuber and Mohsin Issa and private equity group TDR Capital.
The deal will mean the acquisition of around 350 petrol stations and more than 1,000 food-to-go locations and leave an enlarged company with around 170,000 employees, nearly 600 supermarkets and 700 petrol forecourts.
Asda said the acquisition will strengthen its financial profile with the contribution of c. £195mln EBITDA after rents, with additional P&L synergies of c. £100mln expected to be generated over the next three years.
Asda chair Stuart Rose said: "Asda's acquisition of EG UK and Ireland will create a consumer champion like the UK has never seen. Throughout my career in retail, one thing has always been true - that meeting the evolving needs of customers is the route to growth."
The proceeds, in addition to $1.4bn from a recent sale-and-leaseback deal in the US, will be used to repay EG Group’s debt of around $9bn, the firms said, with net leverage expected to fall to below five times.
Zuber Issa said the transaction was “an important strategic step” for the group, co-owned by TDR Capital.
“Following this sale, EG Group will benefit from a significantly strengthened balance sheet,” he said.
7.40am: Food price growth slows - BRC
Food price inflation slowed in May although shop price inflation accelerated to a new peak, latest figures showed.
Helen Dickinson, chief executive of the BRC said: "While overall shop price inflation rose slightly in May, households will welcome food inflation beginning to fall."
According to the latest British Retail Consortium-NielsenIQ tracker, shop price inflation increased to 9.0% in May, on an annual basis, up slightly from 8.8% in April. This is above the 3-month average rate of 8.9% and takes shop price growth to a fresh high.
But food inflation decelerated to 15.4% in May, down from 15.7% in April, in line with the 3-month average rate of 15.4%, and still the second highest rate in this category on record.
Non-food inflation accelerated to 5.8% in May, up from 5.5% in April, above the 3-month average rate of 5.7%.
Dickinson added: "The slow in inflation was largely driven by lower energy and commodity costs starting to filter through to lower prices of some staples including butter, milk, fruit and fish."
"Conversely, the price of chocolate and coffee rose off the back of the ongoing high global costs for these commodities. While non-food inflation rose, consumers are benefitting from heavy discounts in footwear as well as books and home entertainment," she commented.
Dickinson said fierce competition between supermarkets has helped keep British food among the cheapest in Europe and while there is reason to believe that food inflation might be peaking, "it is vital that government does not hamper this early progress by piling more costs onto retailers and forcing up the cost of goods even further."
She felt the "biggest risk comes from policies such as the incoming border checks and reforms to packaging recycling fees.
Fresh food inflation decelerated in May, to 17.2%, down from 17.8% in April, the second highest inflation rate in this category on record, while ambient food inflation accelerated to 13.1% in May, up from 12.9% in April, the fastest rate of increase in this category on record.
7.26am: Bunzl makes 200th acquisition since 2004
Bunzl PLC (LSE:BNZL) has made two more bolt-on purchases, its 200th acquisition since 2004, buying a safety business in Brazil and a safety business in Spain.
The packaging supplier said in May is agreed to buy Leal Equipamentos de Proteção, a specialised safety distributor in Brazil with a strong own brand portfolio.
It described the business which generated revenue of around £34mln in 2022 as “high margin.”
Bunzl said the deal, which is subject to competition authority clearance, it would complement its strong portfolio of safety businesses in Brazil.
In April, Bunzl bought Irudek, a distributor of safety and personal protective equipment, specialising in fall protection equipment in Spain.
In 2022 the business generated revenue of EUR 17mln (around £15mln).
Frank van Zanten, Chief Executive said the deals, “expand our offering within the safety sector, have strong own brand portfolios, and are margin accretive to the group.”
Bunzl said the 200 acquisitions since 2004 has driven two thirds of its revenue growth over the last 10 years
“Our pipeline is active and our balance sheet remains strong, and we see significant opportunities for further acquisition growth to supplement our resilient organic growth," van Zanten said.
7.00am: FTSE expected to edge higher at the open
The FTSE 100 is expected to open a touch higher on Tuesday as markets in the UK and the US return after the long weekend.
Spread betting companies are calling London’s lead index up by around 5 points.
In the US, Republican and Democratic leaders are looking to secure congressional support for the debt ceiling deal brokered over the weekend aimed at avoiding a catastrophic US debt default.
The bill, finalised on Sunday by US President Joe Biden and House Speaker Kevin McCarthy after weeks of frantic talks, faces opposition from the progressive and hard-right wings of their respective parties.
Biden told reporters on Monday that he felt “very good” about the deal’s prospects in Congress. “I’m confident that we’ll get a vote in both houses, and we’ll see,” he said.
In the UK, shop price inflation accelerated in May to a new peak, although food price inflation decelerated despite remaining at an elevated level.
According to the latest British Retail Consortium-NielsenIQ tracker, shop price inflation increased to 9.0% in May, on an annual basis, up slightly from 8.8% in April. This is above the three-month average rate of 8.9% and takes shop price growth to a fresh high.
In Asia on Tuesday, the Nikkei 225 index was up 0.3%. In China, the Shanghai Composite was down 0.6%, while the Hang Seng index in Hong Kong was down 0.4%.