- FTSE 100 loses 24 points on the day
- UK house prices fall at fastest annual rate in 12 years
- Lender OSB tanks as customers hurry to refinance mortgages
4.40pm: FTSE 100 has worst week since March
The FTSE 100 suffered its worst closing level so far in 2023, closing at 7,257 points for a 0.3% loss on the day.
The index is down nearly 4% year to date.
Across the pond, the "average" US jobs report helped take some of the heat out of the rise in bond yields, CMC's Michael Hewson noted, pulling them off their peaks.
Now the focus turns to next week’s US CPI report, which is expected to show that inflation in the country has slowed down.
3.50pm: Footsie to close at 2023 low point
London’s blue chip index struggled this week, and looks set to close around 3.5% lower, marking the worst weekly performance since March.
Though FTSE 100 managed to eke out some late-Friday gains, it has ultimately been an underwhelming session losing 0.2% against the day.
At the time of writing, the index is at the lowest point year to date, trading at 7,264.
Michael Hewson at CMC noted: “Despite modest gains for the likes of the FTSE250, DAX and CAC40, the FTSE 100 has struggled close to its March lows with health care and utilities acting as a ball and chain on the day, and as for the performance on the week it’s been the worst week since the sharp falls we saw in March.”
3.28: What’s happening on the earnings calendar next week?
As we near the end of the week, let’s see what’s in store for the earnings calendar when we return on Monday.
When J Sainsbury plc updates the market on Tuesday it will continue to do so in the eye of the storm around alleged profiteering and sky-high food inflation.
JD Wetherspoon plc provides a pre-close trading update on Wednesday, with investors eager to know whether any of the soaring costs stunting the industry are abating.
Housebuilder Persimmon plc releases its first-half trading update on Thursday with plenty of nervousness surrounding the sector.
The FTSE 100-listed shares have halved in a year, reflecting worries about the upward turn in interest rates, an end to government support schemes, a dividend cut and expectations of lower profits.
It’s all about Big money in the US.
US banks are set to report mixed second-quarter earnings, starting off with JPMorgan Chase & Co, Wells Fargo & Company, and Citigroup Inc which are all handing down their latest financial results on Friday, July 14.
Bank of America Corp and Morgan Stanley and Goldman Sachs keep the financial services earnings season ticking along the week after that.
Wells Fargo and JP Morgan are expected to post the highest profit growth when compared to the year-ago quarter, while Citigroup, Morgan Stanley, and Goldman Sachs are expected to report a drop in profit.
3.20pm: Footsie closes the gap, but still in the red
Footsie is gaining traction as the final Friday trades take place.
From an afternoon low of 7,250 the index has rebounded to 7,267, less than 0.2% down against yesterday’s closing price.
Coca-Cola’s bottling entity is leading the charge having ticked 4.9% higher after revising its 2023 earnings guidance upward after an unexpectedly strong start to the year.
JD Sports is also putting in a good showing with a 2% add after buying out the minority shareholders in Iberian Sports retail Group for around €500mln.
In the US market, tech-heavy Nasdaq has surged higher, which Dow Jones and S&P have stayed in the red.
Looking across the week, the blue-chip index has fallen by 3.5%, marking the second straight week of low-single-digit losses.
2.45: Stocks mostly in red in London and New York
US stocks have mostly opened in the red, but not (you guessed it!) the tech-led Nasdaq, which is being led higher by Tesla announcing a new refer-a-friend scheme and Meta Platforms on its new 'Twitter killer' Threads app, which was said to have passed 55mln users.
Old daddy Dow Jones is only down slightly, 0.06%, while the S&P 500 is up marginally, 0.09%, and the Nasdaq is up 0.3%.
The FTSE 100 has moved roughly sideways after its initial improvement on the back of the US jobs report, down 26 points at 7254.
2.10pm: Slight weakening in US economy 'not enough' to stop another rate hike or two
Reacting to the US non-farm payrolls numbers, US Treasuries rallied, with the benchmark two-year yield falling back below 5%.
The US dollar spiked lower against the pound on the NFP release but is still down just 0.25%, while losing 0.18% versus the euro.
"Despite the US creating less jobs than expected in June, signalling good news to the Fed, this would have been partially offset by the tick-up in average hourly earnings," said investment strategist Nathaniel Casey at Evelyn Partners.
"With wage growth still too high to be consistent with the Fed’s 2% inflation target, it suggests further easing in labour market conditions will be needed for the Fed to be confident their rate hiking regime has concluded."
Andrew Hunter, deputy chief US economist at Capital Economics, said: "Although slowing employment growth will be welcomed by Fed officials – particularly following the alarming (and seemingly misleading) surge in the ADP measure reported yesterday – that positive news will have been partly offset by the 0.4% m/m rise in average hourly earnings, with May’s gain revised up to a similar rate."
With the annual rate of wage growth unchanged, he agreed that was "still too strong to be consistent with 2% inflation and suggests a further easing in labour market conditions is still needed".
Ryan Brandham, head of global capital markets, North America at Validus Risk Management, said: “There is some slight weakness starting to appear in the US labour markets, which could see the USD weaken a touch today and rate hike pricing moderate slightly, but it doesn’t feel like this number alone is enough to derail a hike at the FOMC meeting in July.”
1.40pm: Movers - challenger bank OSB tanks as mortgage fallout spreads
Let's have a look at some of the big risers and fallers around the FTSE and AIM.
Risers
Shares in skin care specialist Creightons PLC (LSE:CRL) scrubbed up more than 6% on stronger second-half results on the back of earlier “remedial” actions.
Reporting more than a four-fold jump in operating profit to £1.3mln during the second half, the fragrance and beauty product maker pointed to a successful efficiency drive.
Aptamer Group PLC (AIM:APTA), the producer of binders that can be used as an antibody alternative in the life science industry, capped a roller-coaster week on the up after it announced it has won several contracts worth a total just over £0.5mln.
Four new deals were signed over the last three weeks following on from what the life science firm said had been a difficult year.
Shares rose 18% to 5p.
Fallers
OSB Group PLC (LSE:OSB) sank 27% the challenger bank warned it will face a hit of up to £180mln because customers are acting faster than expected to refinance their mortgages at favourable rates.
The specialist lending and retail savings group, which owns the Kent Reliance and Charter Savings brands, explained it had seen a “step change” in the behaviour of its Precise Mortgages owner-occupied and buy-to-let customers reaching the end of their initial fixed term.
Shares in Catalyst Media Group (AIM:CMX) dipped more than 10% after talks between a private equity firm and the company’s investee ended without a deal.
Sports Information Services (SIS), the provider of 24/7 betting content, previously entered talks with Oakvale Capital about a potential takeover.
Vast Resources PLC (AIM:VAST) shares fell 10% to 0.37p after it raised £1.7mln through a placing at 0.35p, with the shares having closed at 0.41p and been above 0.6p for much of the past six months.
1.35pm: US jobs miss forecasts
The US jobs report came in short of forecasts for the first time in 15 months.
Non-farm payrolls for June rose 209,000, which was down from the 339K the month before and below the 230K consensus estimate.
Data for May was also revised lower from 339,000 to 306,000, along with the previous few months.
The US unemployment rate eased to 3.6% in June from 3.7%, which was expected.
Average hourly earnings were up 0.4% month-on-month, which was more than the 0.3% the previous month and which was expected again for June. On a year-on-year basis average earnings rose 4.4% versus the 4.2% Wall Street consensus and the previous 4.3% from May.
The FTSE 100 quickly pared its losses, now down 12 points or 0.17% at 7,268. Wall Street futures dipped slightly lower.
1.15pm: FTSE among the losers in Europe
London's blue-chip index is one of those in red amid a mixed session across Europe, with Germany's DAX, France's CAC and Italy's FTSE MIB all in green, while Spain's IBEX is down.
There's been a couple of bits of notable European IPO news today, with a €2.5bn float for a new green hydrogen production company, ThyssenKrup Nucera. Raising over €600mln at an issue price of €20, the shares have received a warm welcome, rising over 14% so far.
Elsewhere, a company with a head office in the City of London has floated in Amsterdam with a market cap of just under €90mln.
UK-based Global InterConnection Group (ticker: CABLE), which is developing an undersea interconnector cable between the UK and Iceland and looking to build a factory near Middlesbrough, has seen its shares drop 9.5% today after floating on Euronext Amsterdam.
Earlier this week, CAB Payments Holdings PLC (LSE:CABP) made a stuttering start to life on the LSE - a rare UK float this year - with shares in the cross-border and foreign exchange group dropping 10% to 303p on its debut yesterday, but recover slightly to 304p so far today.
1.00pm: US stocks seen lower ahead of non-farm payrolls
US stocks are expected to open slightly lower on Friday with all eyes on the crucial US jobs report for June amid persistent expectations of further interest rate hikes in the world’s biggest economy.
In pre-market trading, futures for the Dow Jones were 0.04% lower, while those for the S&P 500 also were down 0.08% and contracts for the Nasdaq-100 futures shed 0.16%.
ADP jobs data yesterday came in strong, leading to expectations that the non-farm payrolls will also reflect strength.
In May, US non-farm payrolls rose by 339,000. Consensus expectations point to a 240,000 increase in June. The data is due at 1.30pm UK time (8.30am in New York).
NFP estimates
270,000 - Morgan Stanley
260,000 - Wells Fargo
250,000 - Societe Generale
250,000 - Goldman Sachs
235,000 - HSBC
225,000 - Barclays
200,000 - Deutsche Bank
200,000 - JP Morgan Chase
190,000 - Credit Suisse
175,000 - UBS
170,000 - Citigroup
— zerohedge (@zerohedge) July 7, 2023
“The official US jobs data could or could not confirm the strength in the ADP figures, but we are all prepared for another month of strong NFP data, and lower unemployment,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“If anything, we could see the wages growth slow. If that’s the case, investors could still have a reason to see the glass half full and bet that the US economy could achieve the soft landing that it’s hoping for,” she added.
The Federal Reserve’s latest minutes showed that most committee members would support another interest rate increase further out even though they skipped a rate hike in June. Strong non-farm payroll data is likely to strengthen rate hike expectations.
Ozkardeskaya noted that a strong jobs market means resilient consumer spending, which in turn means sticky inflation.
Other economic data has confirmed the US economy is in decent health as well, she said, pointing to the ISM services PMI data.
“If we connect the dots, the US manufacturing is slowing but services continue to grow, and services account for around 80% of the US economic activity, so no wonder the US jobs data remains solid and consumer spending remains resilient, and the US GDP growth comes in better than expected, and we haven’t seen that recession showing up its nose yet,” she added.
12.33pm: FTSE lower but European markets rally
The FTSE 100 remains in the red, although well earlier lows but the picture is brighter in Europe.
In Paris, the Cac-40 is 0.5% higher at 7,120 while in Frankfurt the Dax is also 0.5% to the good at 15,651.
Share price gains for carmaker Stellantis, rising 1.6% and luxury goods firm LVMH, up 1.1%, helped boost the CAC.
Chemicals firms BASF and Covestro rose 4.0% and 2.1% in Frankfurt.
In London, Coca-Cola HG remains top of the risers while United Utilities and Severn Trent have fallen back after rising yesterday.
The broader FTSE 250 has actually moved into the greem up 3 points at 17,920, off an earlier low of 17,854.
12.08pm: Gold price could rally on cooler payrolls report
Craig Erlam at Oanda thinks whether the gold price can remain above US$1,900 will depend on the non-farm payrolls figures later today.
The yellow metal came under pressure in the aftermath of yesterday's ADP report but managed to hold above US$1,900 he noted and even recouped some of its losses.
“It's trading marginally higher today but whether it will be able to hold onto those gains, and remain above US$1,900, will probably depend on what kind of jobs report we get,” he said.
Erlam reckoned another strong report is looking increasingly likely on the back of yesterday's ADP number, although as we've seen in the past it isn't always that reliable a barometer.
But a cooler report could propel the gold price higher given expectations have now undoubtedly risen.
“It's still almost 8% from its highs and a cooler report could offer the opportunity for a corrective move which we've barely seen so far,” he added.
11.49am: Inflationary pressures ear easing claims top ECB official
Inflationary pressures are easing in the eurozone, according to Luis de Guindos, vice-president of the European Central Bank.
Speaking at King’s College London this morning, de Guindos said that there are “some signs of softening” in the indicators tracking underlying price pressures.
And “while still wide by historical standards, the range of measures of underlying inflation recently began to narrow”, de Guindos said, adding: "This suggests that the unusually high level of uncertainty around the downward trajectory of inflation over the medium term has started to ease somewhat."
But he cautioned that the ECB’s job “is not yet done”, having raised interest rates by 400 basis points (four percentage points).
Services inflation, and labour costs in particular, need to be closely monitored, he said, as they are now an important driver of overall inflation.
11.28am: Elementis boosted upgrade, stock soars 5%
Shares in Elementis soared 5.1% boosted by an upgrade from US investment bank, JP Morgan.
The bank has moved its rating to overweight from neutral seeing a relatively better earnings back drop despite a tough near-term demand environment for the sector.
This is due to potential of a significant recovery in earnings in the Talc division, relatively better demand in key categories in the Personal Care division, material cost savings and the potential upside from strong new business pipeline across two key divisions - Coatings and Personal Care.
JPM has raised its first half adjusted Ebit forecast by 8% to US$54mln and left its 2023 and 2024 financial year forecasts almost unchanged at US$102mln and US$114mln respectively.
"That the consensus can be held in an environment where we have seen large cuts elsewhere in the sector should reassure," the bank thinks.
The bank reckons the valuation looks undemanding especially in the context of the recent step-up in the M&A newsflow in the sector.
10.51am: JP Morgan expects weakness in Just Eat's second quarter
JP Morgan has cut its share price target for Just Eat in a cautious review of the food delivery sector.
The investment bank thinks food delivery is at risk to trade “similar to restaurants” (trading on just c.8x 2024 EV/Ebitda, a multiple that would limit meaningful upside for the space) given a potential future financial growth profile of low top-line growth at tiny margins.”
For the second quarter specifically, JPM expects continued weakness particular in Just Eat’s UK and US operations with its “Q2 order estimates meaningfully below market expectations.”
The broker which rates Just Eat at ‘neutral’ has placed the firm on negative catalyst watch.
It cut its share price target to 1,416p from 1,524p. Elsewhere, Exane BNP cut the stock to ‘underperform’.
Shares fell 5% to 1,115p.
10.22am: Shell's flags less impressive second quarter results
Shell is holding firm against a weak market with shares up 0.4% and despite a mixed trading update.
Russ Mould at AJ Bell pointed out second quarter results "are likely to be somewhat less impressive than they have been in recent quarters."
“How much the drop in earnings from its natural gas trading operation is a function of what Shell describes as ‘seasonality’ in the market, and how much it is just cyclical weakness linked to a softening economy is an open question," he said.
“The company also expects the numbers to be marred by field maintenance which will limit production. Even considering a record first quarter of the year Shell has fallen behind its US peers and there is a danger a weak showing could undermine it further," Mould reckons.
“Chief executive Wael Sawan, who began his tenure at the start of 2023, has a plan to boost Shell’s valuation and play catch-up with its American rivals by trimming operating costs and limiting spending to areas where he is confident big returns can be made," he said.
“This hard-nosed approach has also meant abandoning planned oil production cuts which were previously a part of Shell’s energy transition strategy. This might be well received by shareholders but could lead to increased political and even regulatory pressure," Moud thinks.
9.40am: OSB shares slide as takes hit from fast moving customers
OSB Group PLC topped the FTSE 250 fallers after warning it will take as much as a £180mln hit because customers are acting faster than expected to refinance their mortgages at favourable rates.
The specialist lending and retail savings group explained it had seen a “step change” in the behaviour of precise mortgages owner-occupied and buy-to-let customers reaching the end of their initial fixed term.
As interest rates have continued to rise, customers are choosing to refinance earlier and spending less time on the higher reversion rate than expected, compared to before.
OSB anticipates that precise mortgages customers will now spend an average of five months on the reversion rate and the reduction in the reversion period will lead to an estimated adverse adjustment of £160mln to £180mln in the first half of 2023.
"Once a change in customer behaviour becomes apparent, and is expected to persist, the group is required to recognise an immediate adjustment to the carrying value of the loan book through net interest income," OSB pointed out.
In reaction, the shares price slumped 19% to 379.20p.
Analysts at RBC Capital Markets lowered financial year 2023 net interest income estimates by £170mln and 2024/25 pre-tax profit estimates by c.2% driven by a reduction in net interest margin.
RBC has kept an ‘outperform’ rating but reduced its price target to 700p from 750p.
It sees “any weakness in the shares today as a buying opportunity.”
9.13am: House prices "unsustainably high" says Capital Economics
Capital Economics thinks while the house price fall in June was “surprisingly modest” the current level of house prices looks unsustainably high.
Given where mortgage rates have got to, analysts at Capital think “it is just a matter of time before they take another leg down.”
The 0.1% fall in the Halifax house price index in June marked the third consecutive month-on-month fall in a row taking the annual fall to 2.6% from 1.1% in May.
“With mortgage rates set to be around 6% until next summer, buyers will be able to afford to borrow much less than in the past,” Capital Economics said.
“That will significantly reduce their budgets and, in turn, house prices.”
“We think it is just a matter of time before we see a further 9% fall in the Halifax House Price Index on top of the 3% drop to date, taking the peak-to-trough fall in house prices to 12%.”
8.47am: Sell-off continues in London
The fall in the FTSE 100 continues with the index off a further 38 points at 7,243.
Sophie Lund-Yates at Hargreaves Lansdown noted the sell-off has been triggered by data showing the private sector in the US added around double the number of jobs economists expected last month.
"The addition of just under half a million roles has heaped fuel on the interest rate fire, with such strong data an indication that the economy will need a heavier hand if inflation is to be brought under control," she added.
"Minutes from the latest Federal Reserve meeting also showed that policymakers are more likely to resume interest rate increases, after the decision to pause most recently," she noted.
Coca Cola HBC AG remains the top riser in the FTSE 100 after the soft drinks distributor revised its 2023 earnings guidance upward after an unexpectedly strong start to the year.
In the FTSE 250, Elementis is 2.4% to the good after JP Morgan upgraded to overweight with 144p price target but OSB tumbled 17% after warning, after market close Thursday, that a reduction in the expected time spent on the reversion rate by Precise Mortgages customers is estimated to result in an adverse underlying effective interest rate adjustment of £160mln to £180mln in the first half of 2023
8.15am: FTSE 100 extends falls as fall in house prices adds to woes
The FTSE 100 has opened lower, as expected, extending yesterday’s falls as UK house price posted their biggest fall in 12 years adding to the downbeat mood.
At 8.15am, London's blue-chip index was down 31.23 points, or 0.4%, at 7,249.27 while the FTSE 250 slipped 57.62 points, or 0.3%, to 17,858.84.
Equities fell sharply on Thursday on renewed worries that interest rates would rise further after strong US jobs figures which followed ‘hawkish’ minutes from the June FOMC meeting.
Richard Hunter at interactive investor, commented “Stocks stumbled as the latest US economic readings showed no immediate signs of a slowdown, which in turn could redouble the Federal Reserve’s efforts to tame inflation come what may."
In London, mortgage lender Halifax UK house prices fell at their fastest annual rate for 12 years.
House prices fell by 2.6% year-on-year in June after a 1.1% decline in May.
Sarah Coles at Hargreaves Lansdown said: “House prices fell like a feather in June.”
“The fact we’re seeing such stark annual figures owes more to the fact they were going up like a rocket 12 months earlier than to any major changes during the month itself.”
“However, the rise in mortgage rates is likely to act like a lead weight on prices in the coming weeks, dragging them down with more urgency.”
JD Sports bucked the weaker market trend, rising 0.3% after buying out the minority shareholders in Iberian Sports retail Group for around €500mln.
Peel Hunt analyst Jonathan Pritchard reckons “taking over the “other half” of ISRG will give JD greater control of the growth in appealing European markets.”
“There was progress last week with franchises starting in the Middle East so JD is not dragging its feet as it grows across the world.”
“We continue to believe that the global growth story here is materially undervalued, and reiterate our Buy on the shares,” he said.
Coca Cola HBC AG fizzed higher after the soft drinks distributor revised its 2023 earnings guidance upward after an unexpectedly strong start to the year.
The company now projects organic EBIT growth for 2023 to be within the 9-12% range, a marked upgrade from the previous expectation, which spanned from a 3% decrease to a 3% increase.
Shares jumped 3.6%.
7.56am: House prices fall at fastest rate in 12 years
UK house prices fell at their fastest annual rate for 12 years, mortgage lender Halifax said.
House prices fell by 2.6% year-on-year in June after a 1.1% decline in May.
The average UK property now costs £285,932 compared to the peak of £293,992 last August.
Kim Kinnaird, director, Halifax Mortgages, described the fall as "modest."
“These latest figures do suggest a degree of stability in the face of economic uncertainty, and the volume of mortgage applications held up well throughout June, particularly from first-time buyers," she said.
"That said the housing market remains sensitive to volatility in borrowing costs."
“How deep or persistent the downturn in house prices will be remains hard to predict," Kinnaird added.
"With markets now forecasting a peak in Bank Rate of over 6%, the likelihood is that mortgage rates will remain higher for longer, and the squeeze on household finances will continue to put downward pressure on house prices over the coming year.”
7.51am: JD Sports takes control of Iberian Sports Retail
JD Sports has taken 100% ownership of Iberian Sports Retail Group after buying out the minority shareholders in a €500.1mln deal.
The sports retailer has acquired the remaining 49.98% stake currently held by Balaiko Firaja Invest and Sonae Holdings.
The cash deal will be funded from existing resources, JD said.
ISRG currently operates more than 460 stores across Europe including JD in Iberia, Sprinter in Spain, Sport Zone in Portugal and Aktiesport and Perry Sport in the Netherlands.
7.48am: Shell sees gas trading "significantly lower" in second quarter
Shell PLC said it expects second-quarter trading at its gas division to be "significantly lower" compared with the previous quarter, due to seasonal factors.
In a trading update, the oil major also announced write downs of up to US$3bn for the quarter, primarily driven by a 1% increase in the discount rate used for impairment testing.
Adjusted earnings in integrated gas are forecast between US$1.3bn to US$1.7bn compared to US$1.4bn in the previous quarter.
Shell said trading & optimisation is expected to be significantly lower compared to a strong first quarter due to seasonality and fewer optimisation opportunities.
The company forecast second quarter adjusted earnings of US$2.5 to US$2.9bn in its Upstream business compared to US$2.8bn in the first quarter with production in the division seen lower.
Upstream production is seen between 1,650 - 1,750kboe/day compared to 1,877kboe/day in the first quarter due to maintenance in in the Gulf of Mexico, Norway, Malaysia and Brazil.
Marketing results are expected to be in with the first quarter while adjusted earnings in the chemicals business is forecast between US$0.8bn to US$1.0bn compared to US$0.9bn.
7.00am: Footsie seen edging lower
Good morning. The FTSE 100 is expected to start the last trading day of the week in subdued manner ahead of US non-farm payrolls figures later today.
Spread betting companies are calling London’s blue-chip index down by 8 points after closing down 161.60 points, or 2.2%, to 7,280.50 on Thursday.
US markets ended lower after a strong ADP jobs report which showed US private sector employment grew by almost half a million jobs.
Employment rose by 497,000 in June, rising from 278,000 in May, and more than double Street expectations.
The figures came on the back of ‘hawkish’ minutes from the latest FOMC meeting.
“"While the catalyst for yesterday's sell-off was the release of the Fed minutes, which showed a much greater caucus for further tightening than was thought, the direction of travel was given added momentum with the release of a red-hot ADP payrolls, and ISM services report, which showed the US labour market is still strong and likely to continue to do well," said CMC’s Michael Hewson.
Nonfarm payrolls are expected to show that employment growth slowed to 225,000 last month, from 339,000 in May.
Back in London, and the early focus will be the Halifax house price index.