- FTSE 100 endures tough day, down 116 at 7,551
- Credit ratings agency Fitch strips US of triple A rating
- BAE Systems soars, lifts guidance, new buy-back
4:30pm: FTSE 100 marks lowly finish
The FTSE 100 closed Wednesday down 104 points, 1.36%, lower at 7,561.
3.55pm: Drax denies accusations it withheld money from households
Drax Group (LSE:DRX) has hit back at reports it withheld generation at one of its biomass power units in a move that prevented household bills from falling.
Responding to a Bloomberg report, Drax batted off accusations that it deliberately avoided paying money back to the public by manipulating how it produced energy.
“The allegations […] are false, inaccurate, and misleading,” the FTSE 250-listed generator said, arguing instead it had made decisions based on economic and consumer risks.
3.18pm: ConvaTec stars on tough day for FTSE
ConvaTec Group PLC (LSE:CTEC) was the star performer in the FTSE 100 with shares up 7.3% after raising full-year guidance on the back of a boost in profit and a revenue rise in the first half.
Analysts at Berenberg described the performance as "strong," and ahead of consensus expectations.
"The strong performance was broad based in the business with solid organic growth in all segments and an improved margin performance despite inflationary headwinds", the broker noted.
"Overall, we think today’s results should give confidence that the organic growth momentum seen in the past couple of years is sustainable and that the company’s medium-term targets are achievable."
Berenberg rates ConvaTec at 'buy' with a price target of 280p. UBS also rates the company at buy' with a similar 280p target price.
2.53pm: US markets open lower but jobs market remains resilient
US stocks have tumbled in early exchanges following falls in Europe and Asia sparked by the credit rating downgrade by Fitch while investors are also ploughing through a raft of corporate updates.
Shortly, after the opening bell the Dow Jones Industrial Average was down 155.32 points, 0.4%, at 35,475.36, the S&P was 40.07 points lower, 0.9%, 4,536.66 while the Nasdaq Composite was down 191.53 points, 1.3%, at 14,092.38.
There was better news as figures showed the jobs market remained resilient despite the Fed's rate rising spree.
ADP reported private sector employment increased by 324,000 in July, beating the FXStreet cited consensus of 189,000 but easing from June's downwardly revised 455,000. June's figure was initially reported as 497,000.
Encouragingly for the US Federal Reserve, pay growth eased again. Wage growth for job-stayed fell to 6.2% year-on-year in July, from 6.4% in June. ADP said this was the tamest rise since November 2021.
Non-farm payrolls figures are due Friday.
2.14pm: Payrolls top expectations in July - ADP
Heading towards the open in the US and the FTSE 100 has stabilsed, around 80 points lower.
The focus across the pond is very much on the jobs market this week ahead of the non-farm payrolls figures on Friday.
Ahead of those, ADP has reported private sector employment increased by 324,000 in July, beating the FXStreet cited consensus of 189,000 but easing from June's downwardly revised 455,000. June's figure was initially reported as 497,000.
It was leisure and hospitality leading the charge in July, though the interest rate-sensitive sector of manufacturing struggled, ADP explained, shedding jobs for the fifth straight month.
Service providers added 303,000 jobs, 201,000 in leisure and hospitality. Goods producers added 21,000 jobs, despite manufacturers alone cutting 36,000.
Encouragingly for the US Federal Reserve, pay growth eased again. Wage growth for job-stayed fell to 6.2% year-on-year in July, from 6.4% in June. ADP said this was the tamest rise since November 2021.
1.45pm: Here's a quick look at some of the risers and fallers so far today
Shares in Blancco Technology Group (AIM:BLTG), the data erasure specialist, soared 22% after it said it is set to be acquired by US investment firm Francisco Partners in a deal worth £235 million.
The offer represents a 24.6% premium to Tuesday's closing price, with Francisco paying 283p.
Hochschild Mining PLC (LSE:HOC, OTCQX:HCHDF)'s shares jumped 19% following the announcement of the approval of the environmental permit for the Inmaculada project in southern Peru.
The official green light allows the company to expand operations at the gold and silver mine, which is a key asset in Hochschild's portfolio.
Shares in Spirent Communications (LSE:SPT) plc fell 5% after the company revealed disappointing growth in its Networks & Security division and reported pressures in the Connected Devices segment in its half-year results.
1.02pm: Wall Street set to follow Europe and Asia lower
Wall Street is expected to follow European and Asian markets lower after Fitch stripped the US of its triple A rating.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were 0.3% lower, while those for the S&P 500 fell 0.6%, and contracts for the Nasdaq 100 futures were down 0.9%.
Fitch, the leading credit ratings agency, said its downgrade reflected “expected fiscal deterioration over the next three years” and “a high and growing general government debt burden”.
Fitch also noted an “erosion of governance” over the past two decades “that has manifested in repeated debt limit stand-offs and last-minute resolutions”.
US Treasury Secretary Janet Yellen said that she "strongly" disagreed with Fitch, calling the change "arbitrary and based on outdated data."
Analysts at Capital Economics felt “it's a little strange to be downgrading the US at a time when the economy now appears poised to pull off the seemingly impossible trick of bringing inflation back to target without triggering a recession.”
Stephen Innes at SPI Asset Management felt the downgrade is “unlikely to cause a significant Treasuries sell-off or prompt a major shift in investor behaviour mainly because investors experienced a similar downgrade from S&P in 2011 and came away unscathed.”
“It is not market-shattering news,” he said.
Wednesday’s main economic focus will be the ADP payrolls survey which comes ahead of Friday’s non-farm payrolls figures.
The pace of private sector job growth in the US is expected to have dropped to 222,000 additions in July, down from 497,000 in June, according to a FXStreet compiled consensus.
Elsewhere, it is another bumper day of US earnings. Private equity firm Carlyle, food producer Kraft Heinz, and pharmacy group CVS Health will report earnings before the opening bell.
While food delivery start-up DoorDash, online marketplace Etsy (NASDAQ:ETSY), online broker Robinhood, payments system PayPal and ecommerce company Shopify will report after the market closes.
Coffee chain Starbucks and chip maker Advanced Micro Devices will also be in the spotlight following results after the closing bell Tuesday.
Meanwhile, the Federal Trade Commission will begin in-house proceedings before an administrative judge in relation to its complaint against the proposed merger of Microsoft and Activision Blizzard.
Elsewhere, the Federal Trade Commission will begin in-house proceedings before an administrative judge in relation to its complaint against the proposed merger of Microsoft and Activision Blizzard.
12.18pm: Asda to publish fuel prices after criticism of profiteering
Asda has become the first supermarket to publish its local fuel prices online after regulators showed companies were increasing their margins at the pump in so-called “greedflation”.
From today, prices at each of its filling stations will be available online on its Asda Store Locator pages.
Asda has become the first supermarket to publish local fuel prices online allowing motorists to check the price of petrol or diesel.
Fuel prices at each filling station is now available alongside other key information on the Asda Store Locator. https://t.co/KWH5Im7OkR
— Asda PR Team (@asdaprteam) August 2, 2023
The figures will appear at 10.30am each morning and show the previous day’s closing price.
It comes after a recent Competition & Markets Authority (CMA) report found that supermarkets’ annual fuel margins rose from 4.6p per litre in 2019 to 10.8p last year as they failed to pass on profits amounting to £900m in extra costs last year.
Asda aims to introduce real-time fuel costs in the coming months.
A spokesman said: “Asda is proud to be the price leader in the fuel and by sharing our prices online customers will be able to find the best value at the pumps before they get in the car.”
11.41am: Prime Minister says UK inflation not falling as fast as he would like
Rishi Sunak has said inflation in the UK is not falling as fast as he would like, but claimed it would be “completely transformative” for the public when it returns to lower levels.
Speaking on radio station LBC, the prime minister insisted “we’re making progress” on curbing inflation.
However, Sunak said the government must make “difficult” decisions to continue tackling the issue, which he conceded is making things “tough” for small businesses.
The prime minister said: “When inflation comes back down, it will be completely transformative for how people feel about their situation and what they’re spending their money on.”
The comments ahead of tomorrow’s monetary policy decision by The Bank of England which is expected to raise interest rates by a least 25 basis points from 5% to what will be their highest level since at least 2008.
11.12am: Abrdn lower as UBS sees flat earnings ahead
Shares in abrdn are among the many drowning in in the red, down 2.7% to 222p, not helped by UBS which has relaunched coverage with a sell rating, previously neutral.
The Swiss bank expects “revenue headwinds from outflows and cost pressures from investment spend in the personal and adviser vectors to lead to a flat earnings trajectory in the coming three years.”
“While buybacks have been a catalyst for the shares over the past year, they have been funded by the sale of financial investments and these have fallen from £2.0 billion three years ago to £0.6 billion today.
Trading at 17.8x forward EPS “we argue there is downside risk to the share price.”
The broker has a 204p share price target.
10.48am: HMRC chases Uber for further £386 million
Uber Technologies Inc (NYSE:UBER) is being chased for another £386 million by the UK’s tax authorities.
In a disclosure in its second quarter results, released on Monday, the ride-hailing company said HMRC wants the cash to cover outstanding VAT duties.
Dan Neidle at Tax Policy Associates Ltd explains that with the UK’s VAT threshold at £85,000 most taxis don’t charge VAT as many drivers earn less than that.
Until last year, Uber argued it was just an agent for drivers and was exempt from VAT.
Exclusive report: HMRC pursuing Uber for another £386m of VAT.
Uber dropped this disclosure yesterday. Here's what it means. pic.twitter.com/A1gl0JrAyC
— Dan Neidle (@DanNeidle) August 2, 2023
But in a court case in March 2022, the High Court confirmed that Uber wasn't an agent at all - it was the principal.
Uber then caved, and paid an £615 million settlement to HMRC and many people expected it to start charging 20% VAT.
However, it didn't and HMRC have acted.
Uber is going to contest the amount but has had to pay the disputed VAT up-front.
10.25am: FTSE off lows, European markets down sharply
The FTSE 100 has found a floor for now, trading at 7,548, down 119 points, after hitting an intra-day low of 7,522.24.
The malaise has spread to Europe with the Cac-40 down 107.65 points, 1.5% to 7,298.43 while the Dax tumbled 263.56 points, 1.6%, to 15,976.84.
There are only three risers in the lead index with BAE Systems, ConvaTec and Taylor Wimpey in the green all after results today.
Among the fallers, abrdn is 3.6% low after UBS downgraded to sell from neutral.
10.01am: Sky's the limit as BAE soars after "high quality" beat
BAE Systems first-half results have certainly got the thumbs up from the City with shares rising 4.9% in a market which is down 1.7%.
The defence manufacturer reported a jump in revenue and operating profit and an order intake of £21.1 billion which resulted in a record order backlog of £66.2billion.
The firm also raised sales, Ebit, EPS and free cash flow guidance for the full year.
Shore Capital analyst Jamie Murray said the “better than expected” results “are a vote of confidence for the group and supports our view that BAE Systems deserves to retain its position as the premium option across our UK defence coverage.”
“BAE’s strong results, new share buyback programme and upgraded full year guidance should generate upgrades to consensus EPS numbers,” Murray reckons. “We expect to nudge up our numbers by c5-7%.”
UBS said the beat was primarily driven by Platforms & Services growth in the US, due to a faster recovery than expected in US ship repair as well as strength in Hagglunds/ Bofurs.
“We believe consensus is likely to view this beat as high quality therefore.”
Aarin Chiekrie, equity analyst at Hargreaves Lansdown was also bullish: “A strong set of first-half results have shown that BAE occupies a key space in the defence market.”
“And with some of its biggest buyers, the UK, US and Europe, all expected to continue raising defence budgets over the coming years, the sky really is the limit for this jet-maker.”
ShoreCap's Murray thinks “the macroeconomic landscape remains favourable” to BAE and keeps a buy rating on the stock.
UBS also reiterated a buy rating with a 1,100p share price target while shares jumped 4.9% to 979.40p.
9.33am: Market rout gathers pace with FTSE 100 down 1.8%
Still a bit of a blood bath out there with the FTSE 100 off 139 points knocked by the move by Fitch.
Laith Khalaf, head of investment analysis, at AJ Bell, said: "There is a saying that when the US sneezes, the rest of the world catches a cold. That is certainly true with how the US government’s credit rating downgrade has troubled markets globally."
Back in the corporate world and British consumer healthcare giant Haleon PLC upgraded its full-year sales and earnings guidance for 2023, reflecting a solid first-half performance.
The firm now expects organic revenue growth of 7-8%, up from its previous forecast of "towards the upper end of the 4-6% range". Adjusted operating profit growth is now projected to be 9-11% at constant currency.
Haleon, which owns well-known brands such as Sensodyne toothpaste and Panadol painkillers, reported a 10.6% increase in revenue to £5,738 million in the six months ended 30 June 2023.
But reflecting the wider market malaise shares have fallen 1.6% to 324.85p.
9.16am: Ratings cut "random" but could Moody's follow suit?
Markets continue to be spooked by the credit rating downgrade by Fitch with the FTSE 100 down 1.7% now to 7,536.
The agency stripped the US of its triple A rating moving it to AA+ reflecting the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to AA and AAA rated peers over the last two decades.
Rabobank thinks the timing “seems a bit random.”
The bank said the downgrade could have implications for index trackers and investment funds with a AAA only mandate, which could lead to forced sales, now that 2 out of the 3 main rating agencies no longer attach the highest rating to US sovereign debt.
Capital Economics noted the move “echoes the decision by Standard and Poor’s to cut its own US rating from AAA to AA+ in the aftermath of the 2011 debt ceiling standoff, which was justified at the time with similar arguments.”
The move could increase pressure on the other leading ratings agency Moody’s to act.
It still has the US at AAA, but has maintained a negative outlook on that rating for more than a decade.
Overall Capital Economics felt “it's a little strange to be downgrading the US at a time when the economy now appears poised to pull off the seemingly impossible trick of bringing inflation back to target without triggering a recession.”
But they think “a lot depends on what happens to interest rates.”
If the “Fed is forced to keep the nominal interest rate above the rate of nominal GDP growth for an extended period, then the debt dynamics could quickly become unsustainable.”
8.51am: ConvaTec bucks sea of red, Endeavour Mining tumbles
In a sea of red, there are a few dots in the green and one of the leading FTSE 100 risers is ConvaTec PLC.
The Reading, England-based medical products and technologies company raised its 2023 guidance when reporting half-year results sending shares 3.9% higher.
It now expects revenue growth of 6.0-7.5% from 5.0-6.5% previously) with adjusted operating profit margin of at least 20.5% which was previously 19.7%.
In the first-half the firm reported a 42% jump in operating profit to US$123.4 million from £87.1 million while revenue edged higher to US$1.06 billion from US$1.05 billion.
Operating profit margin to 11.7% from 8.3%.
BAE remains the favoured pick in the lead index while the more optimistic noises from Taylor Wimpey have kept Persimmon PLC (LSE:PSN), Berkeley Group Holdings PLC (LSE:BKG) and Barratt Developments PLC (LSE:BDEV) in the green.
Heading the FTSE 100 fallers is Endeavour Mining, down 7.2% after its second quarter figures.
The gold miner, with assets in nations including Senegal and Burkina Faso said pre-tax profit slipped to US$155 million from US$266 million the year before, and fell to US$207 million from US$294 million in the first half of 2023.
Gold production in the second quarter declined to 268,000 ounces from 292,000 a year prior, while the realised gold price rose by 6.1% to US$1,947 per ounce from US$1,835.
Meanwhile, the FTSE 100 continues to fall, now down 83 points at 7,584.
8.15am: FTSE 100 knocked by US rating downgrade
The FTSE 100 opened sharply lower after credit ratings agency Fitch stripped the US of its triple A credit rating.
The agency said its downgrade reflected “expected fiscal deterioration over the next three years” and “a high and growing general government debt burden”.
Fitch also noted an “erosion of governance” over the past two decades “that has manifested in repeated debt limit stand-offs and last-minute resolutions”.
US Treasury Secretary Janet Yellen said in a separate statement that she "strongly" disagreed with Fitch, calling the change "arbitrary and based on outdated data."
Analysts at Capital Economics felt “it's a little strange to be downgrading the US at a time when the economy now appears poised to pull off the seemingly impossible trick of bringing inflation back to target without triggering a recession.”
But they think “a lot depends on what happens to interest rates.”
If the “Fed is forced to keep the nominal interest rate above the rate of nominal GDP growth for an extended period, then the debt dynamics could quickly become unsustainable.”
Currency markets were little moved on the news with the pound at US$1.2770, but equities fell back.
At 8.15am, London’s lead index was down 65.97 points, or 0.9%, at 7,600.30 while the FTSE 250 tumbled 123.89 points, 0.7%, to 18,941.77.
In company news, BAE Systems bucked the weaker market soaring 5.3% after raising guidance for sales, Ebit, EPS and free cash flow after a strong first half.
The defence manufacturer reported an order intake of £21.1 billion resulting in a record order backlog of £66.2 billion.
Chief Executive Charles Woodburn said: “With a record order backlog and good operational performance, we're well positioned to continue delivering sustained growth in the coming years.”
Aarin Chiekrie, equity analyst at Hargreaves Lansdown said: “A strong set of first-half results have shown that BAE occupies a key space in the defence market.”
“And with some of its biggest buyers, the UK, US and Europe, all expected to continue raising defence budgets over the coming years, the sky really is the limit for this jet-maker.”
Shares in Taylor Wimpey PLC (LSE:TW.) also rose, by 3.6%, despite half-year results reflecting the depressed housing market.
Profit and sales fell but in a glimmer of hope, the housebuilder said it expects full-year UK completions excluding joint ventures to be in the range of 10,000 to 10,500, the upper end of previous guidance reflecting a healthy orderbook and strong underlying interest.
It forecast operating profit including joint ventures to be in the range of £440-£470 million.
Broker Peel Hunt noted “the midpoint of this range is 9% ahead of our estimate and 2% ahead of consensus.”
7.50am: BAE lifts guidance driven by record orders
Strong numbers from BAE Systems PLC (LSE:BA.) this morning which has raised guidance after a strong first-half, as a record order book reflecting the war in Ukraine underpinned confidence.
The UK defence manufacturer said revenue in the six months ended June 30 jumped 13% to £11.00 billion from £9.74 billion the year prior while operating profit leapt 19% to £1.23 billion from £1.03 billion. EPS soared 62% to EPS 31.8p from 19.6p.
Order intake of £21.1 billion resulted in a record order backlog of £66.2billion.
Chief Executive Charles Woodburn said: “With a record order backlog and good operational performance, we're well positioned to continue delivering sustained growth in the coming years.”
Sales guidance is increased by 200 bps to 5% to 7%, EBIT guidance was lifted by 200 bps to 6% to 8% and underlying EPS guidance by 500 bps to 10% to 12%. Expectations for free cash flow were boosted by £600mln to more than £1.8bn.
To cap the good news, shareholders were rewarded with an 11% hike to the dividend to 11.5p while a further £1.5 billion buyback programme has been approved which is expected to roll-on after the current programme is completed.
7.27am: Taylor Wimpey nurses wounds after tough first half
Taylor Wimpey PLC (LSE:TW.)’s first half results showed the wounds inflicted by tough trading conditions as rising interest rates knocked the housing market.
In the six months to July 2, the housebuilder said revenue fell 21% to £1.64 billion from £2.08 billion the year before while pre-tax profit slumped 29% to £237.7 million from £334.5 million before.
House completions slipped to 5,120 homes from 6,922 last year while the net private sales rates of 0.71 in the period compared to 0.90 last year.
Nonetheless, the firm expects full-year UK completions excluding joint ventures to be in the range of 10,000 to 10,500, the upper end of previous guidance reflecting a healthy orderbook and strong underlying interest.
It forecast operating profit including joint ventures to be in the range of £440-£470 million.
Despite the fall in profit, the dividend was boosted to 4.79p from 4.62p, a rise of 3.7%.
7.00am: FTSE 100 seen as lower as Fitch cuts US rating
The FTSE 100 is set to open lower, following weak Asian markets, as Fitch stripped the US of its triple A credit rating, while it’s another bumper day for UK earnings.
Spread betting companies are calling London’s premier index down by around 40 points after it closed down 33.14 points at 7,666.27 on Tuesday.
BAE Systems, Haleon, Smufit Kappa, ConvaTec and Taylor Wimpey are among the companies reporting today in what promises to be another action-packed day.
But equities may take a hit from news Fitch Ratings has moved the US debt rating from triple A to double A plus, citing worsening fiscal conditions and governance.
The rating agency said its downgrade reflected “expected fiscal deterioration over the next three years” and “a high and growing general government debt burden”.
Fitch also noted an “erosion of governance” over the past two decades “that has manifested in repeated debt limit stand-offs and last-minute resolutions”.
Washington narrowly avoided a default projected for June after legislators and the White House reached a deal to raise the federal borrowing limit at the eleventh hour.
US Treasury Secretary Janet Yellen said in a separate statement that she "strongly" disagreed with Fitch, calling the change "arbitrary and based on outdated data."
Asian markets fell with the Nikkei 225 in Tokyo down 2.2%, the Shanghai Composite in China down 0.9% and the Hang Seng in Hong Kong 2.1% worse off.
Shares in Nomura declined 7.8% after the Japanese investment bank posted disappointing earnings and declining wholesale revenues.