- FTSE 100 loses 94 points
- UK economy grows 0.2% in quarter to June
- Capita boosted by Shore Capital upgrade
4.40pm: FTSE sinks as inflation spooks
At the close, the FTSE 100 had lost 94 points on the day to finish at 7,524, a 1.2% loss on the day.
Inflation fears hit stock markets again in the afternoon following stronger US PPI data, Chris Beauchamp of IG said.
“After its attempt to make headway yesterday, the FTSE 100 is on the back foot again, and looks set to end the week on a downbeat note. It is in good company, with markets across Europe lower following signs that price pressures in the US are beginning to revive," Beauchamp wrote.
"Stocks have been highly sensitive to bad news throughout August, and a combination of rising US inflation and weak Chinese data in recent sessions has been enough to tip the FTSE 100 to the downside once again.”
3:50pm: Saudi Arabia pushes to join jet fighter project
Saudi Arabia is pushing the UK, Japan and Italy to allow it to become a full partner in the landmark next-generation fighter jet project that the three countries signed in December, the Financial Times reported.
The request, confirmed by five senior officials in London, Tokyo and Rome, has already created strains within the tri-national alliance, the report said.
While the UK and Italy are open to the idea of Saudi membership, Japan is firmly opposed and has made its position clear to the other two, according to the FT.
The Global Combat Air Programme (GCAP), which seeks to deliver a highly advanced and exportable combat aircraft by 2035, was a significant advance for all three signatories, particularly for Japan which had historically restricted defence exports and never collaborated on a programme of this scale and complexity.
The FT said efforts by Saudi Arabia to join GCAP and expand the programme into a four-nation project have intensified significantly in recent weeks, according to officials in London and Tokyo.
3.08pm: Sainsbury's sells mortgage portfolio to Co-Op for £464 million
A late bit of news. J Sainsbury PLC's banking arm, Sainsbury's Bank, has its mortgage portfolio to the Co-operative Bank in a cash deal worth around £464 million
The sale follows an announcement in September 2019 the bank that it would be stopping all new mortgage sales and was reviewing options for the existing mortgage book.
Jim Brown, CEO of Sainsbury's Bank said: "Closing the chapter on our mortgage offering is a big step in simplifying our business."
In a statement, the food retailer said the gross asset value of the mortgage book at April 30 was £479 million.
The deal is expected to complete alongside transfer of beneficial ownership on August 15.
Following a period of transition of up to one year from completion, Sainsbury's Bank mortgage customers will transfer to The Co-operative Bank.
Proceeds from the deal will be used to help optimise the overall cost of funding for Sainsbury's Bank.
2.43pm: US starts Friday on the back foot
Over in the US and markets have opened lower hit by the stronger-than-expected PPI data.
Shortly after the opening bell, the Dow Jones Industrial Average was down 64.10 points, 0.2%, at 35,112.05, the S&P 500 was down 17.91 points, 0.4%, at 4,450.92 while the Nasdaq Composite fell 69.36 points, 0.5%, to 13,668.63.
Kieran Clancy at Pantheon Macroeconomics noted the month-to-month increase in the core PPI is the largest since November 2022.
But he thinks this will prove temporary, however, given the still-huge scope for margin re-compression and the downward pressure on global goods prices from the excess capacity in China’s manufacturing sector.
He expects a "sustained run of outright declines ahead."
"China effectively sets the world price for many traded goods, and excess capacity is driving those prices down. China’s PPI for manufactured goods fell by 4.7% in the year to June, and the downward pressure is likely to persist," he pointed out.
2:02pm: FTSE slides further after hot US PPI figures
The fall in equities has extended following stronger-than-expected US wholesale price figures.
The Producer Price Index for final demand, which tracks what firms charge for their goods and services, rose by 0.8% in the year to July, above expectations for a rise of 0.7%.
In July alone, prices rose by 0.3%, having fallen by 0.3% in May and been flat in June – above consensus expectations for no growth.
US futures which were little changed ahead of the data fell sharply with the futures for the Dow down 0.3%, the S&P down 0.5% and the Nasdaq down 0.8%.
The data will stoke fears that the Federal Reserve may not be done yet with rate increases.
In London, the FTSE 100 extended its losses and is now down 106 points at 7,516.
12.52am: Global oil demand hits record, says IEA
Global oil demand has hit a record and may move higher in August threatening to prolong a recent rally in crude prices, the International Energy Agency said on Friday.
Demand reached a record of 103 million barrels a day in June driven by better than expected economic growth in OECD countries, strong summer air travel and surging oil consumption in China, particularly for petrochemical production, the IEA said in its monthly oil report.
Consumption could hit another peak this month and was on track to average 102.2 million b/d in 2023, the highest ever annual level, according to the IEA’s forecast, with 70% of the growth coming from China.
Demand in 2024 is likely to rise again but at a slower rate, the IEA added.
12.21pm: Property stocks fell the pinch as FTSE sinks further
It's turning into an ugly day on the equities market with the FTSE 100 now down 1.05% and the FTSE 250 down 0.7%.
Interest rate sensitive stocks are faring badly as gilt yields rise after today's GDP figures with property stocks under pressure.
The yield on the 2-year gilt is 9 points higher at 4.94% while the 5-year gilt yield is up by a similar amount at 4.48%.
Land Securities PLC is a prominent faller in the lead index down 2.1%, while in the broader 250 British Land is down 5.0% and Great Portland Estates (LSE:GPOR) is 3.1% lower.
Higher gilt yields aren't great for property companies, with a possible impact on debt costs and portfolio valuations.
12.00pm: US futures muted ahead of further inflation pointer
US stocks are expected to make a subdued start to trading on Friday, ahead of producer price figures, after a prominent Federal Reserve official said there was more to be done to tackle inflation.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% higher, while those for the S&P 500 were little changed, and contracts for the Nasdaq 100 futures were down 0.2%.
Producer price inflation figures are due at 08:30 EST following hard on the heels from Thursday’s consumer price inflation report which showed prices grew slower than expected in July.
According to the Bureau of Labor Statistics, the US yearly inflation rate accelerated to 3.2% in July, from 3.0% in June, snapping a streak of 12 successive slowdowns. The latest figure was shy of consensus, however, which had chalked in an acceleration to 3.3%, according to FXStreet. The annual core inflation rate - which excludes food and energy - of 4.7% was in line with expectations.
Paul Ashworth, chief North America economist at Capital Economics, said: "Overall, there's nothing here to suggest the Fed needs to push ahead with further interest rate hikes this year."
Joshua Mahony at Scope Markets said: “Inflation remains the key theme, with US PPI released this afternoon."
“Much like yesterday's CPI figure, base effects make it almost nailed on that we will see US PPI rise as the July 2022 figure of -0.3% is replaced.”
“Nonetheless, with Chinese input prices down -4.4%, any increase above the current US PPI reading of 0.1% does little to shift the notion that factory costs are disinflationary as things stand.”
But San Francisco Federal Reserve Bank President Mary Daly was in hawkish mood after the CPI report saying although inflation is coming down it is still too high, leaving the central bank with "more work to do."
Speaking to Yahoo Finance Daly said: “It is not a data point that says victory is ours. There's still more work to do."
Daly said she is highly data dependent and is reserving her judgment for how much work is needed to bring down inflation until the Fed’s September policy meeting, when she will pencil in her projections for interest rates.
In other economic news today, the University of Michigan’s consumer sentiment index is forecast to edge down to a preliminary reading of 71 in August, down from 71.6 in July.
11.16am: Domino's off the menu at Deutsche
Domino's Pizza Group PLC is no longer on the buy list at Deutsche Bank after its strong share price performance this year.
Analyst Harishankar Ramamoorthy accepts Domino's remains a well-operated business with strong, cash generative growth and "with levers to pull" in a potential recession to stimulate demand.
However, the Deutsche analyst explained shares are up 40% year-to-date and trade on around 20x the 2024 price earnings ratio.
Ramamoorthy has upped the price target to 410p from 355p but believes the business is fairly valued at current levels, hence the move to hold from buy.
Shares eased 1.2% to 404.40p.
10.48am: Car insurance premiums hit record high - ABI
Car insurance premiums have hit a record high due to the soaring cost of labour, replacement parts and energy bills.
British motorists paid an average premium of £511 for private comprehensive motor insurance between April and June of this year, up 21pc compared to the same period in 2022, according to the Association of British Insurers (ABI).
Motorists renewing their cover typically paid £471 for their car insurance during this time – a rise of £36 on the previous quarter – while the average price of a new policy was up £21 to £566.
Average premiums are now at their highest levels since records began in 2012, the trade body said. The ABI gathered data on seven million policies sold in the second quarter of this year, and 28 million over the past 12 months.
10:13am: Capita bounces as broker sees 50% upside
Shares in Capita PLC (LSE:CPI) are holding firm amid the sea of red on trading screens in the UK supported by an upgrade by Shore Capital which is targeting 50% upside.
The broker has put the stock on its buy list, upgrading from hold, helping send shares 3.2% higher at 20.94p.
It thinks “with restructuring due to complete this year, that Capita is set to begin to deliver better results.”
“Much is now behind the Group, challenges remain, but survival is not in doubt.”
“Over the next year we expect to see free cash flow strengthen and profitability rise.”
As a result it said it couldn’t “justify a 20p share price," and has set an initial 30p share price target.
The outsourcer has attracted the headlines this year after a cyber attack which will cost the firm around £25 million.
9:46am: UK economy still below pre-pandemic level
It’s not quite time to roll the red carpet out just yet for the UK economy despite a robust rise today.
As Russ Mould at AJ Bell points out: ““Before we roll out the garlands it is worth observing the UK remains one of the few major economies to reach its pre-pandemic size. This is a story of resilience rather than dynamism.”
Andy Bruce at Reuters points out the comparison.
Big picture remains one of the UK lagging its peers:
GDP Q2 2023 vs Q4 2019
???????? -0.2%
???????? +0.2%
???????? +1.7%
???????? +2.2%
???????? +6.2%
???????????????? yet to report Q2 data (but were nowhere near negative territory in Q1)
— Andy Bruce (@BruceReuters) August 11, 2023
And as former member of the Bank of England's MPC Andrew Sentence notes it is also lagging behind most major economies.
UK GDP rose 0.2 percent in Q2 producing a growth rate of 0.4 percent over the past year. This is significantly weaker than year-on-year growth in US and also below the Euro Area average. Among major EU economies, only Germany has performed worse (-0.1pc). pic.twitter.com/vAB3MMlvUR
— Andrew Sentance (@asentance) August 11, 2023
AJ Bell's Mould thinks the data is a “double-edged sword” as it may lead the Bank of England to keep taking a hard line on interest rates.
“Given the lagged impact of rate increases, which have already seen borrowing costs increase from near zero to more than 5% in a little over 18 months, this could result in a more significant downturn at some point down the line,” he feared.
Much will now depend on next week’s inflation number.
“A lower than anticipated inflation number next week could build confidence in a Goldilocks scenario where the economy is blowing neither too hot or too cold and the Bank can start to dial back the pressure on rates and avoid inflicting much more pain without risking losing control of prices again.”
9:20am: Sterling rises, investors should "strap in" for more rate hikes
The pound has pushed higher after the better-than-expected GDP figures.
Sterling is up 0.25% at $1.2704 as traders bet the data gives the Bank of England more freedom to keep interest rates inflated for some time yet.
Hargreaves Lansdown analyst Matt Britzman commented: ""UK investors look to have taken June's positive inflation print as a sign of hope, and today's GDP read should add to that, with scores for both economic growth and investor confidence rising in early August after three months of consecutive declines."
"But there's no escaping the fact the UK's inflation performance sticks out like a sore thumb compared to other global economies, and investors should strap in for further rate hikes."
Markets are pricing in a 70% probability of a further quarter-point increase in September and a 30% of a pause.
Last week the central bank slowed the pace of its tightening cycle, lifting interest rates by 0.25 percentage points to 5.25%.
8:55am: Emis soars as CMA provisionally clears United Health deal
One share on the move is Enis Group PLC, up a whopping 25% after UnitedHealth's purchase of the healthcare software and services provider was provisionally cleared by the UK's competition watchdog.
The UK Competition & Markets Authority said it found no competition concerns, with a final decision due early October.
In a statement, the CMA said the deal is not "expected to result in a substantial lessening of competition in relation to the supply of medicines optimisation software or population health management services in the United Kingdom."
8:41am: Recession risk avoided for now but not for long, says Capital
Some more reaction to the GDP figures.
Ruth Gregory, deputy chief UK economist at Capital Economics thinks while a recession has so far been avoided we are not out of the woods just yet.
Indeed, she believes the UK is still heading for a mild recession later in the year.
"With much of the drag from higher interest rates still to come, we are sticking to our below-consensus forecast that the UK is heading for a mild recession later this year," Gregory said.
She said June's rise was mostly due to the return to the normal number of working days in June after May’s bank holiday for the King’s Coronation. "It makes the economy look stronger than it really is," she said.
The extra bank holiday, unusually warm weather and strikes all contribute to make it hard to judge the "true health of the economy," she said
"But our sense is that underlying activity is still growing, albeit at a snail’s pace," Gregory added.
8:10am: Better GDP figures fail to stop FTSE falling
The FTSE 100 headed lower on Friday despite the UK economy growing stronger-than-expected between April and June boosting hopes a recession can be avoided.
At 8.09am, London's lead index was down 45.57 points, 0.6%, at 7,573.03 while the FTSE 250 slipped 32.35 points, 0.2%, at 18,961.46.
Figures from the Office for National Statistics showed output rose 0.2% in the second quarter ahead of City hopes for zero growth and the Bank of England’s own projections of 0.1%.
Output bounced 0.5% in June, more than double City predictions, after after an unrevised fall of 0.1% in May 2023 and growth of 0.2% in April 2023.
“These numbers push the chance of a recession further down the line, but the UK economy looks firmly stuck in a low growth cycle, and with further interest rate hikes firmly priced in by the markets – there doesn't look to be an immediate path out,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
Samuel Tombs at Pantheon Macroeconomics thinks "that the rate of quarter-on-quarter growth in GDP in Q2 can at least be maintained going forwards."
He reckons households "probably will build upon Q2’s 0.7% quarter-on-quarter increase in their real expenditure," as he expects "households’ real incomes to continue to rise further, as prices continue to rise less quickly than wages."
"We still think the economy will avoid a recession, with GDP rising by 0.3% quarter-on-quarter in both Q3 and Q4," Tombs estimated.
With company news thin on the ground there are a couple of broker notes driving share prices.
Capita PLC (LSE:CPI) is 4.5% higher after Shore Capital upgraded to buy from hold while Domino's Pizza Group PLC fell 2.1% after Deutsche Bank downgraded to hold from buy.
7:36am: UBS abandons governement support for CS deal
Over in Europe now and news that UBS has decided to end an agreement with the Swiss government to cover losses it could incur from the rescue of Credit Suisse.
The Swiss bank on Friday said that it would voluntarily terminate the loss protection agreement (LPA), as well as a SFR100 billion liquidity lifeline from the Swiss National Bank, effective immediately.
“After reviewing all assets covered by the LPA since the closing in June and taking the appropriate fair value adjustments, UBS has concluded that the LPA is no longer required,” the bank said in a statement.
Under the terms, UBS was to assume the first SFR5 billion of losses, with the government stepping up to take on the next SFR9 billion.
The backstop agreement was put in place to seal the enforced marriage when Credit Suisse hit problems in March.
There has been a lot of politicial pressure calling for the agreement to end as well.
7:05am: UK economy grows faster-than-expected
Good morning. The FTSE 100 is set to open lower after US markets closed well below earlier highs while the UK economy posted modest growth in the second quarter of 2023.
Spread betting companies are calling London’s lead index down by around 41 points after closing 31.30 points higher at 7,618.60 on Thursday.
Data from the Office for National Statistics showed the UK economy grew by 0.2% between April and June, compared to zero growth in the previous quarter which was also what City commentators were expecting.
Gross domestic product was rose 0.5% in June after an unrevised fall of 0.1% in May 2023 and growth of 0.2% in April 2023.
GDP grew 0.5% in June and 0.2% across Quarter 2 (April to June) as a whole.
In June:
▪️ services grew 0.2%
▪️ production grew 1.8%
▪️ construction grew 1.6%
— Office for National Statistics (ONS) (@ONS) August 11, 2023
The services sector grew by 0.1% on the quarter, driven by increases in information and communication, accommodation and food service activities, and human health and social work activities; elsewhere, the production sector grew by 0.7%, with 1.6% growth in manufacturing.
In expenditure terms, there was strong growth in household consumption and government consumption, which was partially offset by a fall in international trade flows in the second quarter.
In the US, hawkish comments from San Francisco Federal Reserve Bank President Mary Daly dragged to US stocks closing off early strong gains,
Daly was speaking after better than expected US inflation figures but while accepting the news was good, inflation is still too high, leaving the central bank with "more work to do".
Speaking to Yahoo Finance, Daly said "it is not a data point that says victory is ours. There's still more work to do."