- FTSE 100 down 47 points at 7,310
- BAE Systems buys Ball Corp's aerospace arm for $5.55 billion
- China's property woes and hawkish US Fed weigh on equities
4.50pm: FTSE closes near session lows
The FTSE 100 ended in the red for a fifth day in a row as concerns over China’s property sector and worries of rising interest rates held stocks back.
At the close, London’s lead index was down 46.67, 0.6%, at 7,310.21 close to its session low of 7,305.00.
Chris Beauchamp, chief market analyst at IG said: “Aside from a small gain for the Dow, global stock markets remain on the back foot.”
“Bond yields continue to move higher, unsettling investors and diminishing the appeal of equities after their generally positive year so far. Signs of fear are everywhere, from a rising Vix to a surging put/call ratio, and for the moment buyers are few and far between.”
Minutes from July's Federal Open Market Committee meeting showed that US Federal Reserve officials continue to see "significant" upside risks to inflation and suggested further interest rate increases may be necessary.
The warning weighed on London which faces its own concerns over interest rates in the wake of Wednesday’s stubborn core inflation figures.
AJ Bell investment director Russ Mould said that minutes "have thrown a cat among the pigeons by pointing to upside risks on inflation which might necessitate more rate hikes."
"It feels like we’re in a constant back and forth between central banks and the markets, with the former having to constantly disabuse the latter of the notion the rate hiking cycle is at an end," Mould added.
Bond yields hit a 15-year high as traders continue to bet the Bank of England will need to stay higher for longer.
BAE Systems was in the spotlight after its $5.55 billion purchase of Ball Corp’s aerospace arm, a move seen as a good strategic fit although the price paid was seen as expensive keeping a lid on the share price which fell 4.7%.
Shore Capital analyst Jamie Murray who pointed out the acquired business is “well positioned in attractive markets, notably military and civil space, C4ISR, and missile and munitions, of which demand appears exceptionally high now”.
On the AIM market, Tremor International plummeted 31% after the New York-based advertising technology company said pre-tax loss during first half of 2023 was $24.7 million, swinging from a profit of $28.8 million the year prior.
Banks held firm, seen as beneficiaries from higher interest rates, with Lloyds, Barclays, NatWest and HSBC all in the green.
Meanwhile, oil majors BP and Shell rose 0.3% and 0.3% respectively as the oil price rallied from recent falls.
UBS said it didn’t expect recent declines to continue and raised its year-end forecasts for Brent crude.
3.55pm: Oil price rallies, and UBS sees more upside ahead
The recent decline in crude oil prices is not expected to persist, according to analysts from UBS on Thursday, as recent trends mask an improvement outlook for oil demand.
Expectations of global oil demand hit a record high in August, inventories are declining, meanwhile, and Opec+ production is nearing a two-year low. All of this should support prices going forward.
"Some investors remain sceptical that China's latest stimulus efforts - a 15 basis point cut to its one-year medium-term lending facility rate and a 10 [basis point] cut to the short-term 7-day reverse repo rate - will be sufficient to revive demand," said UBS analysts, noting China as the world's largest importer, second-largest consumer and seventh-largest producer of oil.
"But we do not expect recent price falls to persist, in light of the oil market's firming fundamentals."
Firstly, UBS explained this was because it expects global oil demand to a record high in August, describing it as having "never been healthier", unlike other commodity markets.
Secondly, UBS said declining oil inventories leading to a tightening market was another improving fundamental for future oil prices.
Thirdly, UBS said Opec+ production is near a two-year low, with supply looking set to stay tight.
Due to its three outlined fundamentals, UBS said it sees scope for global oil prices to rally. It said it expects Brent to hit $95 a barrel and for West Texas Intermediate to rise to $91 a barrel by the end of the year, up from its previous forecasts of around $90 a barrel and $85 a barrel, respectively.
Brent rose 1.5% on Thursday to $84.70.
3.15pm: Wilko future in the balance as deadline passes
The future of Wilko remains up in the air as staff and customers await to hear whether a serious bidder for the budget retail chain has emerged.
Interested parties in the household goods retailer, which has 400 stores, had until Wednesday night to put forward their best offers for the company that called in administrators last week as it faced running out of cash.
It is expected that many stores will close because a bid for the whole group as a going concern is seen as unlikely.
However, the full chain is expected to continue to trade into next week as talks on parcelling up the group’s assets are expected to drag on.
Administrators are negotiating with potential suitors, including Poundland, B&M, Primark and Home Bargains, for groups of up to 50 stores each.
2.54pm: US markets try to shake off two-day losing streak
US pushed higher at the open on Thursday, attempting to shrug aside inflationary worries, global concerns and the August blues which have seen markets on the back foot.
Shortly after the opening bell the Dow Jones Industrial Average was up 90.80 points, 0.3%, at 34,856.54, the S&P 500 was up 10.50 points, 0.2%, at 4,414.83 and the Nasdaq Composite was up 12.23 points, 0.1%, at 13,486.86.
Sentiment was given a lift by better-than-expected second quarter results from Walmart, which raised guidance again as sales and profit topped expectations.
The world’s largest retailer reported revenue of $161.6 billion in the three months to July, up 5.7% from the same period last year and ahead of the $160.3 billion forecast by analysts in a Refinitiv poll. But market reaction was lukewarm with shares up 0.7%.
Weekly jobless claims of 239,000 in the week ended August 12, were down by 11,000 from a revised 250,000 the week prior, but broadly in line with the FXStreet cited consensus of 240,000.
Better news from the August Philly Fed manufacturing index which jumped to 12.0 from negative 13.5, and well above the consensus, of negative 10.0.
It was the first positive reading since last August, and the highest since last April.
But Kieran Clancy at Pantheon Macroeconomics said: “The August improvement in the Philly Fed conflicts with the previous low-and-flatlining trend, and is in stark contrast to the plunge in the August Empire State manufacturing index.”
“In short, we need much more convincing signals before we believe that the outlook for manufacturing is materially improving.”
Stocks on the move include Cisco Systems (NASDAQ:CSCO) (Cisco Systems (NASDAQ:CSCO)) Inc which rose 4.0% after a strong 4Q earnings report that came in ahead of expectations last night while Synopsys Inc (NASDAQ:SNPS) also benefited from well-received results after the closing bell Wednesday with shares up 2.4%.
But heading south were shares in CVS Health Corp, down 8.1%, after The Wall Street Journal reported that Blue Shield of California will no longer be using CVS Health's Caremark as its current pharmacy-benefit manager.
2.11pm: EY warns UK staff over pay as it trims jobs
The accounting firm EY has reportedly told staff in the UK to expect lower pay rises and bonuses than last year, and will lay off some staff to save costs.
The Financial Times reported that bonus pools will be smaller than last year and will be split among a smaller group; for some teams they will more than halve this year.
The firm also prepares to axe more than 5% of its 2,300 strong financial services consulting practice, the newspaper reported. This is less than in the US, where EY is cutting 3,00 jobs.
EY’s UK partners were paid a record of £803,000 on average in the financial year ended June 2022.
1:07pm: Strike action called off at Gatwick
Strike action by workers at Gatwick Airport has been called off after an improved pay offer.
Members of Unite employed by the ground handling company Red Handling were due to strike tomorrow but they will now be balloted on the new offer.
Unite regional officer Dominic Rothwell said: “Unite has been consistent from the outset, we believed that Red Handling could afford to make an improved offer and that proved to be the case. Our members will now decide whether the deal on the table meets their expectations.”
“However, if workers reject the offer, strike action planned from 25 to 28 August will go ahead.”
12.35pm: Norway joins the rate rise club
Interest rates keep ticking higher across the globe and Norway’s central bank has raised its benchmark interest rate by a quarter point to 4% this morning to try and bring inflation down, and signalled it would hike again in September.
The move had been widely expected. A majority of economists are expecting rates to peak at 4.25% by the of the third quarter, in line with the Norges Bank’s projection.
Central bank governor Ida Wolden Bache told Reuters: "What we are signalling at today’s meeting is that most likely, if the economy evolves as projected, we will raise the policy rate in September."
12.08pm: Tentative gains seen across the pond
US stocks look set to rally on Thursday as investors digest comments from the Federal Reserve and developments in China.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.2% higher, while those for the S&P 500 rose 0.2%, and contracts for the Nasdaq 100 futures were up 0.2%.
All three major indices nursed hefty losses on Wednesday after the US central bank said upside risks to inflation were "significant" and suggested further interest rate increases may be necessary.
"With inflation still well above the committee's longer-run goal and the labour market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy," minutes from the July Federal Open Market Committee showed.
But will the rhetoric translate to higher interest rates? Economists weren’t so sure.
James Knightley at ING Economics notes the minutes "show officials continue to have a bias to hike further," but he doesn't think the Fed "will carry through with that final forecast hike."
He thinks the Fed will be on hold for a number of months. "Our base case continues to be interest rate cuts from March 2024 onwards as monetary policy is relaxed to a more neutral footing."
Kieran Clancy at Pantheon Macroeconomics thinks the upcoming inflation numbers will favour a pause at the Fed's next meeting but said August's payroll report is a "wild card."
Company news sees results from retail giant Walmart while the economic calendar has weekly jobless claims figures which are expected to have fallen to 240,000 in the week ending August 12, less than the 248,000 in the previous week, according to economists polled by Refinitiv.
Shares on the move include Ball Corporation which is 5% higher in pre-market trading after selling its aerospace business to BAE Systems for $5.5 billion.
Cisco Systems (NASDAQ:CSCO) Inc is 2.3% to the good after it delivered a strong 4Q earnings report that came in ahead of expectations on Wednesday after market close.
The communications firm reported revenue of $15.2 billion for the quarter compared to the $15.05 billion expected by the Street, while its adjusted earnings per share came in at $1.14 versus $1.06 expected.
Double-digit growth in software revenue, product ARR and outstanding contracts led to greater visibility and predictability, according to the company.
11.34am: Profitability of UK firms edges up in first quarter
The profitability of UK private non-financial companies remained flat in the first quarter at below pre-pandemic levels, according to official data on Thursday.
Figures from the Office for National Statistics showed that companies made a net rate of return of 9.9% in the three months to March 2023, largely unchanged from the 9.8% in the previous three months and below the prevailing rate before the onset of the coronavirus pandemic.
The net rate of return for manufacturing companies increased to 8.8% in the first quarter, up from 8.4% in quarter four, while the net rate of return for services companies stood at 16.1%, an increase of 0.4 percentage points compared with quarter four.
The figures suggest that so-called "greedflation" may not be as prevalent as speculated despite the surge in the prices of some goods and services.
11.02am: Lionesses' triumph a win for the UK economy
The Lionesses battle for World Cup glory is expected to give a £185 million boost to the UK economy as supporters flock to pubs and bars to watch the final.
England going head-to-head with Spain on Sunday is set to lead to a spike in consumer spending over the weekend.
Analysis by savings site VoucherCodes.co.uk found that 13.7 million viewers around the UK are set to tune into the match, with around a fifth heading to their local pub, bar or restaurant to soak up the atmosphere.
Viewers could spend around £138 million in supermarkets to stock up in food, drink, merchandise and decorations ahead of the 11am kick-off, according to the report which uses forecasts from GlobalData.
And total spending in hospitality venues could reach £47 million, the highest of the tournament, as supporters flock to support the team.
10.35am: Bond yields hit 15-year high
The Federal Reserve's hawkish words on inflation and expectations that UK rates might rise have pushed the yield on 10-year gilts to a 15-year high, topping the levels seen in the wake of the mini-Budget.
The yield on a 10-year gilt rose as high as 4.7% while two-year bond rates jumped six basis points to 5.27%.
The move follows economic data this week which showed the UK’s core inflation was falling more slowly than hoped while across the pond the US central bank also warned of significant upside risks to inflation.
In the US, the 10-year Treasury yield also crept higher once, to 4.29%, approaching the highest level since 2007.
10.03am: BAE deal a touch expensive but in fast growing sector
BAE Systems $5.55 billion swoop for Ball Corp’s aerospace positions the defence manufacturer in a “fast growing segment of the defence market so that it can capitalise on the long term uptick for defence products.
That was the view of Shore Capital analyst Jamie Murray who pointed out the acquired business is “well positioned in attractive markets, notable military and civil space, C4ISR, and missile and munitions, of which demand appears exceptionally high now.”
In addition, there is positive read across to the wider defence industry as it highlights confidence within the sector, Murray said.
But the City marked the shares down 4.5% possibly reflecting the price paid.
AJ Bell's Russ Mould said: "The only downside is the $5.6 billion price tag which looks a touch on the expensive side and potentially explains the initial lukewarm reaction from shareholders to the deal."
"The cost will raise the pressure on the company to execute smartly on the integration process. Assuming it hits the targets it has outlined then it should be earnings accretive in the short term," he added.
ShoreCap's Murray wasn’t surprised by the deal – “we have highlighted previously that capital allocation including acquisitions play an important role for BAE,” he said, adding “it is a theme that we expect to continue, not just with BAE Systems, but across the defence industry as players look to scale up their operations so that they can capitalise on the long term uptick for defence products.”
Aarin Chiekrie, equity analyst at Hargreaves Lansdown highlighted the scale of the deal - equivalent to almost 20% of BAE’s current market cap.
He explained Ball Aerospace provides mission-critical space systems and defence technologies across air, land and sea – “complementing BAE’s suite of products nicely.”
“Given the similarities between the two businesses, there’s clear scope to streamline operations, cut costs and boost profit margins,” he added.
But he said “an acquisition of this size has only been made possible by BAE’s improved performance in recent years.”
Mould agreed: "“The fact BAE has been able to carry out a transaction like this with a minimum of fuss is in itself testament to its improved fortunes.”
9.35am: Chinese property woes prompt unease
Back to events in China which alongside the hawkish words of the US central bank on inflation are acting as a drag on markets.
Susannah Street at Hargreaves Lansdown explained the fresh alarms have arisen after Zhongzhi Enterprise Group, a giant wealth manager, has admitted it’s facing a liquidity crisis, after missing payments to retail investors, and will have to restructure its debt.
"The size of the firm is a huge cause for concern given that it’s thought to have $138 billion in assets under management, owning a trust arm which pools investments from firms and rich households to lend out," she said.
AJ Bell's Russ Mould noted the current Chinese property woes may prompt an uneasy feeling of "déjà vu" for investors who remember previous episodes of turbulence in the country’s real estate sector and the knock-on effect they had on wider markets.
“Officials in Beijing are doing their best to allay fears but their efforts at reassurance may fall on deaf ears for now as the crisis plays out," he sugested.
"This latest crisis is set to see confidence in China’s economy ebb away further, with investors waiting to see what else authorities can come up with to patch up problems," HL's Streeter said.
Earlier this week, The People’s Bank of China cut a key lending rate but so far it has failed to lift spirits.
The FTSE has stabilised for now, down 21 points at 7,336, heading for its fifth day of losses in a row.
9.10am: Bank of Georgia flies on buyback, strong profit
It's a quieter day for company but one share on the move is Bank of Georgia Group PLC.
The bank soared 13% after it launched a share buyback of 62 million Georgian lari (GEL), around £18.7 million, alongside above consensus second quarter profit.
The bank said the programme will start later in the year and end no later than the company's AGM, expected to be in May 2024, as it targets a dividend/share buyback payout ratio in the range of 30-50% of annual profits.
The news came as the bank reported first-half net interest income of GEL767.8 million, up 39% from GEL552.6 million the year before, while pre-tax profit jumped to GEL807.5 million, up 41% from GEL573.7 million.
Operating income totalled GEL1.23 billion, up from GEL890.6 million the year before, while a first half dividend of GEL3.06 per share was paid.
The bank said its growth outlook for 2023 is underpinned by resilient external inflows while domestic inflation is declining amid strong domestic demand.
Peel Hunt noted profit was ahead of consensus and should provide the basis for estimate upgrades.
The broker said the results appear "strong and clean," continuing the company's positive momentum, whilst the valuation multiples "allow for substantial potential upside."
8.45am: FTSE in the red, ex-divs hold index back
The FTSE 100 remains on the back foot in early deals as global concerns continue to dent the mood.
Richard Hunter, head of markets at interactive investor, commented “Investors moved onto the back foot with inflation clearly remaining in play, forcing them to consider whether the rate hiking programme is over after all."
"Minutes from the latest Federal Reserve meeting weighed on US markets, with the potential for further rate hikes still on the table," he explained.
"While the consensus continues to point to no change at the September meeting, the odds are rising for a further hike in November," he pointed out.
"Such uncertainty has led some investors to reconsider whether the fact that markets had been pricing in victory against inflation came too early, and in any event whether higher rates could remain in place for longer than had been anticipated."
Ex-dividend stocks also held the lead index with abrdn PLC down 4.7%, GSK PLC (LSE:GSK, NYSE:GSK) down 2.2% and Schroders PLC (LSE:SDR) down 1.9% among those trading without their dividend entitlement today.
Rank PLC is up 1.6% to the good after operating profit of £20.3 million was consistent with April guidance for being at the top of or above the previously guided £10-20 million range.
Peel Hunt reckons its Mecca bingo arm has benefited from the poor weather - outdoor alternatives to bingo have been notably less appealing relative to last year.
8.15am: FTSE knocked by inflation and growth concerns
The FTSE 100 opened lower knocked by hawkish comments from the US Federal Reserve and continued concerns over the health of the Chinese economy.
Not even the biggest corporate deal of the year in the UK could halt the falls as BAE Systems PLC (LSE:BA.) paid $5.55 billion for Ball Corp’s aerospace business.
At 8.15am, London’s lead index was down 36.04, 0.5%, at 7,320.84 while the FTSE 250 slipped 73.22 points, 0.4%, at 18,507.56.
US markets fell back after the US central bank highlighted “significant” upside risks to inflation and suggested further rate hikes might be necessary as it battles to bring inflation down.
The downbeat mood spread to Asia where markets fell after Japanese exports fell in July for the first time since February 2021, dragged down by lower demand from China for computer chips and cars.
Concerns over the property sector in China also weighed on sentiment after Zhongzhi, warned investors it needed to restructure.
Back in London, and BAE’s deal saw its share price fall 3.1%.
But Shore Capital’s Jamie Murray was positive, believing the deal “positions BAE in a fast growing segment of the defence market so that it can capitalise on the long term uptick for defence products.”
“In addition, there is positive read across to the wider defence industry as it highlights confidence within the sector,” he said.
He expects his fair value, currently 1,205p, to tick up following this acquisition.
7.35am: BAE swoops for Ball Corp's aerospace arm
A big deal kicks the day off with news BAE Systems PLC (LSE:BA.) has bought Ball Corp’s aerospace division for $5.5 billion in a deal it described as “compelling.”
Charles Woodburn, chief executive said: "The proposed acquisition of Ball Aerospace is a unique opportunity to add a high quality, fast growing technology focused business with significant capabilities to our core business that is performing strongly and well positioned for sustained growth.”
BAE said the cash deal will be treated as an asset purchase for federal tax purposes, with an expected net present value tax benefit of around $750 million making the underlying economic consideration for the business around $4.8 billion.
The net price represents a multiple of around 13x estimated 2024 Ebitda and is expected to be earnings accretive in the first full year, cashflow accretive in the first year and is expected to achieve a return on invested capital in excess of cost of capital within five years post completion.
The proposed acquisition will be funded by a combination of new external debt and existing cash resources.
The acquired business is expected to achieve revenues of around $2.2 billion and adjusted EBITDA of approximately $310 million in 2023 and has strong growth potential with an expected revenue CAGR of c.10% over the next five years, with continued growth expected thereafter.
Cost synergies of around $30 million are expected resulting from improved competitive positioning, procurement savings, and improved programme execution.
7.00am: FTSE 100 set for further falls
The FTSE 100 looks set for another tough day following falls in US and Asian markets after the US Federal Reserve said upside risks to inflation were "significant" and suggested further interest rate increases may be necessary.
Spread betting companies are calling London’s lead index down by 41 points after closing down 32.76 points at 7,356.88 on Wednesday.
"With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy," minutes from the July Federal Open Market Committee showed.
The Dow Jones Industrial Average closed down 0.5%, the S&P 500 fell 0.8% and the Nasdaq Composite declined 1.2%.
James Knightley at ING Economics noted the minutes "show officials continue to have a bias to hike further," but he doesn't think the Fed "will carry through with that final forecast hike."
"Higher borrowing costs and less credit availability plus pandemic-era savings being run down and student loan repayments restarting should mean that households feel more of a financial squeeze in the fourth quarter and beyond and we expect to see consumer spending activity moderate," he explained.
He thinks the Fed will be on hold for a number of months. "Our base case continues to be interest rate cuts from March 2024 onwards as monetary policy is relaxed to a more neutral footing."
Asian markets also fell. In Tokyo, the Nikkei 225 fell 0.6%, in China, the Shanghai Composite eased 0.3% and in Hong Kong the Hang Seng slipped 0.9%.
Back to London and results from Rank will be an early focus together with reports BAE Systems is looking at buying the aerospace division of Ball Corp.