- FTSE 100 down 47 points at 7,263
- UK retail sales hit by the wet weather
- Nasdaq leads Wall Street lower
4:40pm: FTSE 100 end the week in red
London’s blue-chip benchmark closed off the week, finishing Friday down 47 points marked at 7,262.
3.50pm: FTSE rallies into the close but nurses heavy losses
The FTSE 100 has come off its lows as head to the end of a torrid week for stocks.
Michael Hewson notes this week’s market weakness has been primarily driven by Asia markets, the Hang Seng finishing the week down 5.9% and closing in bear market territory, as China’s Evergrande filed for bankruptcy protection in a US court overnight.
Worries about the solvency of its sector peer Country Garden haven’t helped either, along with worries over contagion to the shadow banking system, after Chinese asset manager Zhonghzi missed a coupon payment, has added to the uncertainty, he pointed out.
Combined with the likelihood of persistently higher yields after the publication of this week’s Fed minutes, and markets look set to post their worst week since March, he said.
3.12pm: Higher rates hitting UK business, output falls
Rising interest rates have begun to bite UK companies, with a majority of businesses reporting the weakest output levels in eight months, according to a survey.
A monthly business tracker, compiled by Lloyds, found that 13 of 14 sectors said they had suffered from falling new orders last month, citing high inflation and climbing borrowing costs as the reason for weaker output.
“In the face of higher interest rates and still relatively rapid price rises, businesses and consumers are being more careful about how they spend their money,” Nikesh Sawjani, senior UK economist at Lloyds Bank, said.
“This suggests that interest rates are having their intended effect."
"Output in the private sector is only marginally expanding, and it’s clear that many businesses are downgrading their expectations for future output growth as they settle in for what they believe will be a period of price pressures that are stronger than hoped and may last for longer than previously anticipated," he added.
2:41pm: Tech stocks lead Wall Street lower
US markets opened lower as jitters surrounding China’s property crisis added to fears interest rates will stay higher for longer.
Shortly after the opening bell, the Dow Jones Industrial Average was down 94.55, 0.3% at 34,380.28, the S&P 500 was 22.97 points, 0.5%, lower at 4,347.39 and the Nasdaq Composite fell 135.88, 1.0%, at 13,181.05.
Fawad Razaqzada at City Index and FOREX.com pointed out: “The major global indices hit fresh weekly lows, reaching their lowest levels in several weeks, causing the VIX – the fear index – to rise to its highest level since May.”
The Dow is on pace for its worst week since March, the S&P 500 is headed for a third straight week of losses, a streak that hasn’t happened since February and the Nasdaq Composite is also set for a third consecutive losing week for the first time since December.
Rate-sensitive big technology and growth stocks such as Apple, Amazon.com and Tesla slipped between even as Treasury yields took a breather.
The yield on the 10-year Treasury note hit a ten-month high of 4.328% in the previous session and came within a whisker of its highest level since 2007. But in early trading on Friday, it eased to 4.270%.
2:05pm: China unveils reforms aimed at boosting investment
It's turning into another ugly session on the markets with the FTSE 100 now down 80 points at 7,230.
China’s securities regulator has announced a package of market-friendly reforms to try to boost investment and trading after months of underwhelming economic growth that has hit stocks and bonds.
The measures, which the China Securities Regulatory Commission said were designed to “boost capital market investor confidence”, indicate Beijing’s concern over the country’s economic and financial health after a weak rebound from strict pandemic curbs last year.
The CSRC proposed measures including cutting trading costs, supporting share buybacks and encouraging long-term investment, as the stock market languishes at nine-month lows.
They also include boosting the development of equity funds, looking at plans to extend trading hours, and improving the attractiveness of listed companies.
1:05pm: CBI to close batch of overseas offices
The embattled CBI business group has told staff that it will axe its operations in Beijing, Delhi and Washington DC in the coming months.
This will leave an office in Brussels as the only international presence of the organisation. The move was first reported by Sky News.
Exclusive: The CBI, the embattled business lobbying group, is to close its offices in Beijing, Delhi and Washington DC - leaving Brussels as its sole remaining overseas outpost - as part of a cost-cutting drive aimed at ensuring its survival. https://t.co/aFEMV7Uc9O
— Mark Kleinman (@MarkKleinmanSky) August 18, 2023
A CBI spokesperson said: "We have had to take the difficult decision to reduce our number of overseas offices as the CBI shifts to a smaller, leaner operation."
"The CBI will however continue to provide a valuable international service to members, including maintaining an international presence."
"We shall continue our role as the UK business representative on BusinessEurope, the B7 and B20 as well as BIAC (Business at the OECD)."
12:37pm: Ofgem price cap forecast to fall
Energy bills are expected fall to an average of £1,823 a year for a typical household from October as the regulator prepares to lower its cap on energy prices next week, according to a leading forecaster.
The energy price cap is expected to drop from an average of £2,074 a year for a typical household over the last three months but consumer groups have warned that prices remain “dangerously high”.
Bills are likely to rise again from January to an average of £1,979 a year after a recent surge in global gas market prices was ignited by a string of planned strikes at major gas projects in Australia, according to analysts at Cornwall Insight.
Dr Craig Lowrey, a principal consultant at Cornwall Insight, said that despite the small decrease in October’s bills the energy price forecasts would remain far above pre-crisis levels, underscoring “the limitations of the price cap as a tool for supporting households with their energy bills”.
12:06pm: Wall Street expected to open lower
US markets look set to open lower, extending their losing run, as China's property crisis deepended and amid fears interest rates would stay inflated for some time to come.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.1% lower, while those for the S&P 500 fell 0.2%, and contracts for the Nasdaq 100 futures were down 0.4%.
AJ Bell investment director Russ Mould said: "News China real estate giant Evergrande has filed for bankruptcy protection in the US would have prompted some alarm in isolation but when you combine it with its peer Country Garden’s decision to suspend payments on some of its bonds and the words ‘dominos’ and ‘falling’ start to come to mind."
Tech stocks look set to bare the brunt of the falls, as fears of higher rates knock the mood, after resilient economic data sparked concerns that inflation could pick up.
Ipek Ozkardeskaya at Swissquote Bank explained the data "fuels worries that with such a strong growth," US inflation could make a "U-turn and take a lift."
Stocks on the move ahead of the open include Farfetch Limited which has plummeted 41% after reporting underwhelming second-quarter revenue.
The London-based luxury brands e-commerce platform posted revenue of $579.34 million, up 1.2% year over year but well behind Street expectations of $649.17 million. Its loss was narrower than expected, at $0.21 per share, versus consensus forecasts of $0.42..
11:23am: More train pain as Aslef boss signals more strikes
More misery for commuters and users of the UK's train network.
The boss of Aslef, the train drivers’ union said it is preparing to intensify its campaign of strike action this autumn as hopes fade of reaching a deal to end more than a year of industrial action.
Mick Whelan said further strikes were inevitable in a long-running row over pay and working conditions with train companies in England and the government.
Whelan said he was under pressure from members to go “harder and faster”.
“It is going to happen, it is about how quickly we step it up and what we do. But the view is we will be taking more action,” Whelan said.
Aslef has rejected an offer of an 8% pay rise over two years, tied to sweeping changes to drivers’ working lives, such as more flexible shift rostering and overtime work.
10:52am: Glimmer of hope for Wilko?
The GMB union said said there are “genuine grounds for hope” over the future of stricken retailer Wilko after expressions of interest from potential buyers during the administration process.
Wilko staff have grounds for hope, says GMB union as bidders circle https://t.co/GY79JMjs4p
— BBC News (UK) (@BBCNews) August 18, 2023
Andy Prendergast, GMB national secretary, said: "GMB has met with administrators and the company as part of the formal consultation process."
"We can confirm there have been expressions of interest from organisations who are considering taking over at least some parts of the business."
"These are still at an early stage, but means there are genuine grounds for hope."
"Whilst this process continues staff will continue to be paid and kept on. All stores are continuing to trade, and deliveries of new stock will continue," he continued.
10:25am: Retail sales - a blip or are rising rates starting to bite?
No sign of a let-up in the falls in the FTSE 100, now down 67 points at 7,243.
Retailers remain out of fashion after the weak retail sales numbers but is this just a reflection of the weather or a sign consumers are feeling the pinch of higher mortgage rates and soaring prices.
Samuel Tombs thinks the former, he sees July’s decline in retail sales likely as "no more than a weather-related dip."
"We continue to expect households’ real disposable income to rise briskly and to be about 2.0% higher in Q4 than a year ago."
"Month-to-month increases in wages will outpace price rises in Q3 and Q4, as energy prices fall back and the rate of increase in both food and core goods prices slows, in line with producer prices," he added.
Danni Hewson at AJ Bell tended to agree. “July’s retail slump follows three positive months for the sector and there is every indication that consumers do still have cash to spend, they’re just choosing where and when to spend it very carefully."
“With ‘Barbenheimer’ offering something for everyone at the cinema and Mecca Bingo owner Rank updating markets to say they’d enjoyed a big spike in revenues since the showers began, it seems people took the opportunity to splurge on experiences rather than stuff," she reckons.
“A bit more sunshine and the potential of a World Cup victory is likely to re-frame the numbers.
Susannah Streeter at Hargreaves Lansdown felt the fall was a combination of the bad weather and consumers continuing to tighten their belts.
"The broad-based nature of the declines across most sectors suggests this is a consumer weakening on a large scale, rather than a sector-specific problem," she suggested.
She felt the interesting element is the fall in food sales, which is an area where inflation has been running especially hot.
"The scope of changes to shopping habits on essentials like groceries speaks to the level of financial stress that’s starting to feed through to consumers," she thinks.
Phil Monkhouse at Ebury described the figures as a "damp squib.”
“The washout sales figures come amid the continuing squeeze on household incomes although there is growing evidence that we may now be moving past the worst. Inflation is falling fast which could start to translate into higher consumer spending as budget pressures recede."
The weak figure followed strong trading updates from Next and Marks and Spencer recently although the collapse of Wilko suggests all is not rosy on the high street as these figures confirm.
9.47am: RS knocked by UBS downgrade
As mentioned earlier, it's not been a great morning for shares in RS Group PLC (LSE:RS1) which sits top of the FTSE 100 fallers, down 4.5% at 689.29p.
Investment bank UBS has slashed forecasts, cuts its price target and downgraded the stock to neutral from buy.
“With recent data suggesting weakening markets and reversing share gains, we now expect a bigger profit 'unwind' for RS Group,” the Swiss bank said.
The broker foresees a period of sustained negative organic growth and margin pressure ahead and has cut estimates “significantly,” placing it around 14-19% below consensus.
While much of the risk is now reflected in the share price which is 35% lower than mid-2022 highs, UBS sees limited re-rating potential for now given the negative earnings outlook.
The bank has set a new price target of 800p, down from 1,250p, still well above the current share price.
Earnings per share forecasts have been slashed by 13-22% for the next three financial years, driven by lowered organic growth and gross margin forecasts.
9.26am: Cocktail of woes keeps FTSE lower; retailers drop
“Whether it’s the brewing crisis in the Chinese property market, the surge in US bond yields on fears rates will stay higher for longer or the big drop in UK retail sales, things are starting to look a bit ugly out there,” AJ Bell's Russ Mould thinks.
“News China real estate giant Evergrande has filed for bankruptcy protection in the US would have prompted some alarm in isolation but when you combine it with its peer Country Garden’s decision to suspend payments on some of its bonds and the words ‘dominos’ and ‘falling’ start to come to mind.
“China-exposed stocks on the FTSE 100 like Prudential and the miners are taking heat on Friday morning, helping to put the index on course for yet another down day."
And in comments that many a parent might echo he noted: "The FTSE is currently demonstrating all the pep and get up and go of a teenager at 8am on a school day."
Certainly, no up and go being showed by the FTSE, nore down and out, as it slips over 50 points to 7,259.
Miners are prominent in the fallers, with Antofagasta PLC (LSE:ANTO), Anglo American PLC (LSE:AAL) and Fresnillo PLC (LSE:FRES)all heading down while a downgrade by UBS has knocked RS Group PLC (LSE:RS1) down by 3.7% - we'll have more on this shortly.
Retailers are still suffering with JD Sports Fashion PLC (LSE:JD.), Frasers Group PLC (LSE:FRAS), Burberry Group PLC (LSE:BRBY), B&M European Value Retail SA (LSE:BME) and Next PLC (LSE:NXT) all languishing.
9:02am: JSW to rival Glencore's interest in Teck's coal arm
One to keep an eye on. Bloomberg reported that Glencore PLC has a new rival in its bid to acquire Teck Resources Ltd (TSX:TECK.B)'s coal division, with Mumbai-based JSW Steel Ltd scoping out parties to form a consortium.
Citing people with knowledge of the matter, Bloomberg reported that JSW is on the hunt for partners for an offer to acquire 75% of Teck's coal arm. A deal will value the unit at more than $8 billion.
Any JSW consortium could yet face competition for the coal asset from Glencore, which in June proposed buying the business for about $8 billion as an alternative to a full takeover of Vancouver-based Teck.
8:39am: Sterling and bond yields ease after weak retail sales
The weak retail sales figures have pricked the sterling baloon while bond yields have fallen back this morning too.
The pound is down 0.2% at $1.2722 while the yield on the UK’s 10-year gilt eased to 4.65% after topping 4.7%.
Meanwhile, the FTSE 100 has extended its losses, now down 52 points, at 7,258, with little respite in sight.
Sophie Lund-Yates at Hargreaves Lansdown noted "concerns over interest rates continue to lead the narrative, which is currently saying that equities aren’t flavour of the month."
"At the same time, there are growing concerns over China’s property crisis and a weakening economy, as struggling property giant Evergrande filed for protection from creditors with the US bankruptcy court in Manhattan yesterday," she added.
"All-in-all, the atmosphere isn’t an inviting one for equity markets as we round off the week."
8:15am: Evergrande adds to FTSE's woes
The FTSE 100’s losing streak continued on Friday with equities in the red and on course for the longest losing streak since late-June.
Richard Hunter, at interactive investor, commented “Markets continued on a languid path as the list of concerns showed little signs of abating."
At 8.15am, London’s lead index was down 32.51 points, 0.45, at 7,277.70 while the FTSE 250 dipped 73.91 points, 0.4%, at 18,282.16.
Dampening the mood was news that UK retail sales fell by more-than-expected in July as the wind and the rain kept shoppers away from the high street.
Figures from the Office for National Statistics showed retail sales fell by 1.2% in July following a rise of 0.6% in June (revised from an increase of 0.7%).
This was a much larger drop than the 0.5% contraction forecast by economists.
But Samuel Tombs at Pantheon Macroeconomics thinks "July’s decline in retail sales likely is no more than a weather-related dip."
"We think households’ real expenditure will be up around 1.5% year-over-year in Q4, with retail sales following a similar trend," he said.
Nonetheless, leading retailers such as Frasers, JD Sports and Marks & Spencer were under pressure in early deals.
Sentiment was depressed further by news that Chinese property group Evergrande has filed for bankruptcy protection in the US as the crisis spreading through China’s property sector worsens.
Hunter at interactive investor said it was "another red flag from the property sector."
Asis-focused stocks were marked down. Standard Chartered fell 1.2%, HSBC eased 0.8% and Prudential declined 1.2%.
7:56am: Wet weather rains on retail sales
You might have noticed the weather hasn't been great and figures today show that the wind and the rain has sparked a larger than expected fall in UK retail sales as shoppers have stayed away from the high street.
Figures from the Office for National Statistics showed retail sales fell by 1.2% in July following a rise of 0.6% in June (revised from an increase of 0.7%).
This was a much larger drop than the 0.5% contraction forecast by economists.
Retail sales fell 1.2% in July 2023 following a rise of 0.6% in June.
— Office for National Statistics (ONS) (@ONS) August 18, 2023
Food stores sales volumes fell by 2.6% with supermarkets reporting that the wet weather reduced clothing sales, although food sales also fell back as the increased cost of living and food prices continued to affect sales volumes.
Non-food stores sales volumes fell by 1.7% as poor weather reducing footfall.
The bad weather and promotions boosted online sales with the proportion of total sales online rising to 27..4% from 26.0% in June.
Automotive fuel stores sales volumes rose by 0.7% in July 2023, following a fall of 0.6% in June 2023.
7:40am: Rise in bond yields reflects fears of higher rates
Yields on long-term US government debt neared their highest level since 2007 as investors bet that the Federal Reserve would successfully avoid a recession although higher interest rates may be required to tackle stubborn inflation.
The sell-off in bonds, was mirrored in European markets, where UK 10-year gilt yields hit their highest level since 2008 and Germany’s equivalent hit levels not seen since 2011.
Central banks on both sides of the Atlantic have maintained a hawkish stance with higher interest rates even as inflation pressures have eased, leading investors to worry that interest rates will stay inflated for some time to come.
On Wednesday, minutes from the Fed’s last meeting showed officials saw “significant upside risks to inflation, which could require further tightening of monetary policy”
Ipek Ozkardeskaya at Swissquote Bank explained that positive data in the US recently has fuelled “worries that with such a strong growth, the US inflation could only make a U-turn and take a lift.”
“This is why, we continue to see the upside pressure in yields persist, in the US and around the world, though we saw some respite in the US 2-year yield that bounced lower from the 5% mark earlier in the week, and the 10-year yield spiked above 4.30% before falling back to 4.25% this morning,” she noted.
She also pointed out “the upside pressure in sovereign yields is true for other parts of the world as well, because obviously when the US coughs the world catches a cold.”
“More precisely, higher US yields also translate into a stronger US dollar, and a stronger US dollar is inflationary for the rest of the world.“
7:05am: FTSE set to follow global markets lower
The FTSE 100 looks set to start Friday on the back foot as global equities remain out of favour due to worries over interest rates and the health of the Chinese economy.
Spread betting companies are calling London's premier index down by around 35 points after closing down 46.67 points at 7,310.21 on Thursday.
"This week hasn't been a good week for the FTSE100, with 4 days of declines on top of a poor finish to the end of last week, with the index down 4% over the last 5 days, and down at 5-week lows," noted CMC Markets' Michael Hewson.
US stocks closed firmly in the red, with the Dow Jones Industrial Average down 0.8%, the S&P 500 down 0.8% and the Nasdaq Composite down 1.2%.
Asian markets were also in negative territory. The Nikkei 225 in Tokyo fell 0.7%, in China, the Shanghai Composite was down 0.5%, while the Hang Seng index in Hong Kong was down 1.7%.
Back in London, and UK retail sales figures will provide the early focus with the corporate diary looking quiet.