- FTSE 100 up 50 points at 7,321
- Weak PMI figures point to lower peak in rates
- Foot Locker warning knocks JD Sports
4:40pm: FTSE 100 extends gains, closing in green
London’s blue-chip benchmark ended Wednesday’s session close to 50 points higher, priced at 7,320.
4.05pm: Deutsche sees 7% fall in house prices, "this is not a crash"
Deutsche Bank believes the fall in UK house prices will represent a correction, but not a crash, although “we are not out of the woods yet.”
The German investment bank’s economics and housebuilding teams have assessed the near-term outlook for house prices and pointed out although this has been the third most acute price correction in modern times, it has done little to reverse previous gains.
“In other words, this is not a crash,” the bank said.
It noted UK house prices have held up “relatively well” so far with the Nationwide House Price index down c4.5% from its peak, much less than the double-digit correction seen in New Zealand, for example.
But the bank flagged three remaining headwinds that will likely weigh on house prices over the coming quarters: unemployment, the effects of rate rises are lagged and affordability is stretched, particularly in London.
“As rates stay higher for longer, we expect this to exert further downward pressure on prices, lengthening the correction,” Deutsche said.
“In our core scenario, we see house prices falling by 7% (peak-to-trough) around the turn of the year,” the bank said, adding , “this suggests there's another 3-3.5% correction left to go by the turn of the year.”
3:52pm: M&S tipped for return to FTSE's top table
Founding FTSE 100 member Marks & Spencer Group PLC is set to return to the index after a four-year absence, but housebuilder Persimmon PLC (LSE:PSN)'s roughly 10-year spell among London's blue-chips may come to an end.
Susannah Streeter at Hargreaves Lansdown said: "The competition for promotion to the FTSE 100 is on, with plenty of contenders jostling for a position in the topflight."
"The reshuffle of the index is based on companies’ total market capitalization at the end of Tuesday 29 August, with notification of changes after UK markets close on the 30 August, so there is still significant time for estimations to change," she added.
She said the main contenders for promotion to the FTSE 100 are Marks & Spencer, technical products supplier Diploma, and drug makers Dechra and Hikma.
Heading the other way, could be Johnson Matthey, Abrdn, Persimmon and RS Group.
3:27pm: Tullow should look to raise equity ahead of refinancing
The FTSE 100 is holding in the green although off earlier highs.
It's a day when bad news is seemingly good news for equities with the weak overview of the economy from S&P's PMI survey pointing to a lower peak in interest rates giving shares a boost.
One share heading down though is Tullow Oil. Broker Stifel has taken a look at the firm and concluded now might be a good time to raise equity.
The broker pointed out Tullow needs to restructure and/or refinance its current c.US$2.1 billion bond debt maturing between March 2025 (c.US$630 million) and May 2026 (currently c.US$1.5 billion), plus a US$500 million bank facility expiring November 2024.
“Surprisingly, we find Tullow is in the unusual position of having a cost of equity below its current market cost of secured debt; we therefore conclude that Tullow's best course of action is to issue equity now,” Stifel said.
It reckons a fund raising of around US$150 million now would currently be the cheaper finance option, and may lead to reduced cost of debt as well, and build financial resilience given commodity price volatility and uncertainty over the tax dispute with Ghana.
The broker has moved its price target to 39p and retains a hold rating. Shares fell back 3.0%.
3:00pm: Foot Locker warning knocks JD Sports
JD Sports Fashion PLC (LSE:JD.) shares have been rattled by news in the US for the second day in a row, this time from Foot Locker.
The US footwear chain cut guidance for the full-year alongside a fall in quarterly sales, as well as signalling a pause in the dividend.
Shares in the US firm fell 34% in early trading in New York dragging sports and footwear retailers such as Nike, Adidas and JD Sports down by 3.3%, 4.5% and 6.3% respectively.
On Tuesday, a warning from Dick's Sporting Goods knocked shares in the UK listed firm which has around 147 shops in the US.
However, Shore Capital said
2:46pm: US markets climb but investors put the boot into Foot Locker
US markets opened higher despite two well-known names, Foot Locker and Peloton, plunging after disappointing earnings.
Shortly after the opening bell, the Dow Jones Industrial Average was up 47.10 points, 0.1%, at 34,335.93, the S&P 500 was up 14.82 points, 0.3%, at 4,402.37 and the Nasdaq Composite was up 58.28, 0.4%, at 13,564.15.
Investors are pinning their hopes on strong results from chip maker Nvidia after the closing bell in an attempt to lift the market from the August blues.
Focus is also shifting to the Jackson Hole gathering of central bankers at which Federal Reserve chair Jerome Powell will speak.
Early results have seen Foot Locker shares slump 35% after the company reported a fall in sales, reduced guidance for 2023 and announced a pause to the dividend after seeing a “softening in trends in July.”
The footwear retailer reported a 9.9% drop in sales to $1.86 billion, below Street expectations of $1.88 billion, and now expects 2023 sales to fall by 8-9%, compared to a previously issued forecast of a 6.5-8% decline.
The warning dragged shares in Nike Inc (NYSE:NKE) (Nike Inc (NYSE:NKE)) down, which opened 3.6% lower.
Online fitness provider Peloton skidded off-track after revenue missed Street expectations, with costly equipment recalls mounting, and an increasing numbers of users pausing subscriptions.
Shares fell 19% as the firm reported a loss of $242 million for the quarter, that’s 68 cents per share, is significantly higher than the consensus, pitched at 40 cents per share.
2:22pm: Synthomer (LSE:SYNT) lower as Morgan Stanley (NYSE:MS) slashes price target
Morgan Stanley (NYSE:MS) has slashed its price target for Synthomer (LSE:SYNT) PLC and thinks although shares are now “close to trough,” that it isn’t time to buy just yet.
Holding the investment bank back are a continued focus on leverage, combined with a lack of visibility on market recover and ongoing de-stocking in nitrile rubber gloves (NBR) given their long shelf life.
Morgan Stanley (NYSE:MS) highlighted lingering weak global NBR demand and that a major player Top Glove recently decommissioned certain production lines and temporarily halted production across over one third of its production plants.
The broker rates Synthomer (LSE:SYNT) at equal weight with a reduced price target of 90p, down from 140p.
“More specifically, we reduce the EV of the components in our sum-of-the-parts, considering Synthomer (LSE:SYNT)'s weaker divisional margin vs peers and discounting for the high leverage profile that spans the group,” the bank said.
In addition, we also mark to market the value of the debt and account for the higher cost of debt (10% vs 9% previously).
Shares fell 2.7% to 64.65p in London.
2.08pm: Farage calls payment to Alison Rose a "sick joke"
It's fair to say Nigel Farage is unimpressed by NatWest's payment to ex-boss Dame Alison Rose which he called a "sick joke."
The former head of UKIP said: "This is the corrupt British establishment looking after its own."
The £2.4m payout to Dame Alison Rose is a sick joke. This is the corrupt British establishment looking after its own. pic.twitter.com/EljcDWlA3U
— Nigel Farage (@Nigel_Farage) August 23, 2023
1:10pm: Ex-NatWest boss Alison Rose in the money despite Farage debacle
Dame Alison Rose will receive £2.4 million from NatWest Group PLC (LSE:NWG) despite being forced to resign over her role in the Nigel Farage “debanking” scandal.
In a statement, the lender said it would still pay her £1.155 million in salary for the year, £1.155 million in NatWest shares, which she will receive over a five-year period, and £115,566 in pension payments – a total of around £2.43 million.
Rose is currently seeing out her 12-month notice period with the banking group.
She stepped down in July after she admitted to being the source of an inaccurate story about former UKIP head Farage’s finances following a discussion with a BBC journalist, Simon Jack.
NatWest has appointed Paul Thwaite as interim boss and he will pick up a salary of £1.05 million and a fixed share allowance of £1.05 million.
12:24pm: Sterling rattled by weak PMI
The pound is proving a big casualty from today’s weak PMI numbers.
Traders are betting that the Bank of England will need to raise interest rates by less than previously feared as the economy shows signs of faltering.
Sterling is down 0.7% to $1.2641.
“This morning's flash PMI reading for the UK reinforces our view that a September rate hike from the Bank of England will likely be the last of this cycle,” said Nick Rees, FX Market Analysis at Monex Europe.
He pointed out, “the market response to the data saw gilts rally strongly with yields falling across the curve, with both 2 year and 10 year down roughly 12bps.”
“Granted, signs that wage pressures remain elevated mean that the Bank of England is not done quite yet, a slowdown in growth and employment suggests that a normalisation of inflationary pressures is now well and truly in the pipeline,” he added.
“Put another way, the dreaded feedback between wages and prices is starting to abate.”
“Given the revealed preference of BoE policymakers to wait for these signs to show up in hard data, today’s PMI report is unlikely to tip the balance at the September meeting.”
“But by November, the continued slowdown should be evident in the hard data and be convincing enough for the monetary policy committee to declare a pause in its tightening cycle.”
12:09pm: Bright start expected across the pond
US stocks are expected to open higher on Wednesday as investors two key events which may dictate the path of equities for the rest of the week.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.4% higher, while those for the S&P 500 rose 0.5%, and contracts for the Nasdaq 100 futures were up 0.6%.
First up are eagerly awaited results from Nvidia Corp after its blow-out numbers in the previous quarter.
Results will be released after the market close on Wednesday with attention centred on artificial intelligence-related revenue.
Neil Wilson at Markets.com said: “Clearly a lot is hanging on results from Nvidia after the bell tonight.”
“It’s expected to deliver a roughly 67% rise in Q2 revenues. Remember a lot is already in the price after it guided for fiscal Q2 to be $11bn, $4bn more than had been expected,” he pointed out.
Elsewhere, markets are gearing up for tomorrow's Jackson Hole Symposium, with Federal Reserve Chair Jerome Powell’s appearance on Friday the main event of note.
Last week, minutes from the last Federal Open Market Committee meeting showed officials saw significant upside risks to inflation and investors will be looking for more colour on this, and the likelihood of further interest rate rises.
Victoria Scholar at Interactive Investor said the market will be looking for “clues into whether interest rates will remain higher for longer and whether the ideal soft-landing scenario in which inflation comes down, yet a recession is avoided can realistically be achieved.”
In economic news, PMI figures will be studied for evidence of the much-hoped for soft landing, particularly in light of weak data in the UK and Europe today.
11:23am: Lower peak of interest rates expected
Simon French, chief economist at Panmure Gordon, has highlighted some dramatic repricing of UK interest rate expectations this morning following the soft PMI report.
He notes overnight peak rates seen at 6% (three more hikes) has moved to just two on this data.
He pointed out this was consistent with more timely data points suggesting a sharp slowdown in economic momentum over mid-summer.
Some dramatic repricing of UK interest rate expectations this morning on a soft PMI report (31 month low: 47.9). Overnight peak rates seen at 6% (three more hikes) has moved to just two on this data. Consistent with more timely data points suggesting a sharp slowdown in economic…
— Simon French (@shjfrench) August 23, 2023
“This, and signs of moderating pay pressures in the most timely pay data, creates a path for the BoE to talk back the market path from continuing hikes as the Fed/ECB (probably) hold pat,” he suggests.
But will they do so before the next Monetary Policy Meeting on September 21.
“With another month of CPI & wages data this will require careful judgement,” he thinks.
11:03am: European economy contracts
The poor economic backdrop wasn't just confimed to the UK.
The HCOB Flash Eurozone Composite PMI hit a 33-month low of 47.0 in August, down from 48.6 in July, and below expectations of 48.5.
The survey showed falls in both manufacturing and service sectors albeit with the goods-producing sector registering by far the sharper rates of decline.
Hiring came close to stalling as companies grew more reluctant to expand capacity in the face of deteriorating demand and gloomier prospects for the year ahead, the latter sliding to the lowest seen so far this year, the survey showed.
Flash #Eurozone #PMI fell to a 33-month low of 47.0 in August (Jul: 48.6). The downturn spread to the service sector, hitting output and new orders, whilst hiring came close to stalling and inflation gauges ticked higher. @HCOB_Economics Read more: https://t.co/dwlim4tBXp pic.twitter.com/UDqsiFRVqB
— S&P Global PMI™ (@SPGlobalPMI) August 23, 2023
10.25am: Not as bad as made out?
The FTSE is back on the horse, riding higher as traders chew over what the PMI data all means.
Now we have a gain of 64 points for the blue-chip index, up 0.88% to 7335. Little sibling FTSE 250 is up almost 1% at 18,200.
Meanwhile, some economists are questioning whether flash PMIs are going to end up proving right about a major economic contraction, but implications for interest rates remains.
"In practice," the EY ITEM Club's Martin Beck said the club "doesn’t think the economy is quite as weak as the PMI suggests, although a continuation of the sluggish growth of recent quarters is likely for the near future".
But the softer activity and easing inflationary pressures "mean a rise in interest rates in September is no longer looking so certain".
The EY ITEM Club expects there will be a BoE rate rise next month but if so that it "will be the last in the current cycle".
While the PMI survey is consistent with GDP shrinking in the third quarter, Beck said the Club "thinks the outlook for the economy isn’t quite that weak".
"The PMIs exclude the public sector, where output should be supported by the resolution of some pay disputes."
Also he noted that evidence suggests that the PMI survey "can be influenced by the sentiment of respondents, as well as actual movements in output, a factor which may be at play this time, given a recent run of downbeat headlines about rising mortgage rates".
9.52am: Inflation moderating as UK faces 'steep economic contraction'
Digging deeper into the S&P Global/CIPS flash UK PMI data, to use its full name, we find that the deterioration shown in the survey of UK private sector firms "mostly reflected a faster fall in new orders as sluggish domestic economic conditions and higher borrowing costs led to caution among clients".
Inflationary pressures continued to moderate in August, the survey showed, with input costs rising at the slowest pace for two-and-a-half years, leading to average prices charged by UK private sector companies increasing at the softest rate since early 2021.
Persistently strong wage pressures continue, backing up last week's ONS survey for June.
"The early PMI survey for August suggests that inflation should moderate further in the months ahead, but also indicates that the fight against inflation is carrying a heavy cost in terms of heightened recession risks," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
On Twitter he said the UK economy "has entered a significant downturn", and excluding pandemic lockdown months, "one of the steepest contractions since the global financial crisis", with the surveys signalling that UK GDP will decline by 0.2% over the third quarter so far and fall more steeply.
"A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector's spring revival."
Companies are reporting reduced orders for goods and services, which he attributes to the high cost of living, rising interest rates and concerns about the economic outlook.
"Although cost pressures remain elevated, thanks mainly to rising wages, the deteriorating demand environment is curbing companies' pricing power."
A fall in CPI to around 4% from the recent 6.8% is indicated by the survey, Williamson said, while a pull-back in hiring in August indicates that the labour market is "losing steam, which should feed through to lower wage pressures".
He speculated that another Bank of England hike in interest rates still looks "on the cards" for September but the PMI data "will add to speculation that rates could soon peak".
The initial spike in the Footsie has tailed off, with the index off its peak, up 46 points or 0.64% at 7316.
Meanwhile, the FTSE 250 is up 0.88% at 18,193.
9.35am: UK PMIs fall more than expected
Fresh UK data shows economic conditions in both services and manufacturing sectors ended a six-month period of expansion, which in the double-think world of markets is sort of good news as it suggests the Bank of England's interest rate hikes are working and that there could be a pause sooner than had been expected.
The preliminary ‘flash’ UK purchasing managers’ index (PMI) for the manufacturing sector declined to a 31-month low of 42.5 for the first two weeks of August from 45.3 in July, lower than the 45 predicted.
A PMI above 50 indicates expansionary conditions, while numbers below that level point to the sector’s contraction.
UK services PMI was arguably worse, flipping into negative territory at 48.7 from 51.5% in July, below the 51 expected. This was a seven-month low.
The composite PMI fell to 47.9 from 50.8, below the 50.4 consensus forecast. The full PMI survey for August will be published at the start of next month.
Following the release the pound has tumbled and the FTSE has taken a leg higher, due to the implications about Bank of England's interest rate hikes.
Sterling fell 0.45% versus the dollar to 1.26737, while the FTSE 100 has climbed another 30 points or so. The index is now up 53 or 0.7% at 7,323.94.
8:56am: FTSE 100 stays on a positive path
The FTSE 100 continues to push higher with the lead index up 23 points at 7,294.
Susannah Streeter, head of money and markets, Hargreaves Lansdown commented: "The FTSE 100 has sneaked into positive territory in early trade as risk sentiment has improved a little, but caution is set to dominate on financial markets as investors assess the prospects of high interest rates lingering for longer."
"Wariness has been rippling out ahead of the central bankers’ meet up at the Jackson Hole Economic Symposium in Wyoming this weekend. Investors will be eager for clues as to how long the fight against inflation will continue, where interest rates will end up and just how long they will stay at painful levels."
Gains are being held by back by the oil majors, BP and Shell, both modestly lower reflecting a fall in the oil price.
8.33am: Wage cools for first time in 2023
Some better news for the Bank of England with a survey showing UK pay deals eased for the first time this year in the quarter to July.
Median basic pay deals in the three months to the end of July fell to 5.7% following six consecutive quarters at a record 6%, human resources publication and data provider XpertHR said.
Sheila Attwood, senior content manager at XpertHR, said pay awards had likely hit their peak and expects the gap between pay deals and inflation to narrow.
"Our figures of a decrease in wage rises might ease minds at [the] Bank of England, fearful of the effects of a wage-price spiral," Attwood said.
The BoE will hope this starts to be reflected in official data. Recent figures from the Office for National Statistics showed annual wage growth excluding bonuses rose to 7.8% in the three months to June, the highest in records going back to 2001.
8:18am: FTSE 100 makes steady progress, PMI to come
The FTSE 100 has made a steady start to the day with investors sitting on the sidelines ahead of the Jackson Hole gathering of central bankers.
At 8:15am, London’s lead index was up 28.08 points, 0.4%, at 7,298.84 while the FTSE 250 was up 55.06 points, 0.3%, at 18,079.32.
Richard Hunter, Head of Markets at interactive investor, commented “Markets returned to a holding pattern ahead of two key imminent events which could shape the immediate outlook for investor sentiment.”
“The upcoming speech by Federal Reserve Chair Powell at the Jackson Hole symposium is eagerly awaited, as it is expected to provide further colour on the central bank’s current thinking.”
Hunter was also referring to results from Nvidia due after the US market close Wednesday.
Aside from that, PMI figures due at 9:30am might provide some stimulus with company news thin on the ground as the August lull continues.
One bright spot is Costain Group PLC (LSE:COST) which has jumped 3.8% after saying it is considering restoring the dividend.
The news came as the engineering and construction firm reported a solid set of interim numbers alongside considerable progress in shoring up its finances.
Peel Hunt said first-half profit of £15.9 million was ahead the consensus of £14.8 million.
GSK PLC (LSE:GSK, NYSE:GSK) rose 0.7% after reporting its Shingrix vaccine demonstrated 100% efficacy in preventing shingles among adults aged 50 and over in China.
The data comes from the first efficacy trial of Shingrix in the country, involving nearly 6,000 participants.
Another share on the rise was JD Sports Fashion PLC (LSE:JD.) which rallied 2.4% after being hit on Tuesday by the warning from US peer, Dick’s Sporting Goods.
Shore Capital’s Eleonora Dani felt “the read across is unwarranted,” considering that the margin shortfall at Dick’s can be attributed to inadequate stock provision and markdowns in its outdoor division.
7.48am: Costain hints at restoring dividend as profit grows
One to keep an eye on today is Costain Group PLC (LSE:COST) which is mulling restoring the dividend after a solid performance so far in 2023 and progress in boosting its financial position.
In the six months to June 30, the construction and engineering firm reported flat revenue of £664.4 million but a 20% jump in pre-tax profit to £15.9 million from £13.3 million the year before.
The improved profit reflected robust growth in natural resources, resilience in transportation and continued positive cash generation.
This has left Costain looking at restoring the interim dividend with an announcement expected “shortly.”
“The increase in operating performance and the positive outcomes regarding the pension review and refinancing, enables the board to consider the resumption of dividend payments, including the payment of an interim dividend in respect of the period to 30 June 2023,” the firm said.
Expectations for the rest of the year remain unchanged backed by more than 90% of revenue already being secured for the remainder of 2023.
7.25am: Reckitt brings in Nike exec to as CFO
It looks like a quiet day on the company news front but one blue-chip in the news is Reckitt Benckiser which has named Shannon Eisenhardt as its new chief financial officer, in another change in the top team at the consumer goods maker.
The manufacturer of Nurofen and Dettol said Eisenhardt will join the business on October 17, succeeding Jeff Carr who has announced his retirement.
Reckitt said Carr's "strong contributions will stand us in good stead during the next chapter."
Eisenhardt joins Reckitt from Nike Inc (NYSE:NKE), the sportswear retailer, where she currently is chief financial officer of Nike Consumer, Brand & Marketplace.
This is the second change in Reckitt's 'top team' in a couple of months. In June, it appointed Kris Licht as its new chief executive.
7.03: Steady progress seen in London
The FTSE 100 is expected to open higher on Wednesday despite a dull showing in the US and ahead of a slew of PMI readings.
Spread betting companies are calling London’s lead index up by around 20 points after closing up 12.94 points at 7,270.76 on Tuesday, ending its seven day losing streak.
In the US, markets were held back by falls in banking stocks after S&P Global downgraded the credit ratings of several US banks.
"S&P's bank rating downgrades – which came a few days after Moody's downgraded some US small and mid-sized banks and Fitch downgraded the US' rating, came as a reminder that the rising rates won't be benign for banks as depositors move their funds into higher interest-bearing accounts, increasing banks' funding costs," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The Dow fell 0.5%, the S&P 0.3% but the Nasdaq eked out a small gain of 0.1%.
Back in London, and aside from the PMI figures the main early focus will be results from Costain.
In the US, results from Nvidia take centre stage after the closing bell.