- FTSE 100 closes down 15 points at 7,438
- Oil price jumps as Saudi extends production cuts
- B&M and Tesco hit by JP Morgan downgrade
4:40pm: Blue chips fade to close in the red
The FTSE 100 ebbded and flowed on Tuesday eventually closing lower for the second day in a row.
At the close London’s lead index was down 15 points at 7,438 while the FTSE 250 was down 33 points at 18,491.
BP and Shell climbed on news that Saudi Arabia extended its 1-million-barrels-per-day voluntary oil production cut until the end of the year.
The announcement sent the price of Brent crude over $90/barrel for the first time since November.
Retailer Tesco and B&M bore the brunt of downgrades by JP Morgan in a cautious note on the sector.
The US investment bank moved Tesco to neutral from overweight and double downgraded B&M to underweight from overweight.
Ashtead fell 3% despite sold looking results although it did warn of softening conditions in UK markets.
3:57pm: UK to speed up onshore wind projects
The UK government is to speed up the approval process for onshore wind projects in England that are supported by local people, easing what has been viewed as an effective ban in order to boost energy security.
The government said the changes, which come into effect immediately, involved streamlining planning rules and included broadening the ways that suitable locations can be identified and accelerating the process of allocating sites.
"To increase our energy security and develop a cleaner, greener economy, we are introducing new measures to allow local communities to back onshore wind power projects," Michael Gove, minister for Levelling Up, Housing and Communities said.
3:28pm: Manchester United shares crash on no-deal reports
Not been the best few days for Manchester United.
After the 3-1 defeat to Arsenal on Sunday, shares in the football club have collpased 20% following reports over the weekend claiming the club was no longer for sale.
The football club’s New York shares, which represent the club's minority and subordinate equity, have begun pre-market trading after America's Labor Day holiday weekend.
United’s majority owners, the Florida-based Glazer family, launched a process nearly a year ago which explored strategic options to fund the club including a partial or full sale of the company.
A report in the Mail on Sunday citing "a source with long-standing close ties to the American family" and including notable details, claimed the Glazers intend to shutter the sales process and shelve their divestment plans potentially until 2025, when a US-hosted World Cup and upcoming new TV rights auctions are expected to boost interest among hypothetical potential buyers.
2:55pm: Oil price jumps as Saudi extends production cuts
The oil price has jumped after Saudi Arabia extended its 1-million-barrels-per-day voluntary oil production cut until the end of the year, according to the state-owned Saudi Press Agency.
Riyadh first applied the 1 million-barrels-per-day reduction in July and has since extended it on a monthly basis.
The cut adds to 1.66 million barrels per day of other voluntary crude output declines that some members of the Organization of the Petroleum Exporting Countries have put in place until the end of 2024.
Brent crude is trading 1.3% at $90.11/barrel while West Texas Intermediate is 1.6% to the good at $87.23.
BP PLC (LSE:BP.) and Shell PLC (LSE:SHEL, NYSE:SHEL) have climbed on the news, up 1.9% and 1.6% respectively.
Neil Wilson at Markets.com said he thinks "it shows the Saudis’ commitment to maintaining balance in the oil market – they are fairly comfortable with these voluntary production cuts for the time being and want the market to know it."
"This could see some more oil shorts who have been holding out finally throw in the towel with the breakout from the bottom formation now looking even healthier," he suggested.
2:45pm:: US markets open on the back foot
US stocks opened lower on Tuesday after a top Federal Reserve official said it was too early to call a peak in US interest rates.
Shortly after the opening bell, the Dow Jones Industrial Average was down 22.25 points, 0.1%, at 34,815.46, the S&P 500 was 10.18 points, 0.2%, at 4,505.59 and the Nasdaq Composite was down 41.64 points, 0.3%, at 13,990.18.
Christopher Waller, among the most hawkish members of the rate-setting Federal Open Market Committee said that the Fed is well-positioned to proceed “carefully” in terms of further monetary tightening following what he described as a “helluva good week of data”.
But although he confirmed the US central bank is preparing to hold its benchmark interest rate steady at its September policy meeting, he said he would need more data to say the Fed is done raising rates.
Waller was speaking to CNBC and added: "There’s nothing that is saying we need to do anything imminent anytime soon, so we can just sit there, wait for the data and see if things continue.”
2:17pm: Jet2's new chair offers good scope for continuity
Back to Jet2 and the appointment of Robin Terrell as non-executive chairman.
Jefferies explains Terrell has extensive experience in the UK's consumer and online industries, which should provide good scope to ensure continuity and develop the company's customer-led culture.
"We see very little operational risk to the business from the transition," the broker said, poining out Philip Meeson's executive responsibilities have been handed over already.
Shares have eased a touch, down 0.9%, to 1,046p.
Meanwhile, the FTSE 100 continues to rally, in almost a reverse of Monday's trading session.
Noy long until New York opens which should provide direction heading into the close.
2:04pm: Hunt to lay out Autumn statement on November 22
The timing of one of the key fiscal and financial events of the coming months has been confirmed.
Jeremy Hunt will set out his Autumn Statement on November 22, the Chancellor has told MPs.
He has commissioned an Office for Budget Responsibility forecast, which will be presented alongside the statement.
Hunt told the House of Commons: "On Friday, the Office for National Statistics published an update to the UK’s GDP growth figures which shows the UK economy was 0.6pc larger than pre-pandemic levels by the fourth quarter of 2021."
"It means our economy had the fastest recovery from the pandemic of any large European economy, thanks to decisions such as furlough that protected millions of jobs."
"For that growth to continue we now need to halve inflation, which I am pleased to report is now nearly 40% below its 11% peak. I can also tell the House I will deliver the Autumn Statement on November 22."
The Prime Minister and Chancellor have spent recent months promising to halve inflation, amid a series of Bank of England interest rate rises designed to ease soaring prices.
Hunt has also faced pressure from some Tory MPs for tax cuts ahead of the next general election, expected before January 2025.
1:00pm: Global EV sales remain strong, says Bank of America
While on the subject of electric vehicles, Bank of America has taken a look at the global picture and, considering seasonal summer holiday effects in Europe, says sales were strong again in July, reaching around 810,000 units in July (+35% y/y).
Battery electric vehicles (BEV) accounted for c15.2% of global light vehicle sales, down from 16.2% in June but up from 14% a year ago, research from the investment bank explained.
This was again mainly driven by China, accounting for c58% of total global BEV sales, it noted.
BEV sales in the US were above 100,000 units for the second month in a row and accounted for only 8.0% of total light vehicle sales in July compared to 16% in the EU and 26% in China.
“All in all, we remain optimistic on global BEV sales for year-end as BEV prices continue to decline (particularly in China) and EU OEMs should push for higher sales in the fourth quarter,” BofA said.
“A concern is the phase-out of BEV leasing subsidies in Germany as of Sept 2023, but we think this will be compensated by other subsidy related pull forward effects in Q4,” it added.
China remains the most price-competitive BEV market globally with BofA estimating prices have declined by more than 20% year-to-date there.
"It strikes us that some models that are sold in both Europe and China are significantly cheaper in China," the bank said.
12:35pm: EV demand remains strong in the UK
Back to the UK and news that demand for electric vehicles in Britain has trounced last year’s figures once again as some 17,243 of the models were registered in August, marking an increase of 72.3%.
In total, 85,657 new cars were registered in the UK in August, according to the Society of Motor Manufacturers and Traders (SMMT), with petrol cars trumping electric as the most popular.
????Battery electric cars take highest monthly market share for the year, accounting for 20.1% of new cars reaching the road in Augusthttps://t.co/DnCfaAxpxr pic.twitter.com/UUwf4KihRH
— SMMT (@SMMT) September 5, 2023
This marked a 24.4% growth overall, pushed up by a surge in large fleet and business registrations, the industry body explained.
“While August is typically a quieter month with many buyers choosing to wait until the September numberplate change, an increase […] means the sector is now entering a second year of growth,” SMMT said.
12:18pm: Arm IPO priced between US$47-51 per share
After reports yesterday, Chip designer Arm plans to price its initial public offering at between $47 and $51 per share, according to an updated filing on Tuesday, raising an initial $4.9bn for its current owner SoftBank.
SoftBank is offering 95.5 million American depository shares of the Cambridge-based company in what is expected to be the biggest IPO of the year.
The Japanese conglomerate will own 90.6% of Arm's ordinary shares after the offering closes, the company said in a filing.
Cornerstone investors including Apple, Google, Nvidia, Intel and TSMC have indicated they plan to purchase up to $735 million worth of Arm shares at the IPO price, the company said.
12:02pm: Goldman Sachs (NYSE:GS) sees reduced chance of US recession
US stocks are expected to make a subdued return to trading after the extended weekend following the Labour Day holiday.
In pre-market trading, futures for the Dow Jones Industrial Average were flat, while those for the S&P 500 fell 0.1%, and contracts for the Nasdaq 100 futures were down 0.2%.
The weak Chinese data, we reported earlier, is likely to hold equities back at least at the start but there was brighter news with a top investment bank seeing a reduced chance of a recession in the US.
Goldman Sachs (NYSE:GS) has cut "our estimated 12-month US recession probability further to 15%, down 5pp from our prior estimate.”
Jan Hatzius at the US investment bank said the change reflects continued encouraging inflation news, a favourable real income outlook, and the decline in the jobs-workers gap to just above its pre-pandemic level.
“First, real disposable income looks set to reaccelerate in 2024 on the back of continued solid job growth and rising real wages,” he said.
“Second, we still strongly disagree with the notion that a growing drag from the “long and variable lags” of monetary policy will push the economy toward recession—in fact, we think that the drag from monetary policy tightening will continue to diminish before vanishing entirely by early 2024.”
11:28am: Morgan Stanley (NYSE:MS) upbeat on insurance, wary of UK life
Shares in Lancashire Holdings Limited are on the rise, up 2.6%, while Hiscox Limited has eased 0.6% after Morgan Stanley (NYSE:MS) rejigged ratings for the two UK insurers.
In a note covering the European insurance sector, Morgan Stanley (NYSE:MS) reiterated its positive view on the insurance space but was more wary of UK life.
The investment bank said that “bottom-up fundamentals” remain strong with an average Solvency II ratio (stock of capital) of 229% and average financial year 2024 free cash flow yield (flow of capital) of 11%, which supports an attractive capital return yield of 7.5%.
“Insurers' holdings of illiquid assets remains an area of concern, and we think this in large part has driven sector underperformance year to date, along with uncertainty around IFRS 17 to some extent,” it suggested.
As a result, MS said it remains watchful on the impact of both of these factors for UK Life, but are less concerned at this point for other subsectors.
Reinsurance and multi-liners remain its preferred subsectors, the bank said.
In the UK, the broker moved Lancashire Holdings to equal weight from underweight with a price target of 692p, up from 627p.
But Hiscox was downgraded to equal weight from overweight with a reduced price target of 1,233p, down from 1,387p.
The broker remains cautious on Phoenix, rated underweight, while Legal & General is kept at equal weight.
10:45am: FTSE rallies as pound falls after service sector contracts
Mid-morning and the FTSE 100 has completed reversed direction and now sits in the green, up 10 points at 7,463.
The change in fortunes has come after a sharp fall in the pound following the weak service sector PMI figures.
Investors appear to be taking the view the slowdown in the service sector will prompt the Bank of England, coming on the back of other weak releases, not to raise interest rates as high as previously feared.
Remember, the bulk of FTSE 100 companies make their money in US$, so a weak pound boosts earnings.
So while the blue-chip index is now in positive territory, the 250 remains in the red, down 0.2%.
10:30am: B&M confirms Wilko store deal
B&M has confirmed it has struck a deal to snap up several of its rival Wilko's stores out of administration for £13 million.
The FTSE 100-listed group said it was hoovering up a maximum of 51 properties out of the total of 400, using a portion of its cash reserves.
Shares in the retailer remain in the red though, down 3.5%, although well earlier lows which saw the stock fall more than 6%.
The stock was knocked by a double downgrade by JP Morgan to underweight from overweight.
10:02am: UK private sector shrinks for first time since January
The UK private sector has shrunk for the first time since January, with firms are hit by weakening activity as higher interest rates hit demand, according to a survey by S&P.
""After a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand," said Tim Moore, economics director at S&P Global Market Intelligence.
#UK service providers experienced a renewed downturn in business activity with the #PMI falling to 49.5 (Jul: 51.5) amid the first reduction in new work since January. @cipsnews
Read more: https://t.co/4XmsBivmtF pic.twitter.com/4uR6FM2VB7
— S&P Global PMI™ (@SPGlobalPMI) September 5, 2023
The headline seasonally adjusted S&P Global/CIPS UK services PMI business activity index registered 49.5 in August, down from 51.5 in July and the lowest since January.
Businesses cited weaker business and consumer spending, combined with the impact of higher borrowing costs on client demand.
A lack of new work to replace completed projects resulted in the fastest decline in backlogs for just over three years, the survey showed.
Higher wages continued to push up business expenses, but the overall rate of input price inflation was the joint-lowest since May 2021, S&P noted.
Softer cost pressures and greater competition for new work contributed to the weakest rise in prices charged by service providers for two years in August.
9:43am: B&M close to netting 50 Wilko stores as Putnam rescue falters - Sky
Sky News is reporting that B&M European Value Retail is poised to swoop on scores of Wilko stores as hopes falter of a broader rescue deal involving the HMV owner.
"Sky News has learnt that B&M could announce the acquisition of around 50 Wilko shops as soon as Tuesday morning, with the chain’s administrators said by industry sources to be on the brink of announcing the first closures from its estate," the report said.
One retail executive said that Doug Putman, who had been edging towards a rescue deal in recent days, was now engaged in talks about reshaping the transaction to incorporate approximately 200 stores, the rport added.
Putman is said to have encountered difficulties during talks with Wilko suppliers despite having provisionally secured financing from Gordon Brothers for a deal to acquire about 300 stores.
Revealed: B&M European Value Retail's swoop on about 50 Wilko stores suggests that a broader rescue deal involving Doug Putman is now unlikely to proceed, although the HMV owner does remain in talks with the administrators about a slimmed-down transaction. https://t.co/0TxgZOl8fg
— Mark Kleinman (@MarkKleinmanSky) September 5, 2023
9:18am: Credit card spending slows in August says Barclays
After news from the BRC and KPMG that retail rallied in August comes a report from Barclays showing growth in consumer card spending slowed in August reflecting the dreary weather although Barbenheimer drove a massive rise in entertainment spend.
Card spending rose 2.8% year-on-year in August, below July’s figure of 4.0% as rainy weather cast a cloud on the high street, Barclays said.
However, entertainment provided a welcome boost, prompted by a 101% surge in cinema spending, driven by summer blockbusters ‘Barbie’ and ‘Oppenheimer’.
The survey also showed international travel spending held up (spending on airlines grew 32.1%), while pharmacy, health & beauty stores were boosted by pre-holiday purchases (5.2%).
Supermarkets and food and drink specialist stores saw weaker spending growth (4.5% and 4.9% respectively) compared to last month, impacted by slowing food price inflation while restaurants (-5.8%) fell further into decline from July (-2.5%), while bars, pubs and clubs saw their lowest growth (2.8%) since October 2022.
Barclays said “Skimpflation” is the latest consumer scourge as shoppers notice that certain food and drink products have been downgraded or have had premium ingredients reduced.
Esme Harwood, director at Barclays, said: "Shrinkflation – and now “skimpflation” – are increasing concerns for value-seeking shoppers. However, Brits’ confidence in their household finances is unwavering, suggesting they remain resilient in the face of these inflationary pressures.”
Almost a third (31%) of consumers expect that this coming Christmas will be more expensive than last year, and 17% have started saving already.
8:57am: FTSE 100 slips further
Trading screens are flashing red with the FTSE 100 now down 57 points following the disappointing data out of China.
Susannah Streeter head of money and markets, Hargreaves Lansdown said: "’Sentiment has turned downbeat again on China as fresh brushstrokes are painted on the picture of its slowing economy."
"Services had been a brighter spot in the economy, with hopes that consumers would continue to spend on trips out and education, but demand is turning more sluggish with any stimulus efforts to spur spending not hitting the mark," she explained.
B&M, Tesco and Sainsbury remains in the doldrums after the downgrades and cautious comments on the food retail sector.
Hiscox is another share to be hit by a analyst comments with Morgan Stanley (NYSE:MS) moving the stock to equal-weight from overweight with a lower price target of 1,233p, down from 1,387p.
Ashtead is also firmly in the red after its results, down 5.0%.
But analysts at Jefferies said: "Overall results feel solid enough and we expect consensus to remain largely unchanged today."
8:30am: B&M and Tesco knocked by JP Morgan downgrades
Tesco PLC (LSE:TSCO) and B&M European Value Retail SA (LSE:BME) are two prominent fallers in the FTSE 100 in early deals knocked by downgrades by JP Morgan.
The US investment bank has double downgraded B&M to underweight from overweight and moved Tesco to neutral from overweight sending shares down 5.6% and 2.5% respectively.
Sainsbury is also lower as JP Morgan reiterated an underweight rating despite lifting its price target.
"We take a cautious stance on the sector, reflecting our analysis of grocery pricing deflation prospects as we approach 2024," JP said.
"We think current sentiment and valuations make for an unattractive risk reward as investors start to reassess portfolios into 2024, when we expect grocers' P&L and cash flow dynamics to worsen vs 22-23, triggering downside risk to consensus," the bank added.
Deflation is a real possibility and its implications not factored into either expectations or share prices, JPM thinks.
"Steep disinflation/deflation will likely trigger heightened competition, with price investments denting gross margins."
"This, combined with sticky minimum wage increases, shall cloud operating margin outlook," the bank reckons.
Across Europe, the bank has downgraded Ahold-Delhaize to underweight from overweight, Jeronimo to underweight from neutral but upgraded Colruyt to overweight from underweight.
8:15am: FTSE 100 hit by slowdown in China's service sector
The FTSE 100 has opened lower after growth in China’s service sector hit an 8-month low, while a downgrade pulled the UK’s largest food retailer, Tesco PLC (LSE:TSCO) lower.
At 8:15am, London’s lead index was down 50.05 points, 0.7%, at 7,402.71 while the FTSE 250 slipped 75.27 points, 0.4%, at 18,448.87.
In China, the Caixin services purchasing managers’ index fell to an eight month-low of 51.8 in August from 54.4 in July, reminding investors of the issues the world’s second largest economy still faces, after a brief bout of optimism on Monday.
Economists had expected a figure of 53.6 and the news contributed to falls in the Shanghai Composite and Hang Seng.
Back in the UK, and there was better news for retailers as the BRC/KPMG retail sales monitor showed a sharp recovery in retail sales in August.
Samuel Tombs at Pantheon Macroeconomics said the “survey suggests that July’s 1.2% month-to-month fall in the official measure of sales volumes was a blip driven by bad weather.”
Total UK retail sales increased 4.1% on an annual basis in August, picking up sharply from the 1.8% rise recorded in July.
Tombs thinks a consumer-led recession is unlikely.
“Further growth in real expenditure should be underpinned over coming quarters by wages rising more quickly than prices,” he thinks.
Stocks on the move include Tesco PLC (LSE:TSCO), down 2.6%, after JP Morgan downgraded the stock to neutral from overweight as it took a more cautious stance on the sector.
Ashtead fell 5.3% as it warned of softening UK markets.
Nonetheless, the firm backed full-year guidance after reporting strong growth in first quarter revenue and profit.
7:51am: UK retail sales bounce back in August
Some better news for retailers as UK retail sales bounced back last month following a poor performance in July, according to the latest British Retail Consortium and KPMG sales monitor.
Total UK retail sales increased 4.1% on an annual basis in August, picking up from the 1.8% rise recorded in July.
July's rise was the weakest year-on-year growth in retail sales since August 2022, according to the BRC.
"August saw a bounce back in retail sales growth to 4.1%, which will come as a relief for many retailers. Health, beauty and food and drink were the strongest performing categories both on the high street and online, as consumers made the most of brief spells of sunshine to enjoy the summer holidays," said Paul Martin, UK head of retail at KPMG.
Helen Dickinson, chief executive of the BRC, cautioned that sales growth may fall in the coming months, even if volume growth does not, as the rate of price rises fall amid easing inflation.
7:47am: New chair at Jet2 as founder steps aside
The end of an era at Jet2, well nearly.
The travel and leisure group has appointed Robin Terrell as non-executive chairman succeeding Philip Meeson.
Meeson bought the business in 1983, when it was a small cargo airline and distribution company serving the Channel Islands.
The company listed in November 1988 and has since become one of the UK’s leading leisure travel businesses.
The company said Terrell will assume the role with immediate effect now that Meeson, who said he was stepping down in July, has fully handed over his responsibilities.
But Meeson will still be around.
"Although I am stepping back from the board, I'm proud to remain a significant shareholder and will remain a strong supporter of the business."
7:30am: Ashtead backs guidance after strong first quarter
A solid looking set of results from Ashtead Group PLC which has backed guidance despite softening UK markets after reporting strong growth in first quarter revenue and profitability.
Chief executive, Brendan Horgan, said: “The group delivered another record quarter with revenue up 19%, rental revenue growth of 14% and adjusted profit before tax increasing 11%.”
The international equipment rental company said revenue in the financial first quarter to July 31 rose 19% to US$2.70 billion from US$2.26 billion.
The firm described it as a strong quarter with ongoing momentum in robust end markets with US revenue up 22% and rental revenue up 16%.
Pre-tax profit climbed 11% to US$585 million from US$527 million while EPS jumped 14% to US$102.3 cents from US$89.7 cents.
Horgan said: “Despite UK market conditions softening, we expect overall performance to be in line with our expectations and the Board looks to the future with confidence."
In the US, it highlighted clear momentum with robust end markets in North America.
7:18am: DS Smith trading in line with expectations
A steady start on Tuesday with DS Smith PLC (LSE:SMDS) reporting trading is in line with expectations, driven by continued resilient pricing and strong cost control measures, despite end markets remaining "challenging."
Miles Roberts, chief executive, said: “While the economic environment in which we operate remains challenging we have started the financial year well.”
The FTSE 100 listed packaging firm was updating investors on trading in the period since May 1.
Like for like performance in corrugated box volumes has improved since the start of the financial year, with clear signs of reduction in customer de-stocking, while remaining below the prior year comparative, it said in a statement.
The firm said €1.5 billion inaugural green bonds were issued in July, which has significantly extended its debt maturity profile at attractive terms.
7:05am: FTSE 100 set to extend Monday's falls
Morning, and the FTSE 100 looks set to extend the weak end to Monday’s trading session when trading kicks off Tuesday.
Spread betting companies are calling London’s lead index down by around 26 points after closing down 11.78 points at 7,452.76 on Monday.
Data from China showed a slowdown in growth in the service sector with the Caixin PMI falling to 51.8 in August from 54.1 in July, while the Australian central bank left Australian interest rates unchanged at 4.10% earlier this morning.
Back in the UK and there was better news for retailers with the BRC/KPMG survey showing retail sales rebounded in August.
London’s early focus will be updates from DS Smith, Ashtead and Alumasc.
The economic calendar has services PMIs from the UK, Germany, and the EU.