FTSE 100 index closes 77 pts lower
Bank of England lifts interest rates
Rolls-Royce top Footsie gainer
Mining stocks, Shell and Barclays weaker
FTSE 100 closed firmly in the red on Wednesday, as trade fears clouded investor sentiment.
Earlier, the UK's central bank - The Bank of England (BoE) - hiked interest rates to 0.75%, and the pound initially jumped, but the rally in sterling was shortived.
At the time of writing, the pound is down 0.23% to 1.1228 against the Euro and down 0.63% against the US dollar at 1.3040.
FTSE 100 lost almost 77 points to close the day at 7,575, while FTSE 250 was also down, off over 252 points at 20,548.
In stocks, low cost carrier easyJet (LON:EZJ) was the biggest laggard on Footsie, with shares off 3.74% to 1,530p, while the big miners were also losing ground.
The top riser on the blue-chip exchange was Rolls Royce plc (LON:RR.), which gained 7.11% to 1,058p.
The company confirmed that both underlying profit and cash flow will be at the upper end of the guidance, which, naturally, cheered the market.
On Wall Street, the picture is mixed. The Dow Jones is higher but the S&P 500 and Nasdaq are lower.
3.50pm: Miners drag FTSE 100 lower
Worries about growing trade tensions are weighing on the mining sector.
On the FTSE 100, Antofagasta PLC (LON:ANTO), Rio Tinto PLC (LON:RIO), Anglo American PLC (LON:AAL) and Fresnillo PLC (LON:FRES) are the top fallers.
Disappointing earnings from Rio Tinto yesterday and Ferrexpo PLC (LON:FXPO) today have also hurt investor sentiment.]
Elsewhere, Barclays PLC (LON:BARC) shares fell after first half profits fell on higher litigation and misconduct costs while Royal Dutch Shell PLC (LON:RDSB) is lower on a broker downgrade.
On the upside, Rolls-Royce Holdings (LON:RR.) is the biggest riser after saying it expects underlying profit and free cash flows to reach the upper half of its guidance range for 2018.
London Stock Exchange PLC (LON:LSE) was also on the front foot after announcing its Brexit contingency plans while Sage Group PLC (LON:SGE) gained after saying it was confident of achieving its revenue growth guidance for the year.
3.20pm: Traders digest US data on weekly jobless claims, factory orders
The Bank of England was the star of the show today even though it was hardly shocking that it decided to raise interest rates.
But away from the "excitement" of the central bank’s rate decision, investors were wading through US economic data.
The Labor Department revealed the number of Americans filing for unemployment benefits rose less than expected last week. Initial jobless claims increased 1,000 to a seasonally adjusted 218,000, compared to expectations of 220,000.
Meanwhile, US factory goods orders increased 0.7% in June, beating forecasts for a 0.4% rise, the Commerce Department said.
Most US indices are lower, although the Nasdaq has perked up after opening in the red. The index is now up 15 points to 7,722.
2.40pm: US stocks open lower
US stocks have opened lower as worries about a trade war between the US and China escalated.
The Dow Jones Industrial Average dropped 175 points to 25,152, the S&P 500 fell 15 points to 2,797 and the Nasdaq declined 42 points to 7,665.
Trade war fears grew after China hit back at reports that the Trump administration was considering raising proposed tariffs on US$200bn in Chinese goods to 25% from 10%.
The Chinese Ministry of Commerce said in a statement today: "China is fully prepared and will have to retaliate to defend the nation's dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries”.
On the company front, Trip Advisor Inc (NASDAQ:TRIP) is one of the biggest fallers after reporting second quarter earnings that missed analyst’s expectations.
1.10pm: Sterling weakens further against the dollar
Sterling is now down 0.8% against the dollar at US$1.3023 after Mark Carney stressed that future increases in the Bank Rate would be “gradual and limited".
“The interesting part to the Bank of England’s decision to raise rates is the reaction from Sterling, particularly GBPUSD, despite the fact the market had clearly priced in the expectation of a 0.25% rate hike,” said Jordan Hiscott, chief trader at ayondo markets.
“As it stands, GBPUSD is now lower than before the announcement. I’m also reading from this the fractured nature for the next move, as the forward trajectory for interest rates will likely not be linear.
“A couple of things stand out for me. Firstly, the recent economic data is not consistent enough to warrant a rate increase and future near term increases. Brexit and the fractious nature of negotiations will likely also affect this determining of the next move for the MPC. Secondly, the last time the MPC voted unanimously to increase rates was May 2007, and that didn’t turn out too well then.”
12.50pm: Carney defends rate hike decision
Bank of England Governor Mark Carney is speaking at a press conference after the central bank raised interest rates.
He suggested the rate hike would have limited impact on household debt and told reporters that many were prepared for a modest rise in rates.
Carney pointed out that households have worked “very hard” to improve their financial position since the financial crisis. Many have paid off a lot of their debt while their ability to repay debt has “improved markedly”, he said.
"It would take another 100 basis point increase (to 1.75%) to bring the UK debt servicing burden back to the historic average."
12.40pm: BoE decision 'looks ill-judged', says BCC
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said the Bank of England's decision to lift interest rates "looks ill-judged against a backdrop of a sluggish economy".
"While a quarter point rise may have a limited long-term financial impact on most businesses, it risks undermining confidence at a time of significant political and economic uncertainty," Thiru said.
"The increase reinforces a concerning aspect of the Bank of England’s recent approach to monetary policy, which appears to be overly focused on reinforcing an idealised direction for rates, rather than on economic reality – an approach that unnecessarily risks UK’s growth prospects.
"The central bank’s assumption that the economy’s speed limit has slowed is unduly pessimistic, as sustained action to fix the fundamentals at home, from closing the skills gap to greater infrastructure investment, would materially help lift the UK’s growth potential."
Our take on the MPC's decision to raise interest rates: Ill-judged interest rate rise risks undermining confidence: https://t.co/U3pL6ULl4J pic.twitter.com/KpCHBZvcoS
— Suren Thiru (@Suren_Thiru) 2 August 2018
12.30pm: CBI expects further rate hikes to be 'slow and limited'
The Confederation of British Industry said the decision to raise interest rates was in line with its expectations and any further hikes down the line are likely to be "very slow and limited".
"The case for another rate rise has been building, with inflationary pressures being stoked by a tight labour market and many indicators now suggesting that weak activity in the first quarter of 2018 was a blip," said Alpesh Paleja, CBI's principal economist.
“The Monetary Policy Committee has signalled further rate rises over the next few years, if the economy evolves as they expect. These are likely to be very slow and limited, particularly over the next year as uncertainty around Brexit takes its toll on business investment.”
12.20pm: Muted reaction to BoE rate increase in financial markets
The pound has had a muted reaction to the Bank of England’s policy decision so far, most likely given that the rate hike was widely expected and that the BoE has said "any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent."
Sterling is down 0.18% versus the dollar at US$1.3104 and up 0.21% versus the euro at €1.1282.
"The Bank had backed itself into a corner this month, with markets seeing a rate rise as a dead cert," said Ben Brettell, senior economist at Hargreaves Lansdown.
"So any big market reaction was reserved for a no-change decision – if rates had been left on hold, sterling would almost certainly have tanked. In the event both sterling and the FTSE were little changed on the news."
12.10pm: Low unemployment and high inflation contribute to rate hike decision
The Bank of England's Monetary Policy Committee has released its meeting minutes, explaining its reason for raising rates.
"The MPC continues to judge that the UK economy currently has a very limited degree of slack. Unemployment is low and is projected to fall a little further. In the MPC’s central projection, therefore, a small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years."
Find out why we have raised interest rates to 0.75%. Our visual summary tells you why in a nutshell: https://t.co/ChaGwjQvAf #InflationReport pic.twitter.com/LCP70jzC95
— Bank of England (@bankofengland) 2 August 2018
The central bank said inflation remains above its 2% target (2.4% in June) due to sterling’s past depreciation and higher energy prices.
"The contribution of external pressures is projected to ease over the forecast period while the contribution of domestic cost pressures is expected to rise," it added.
The Bank also warned that Brexit poses a threat to the UK's economic recovery. "The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal," it said.
12.00pm: BoE raises interest rates
The Bank of England has voted unanimously to raise interest rates by 25 basis points to 0.75%, as expected by the market. It is the first time rates have reached this level since March 2009 and the second rise since the financial crisis 10 years ago.
The central bank left its asset purchase programme at £435bn, also as expected.
BoE Bank Rate(Aug): 0.750% (est 0.750%, prev 0.500%)
BoE Asset Purchase Target(Aug): 435Bln (est 435Bln, prev 435Bln)
BoE Corporate Bond Target(Aug): 10Bln (prev 10Bln)
— LiveSquawk (@LiveSquawk) 2 August 2018
Philip Smeaton, chief investment officer at Sanlam UK said: "Continuing positive employment figures and wage growth help to justify today’s increase and the Bank will be hoping that the economy strengthens in the second half of the year. But with the clock ticking on a Brexit deal and nervousness on the high street, this optimism might be misplaced.”
11.10am: China hits back at US threats on tariffs
China is fully prepared to fight back if the US raises proposed tariffs, Beijing’s commerce ministry has said.
The remarks follow US reports that the Trump administration was considering imposing 25% tariffs on an additional US$200bn worth of Chinese goods, up from the 10% previously proposed.
The US has already imposed 25% tariffs on Chinese goods worth US$34bn.
10.20am: BoE wants 'breathing room' to cut rates after Brexit, says analyst
The Bank of England announces its policy decision at midday and many analysts expect the central bank to raise interest rates by 25 basis points to 0.75%.
Joshua Mahony, market analyst at IG, said: “What seemed like a foregone conclusion may be slightly less certain given the recent demise in economic data. However, it seems the rate-setting committee is keen to nudge rates higher to allow for a little breathing room when we get to the sharp end of the Brexit process.”
He added: “The relative stability in the pound highlights the relative indifference from markets at the prospect of a rate rise. Even if we do see the MPC raise rates today, this would largely be seen as a ‘one and done’ rather than the beginning of a wider tightening phase.”
The pound is down 0.34% versus the dollar at US$1.3082.
9.40am: UK construction PMI rises more than expected
The UK construction industry grew at its fastest rate in over a year in July, thanks to a surge in housebuilding, an industry survey has revealed.
The IHS Markit/CIPS construction purchasing managers index (PMI) rose to 55.8 -- the highest level since May 2017 -- from 53.1 in June, beating forecasts for a reading of 52.8.
A level above 50 signals expansion in sector activity.
“House building was the bright spot for construction growth in July, alongside a stronger upturn in commercial development projects," said Tim Moore, associate director at IHS Markit and author of the report.
However, he said UK construction companies experienced "sUBStantial" cost pressures in July, driven by rising fuel bills and higher prices for steel-intensive items.
8.55am: Footsie cautious
The FTSE 100 fell 38 points to 7,614.63 amid a flurry of corporate news ahead of what looks to be a nailed-on interest rate hike later.
According to Jasper Lawler, markets guru at London Capital Group, there’s still plenty going in the lead up to the City’s traditional seasonal shut-down.
“To say there are a lot of market moving events going on would be an understatement,” he said.
“There is data flowing in from all directions; corporate updates are still coming in thick and fast on both sides of the Atlantic, three central bank meetings this week with the BoE next in line and further tensions emerging in the unfolding trade wars.
“With so many influencing factors, building a clear narrative is far from simple. From where we stand a summer lull still looks a long way off, if it will happen at all.”
Top of the risers was the London Stock Exchange (LON:LSE), which as well as saying it is activating its contingency plans for a Brexit ‘no deal’, posted a solid set of results. The shares rose 2.1%.
Royal Dutch Shell (LON:RDSA) was a little weaker after heavyweight broker Morgan Stanley took out its red pen to downgrade the oil major to ‘equal weight’ from ‘overweight’.
Moving down to the second-tier, Ferrexpo (LON:FXPO) was the major casualty as its shares dropped 17% after it said it had been hit by rising costs, mainly caused by higher energy prices.
This had a knock-on impact on the company’s larger peers with the first-tier miners giving up gains built earlier in the week.
Evraz (LON:EVR) and BHP Billiton (LON:BLT) led the way with falls of 2.4% and 2.3%, as unease over the outlook for the world economy also unsettled the sector.
Proactive news headlines:
Amryt Pharma PLC (LON:AMYT) has been awarded rare paediatric disease designation for AP101 by the US Food & Drug Administration. Currently undergoing P
hase III clinical trials, the cream is being developed to treat Epidermolysis Bullosa (EB), a condition which occurs prominently in children and makes skin fragile to even the faintest touch.
Ceres Power Holdings PLC (LON:CWR) is to receive £7mln in funding to continue work with Nissan on fuel cell technology for electric vehicle applications.
Hurricane Energy PLC (LON:HUR) has reached what is described as a ‘critical milestone’ in the development of the Lancaster field’s early production system (EPS), completing the installation of a turret mooring system. It included the connection to the newly-constructed buoy for the Aoka Mizu floating production, storage and offloading (FPSO) vessel.
Advanced Oncotherapy (LON:AVO), the developer of proton beam systems used to treat cancer, has completed a share placing with Swiss investors that has brought in £6.41mln. Shares were issued at 49p each, which was a modest discount to last night’s closing price of 51p, with a number of prominent private banks and healthcare providers buying into the company.
NetScientific PLC (LON:NSCI) said its portfolio company, ProAxsis Limited, has registered a CE mark for an immunoassay to help research respiratory diseases.
Concepta PLC (LON:CPT) has raised £2mln in an oversUBScribed share placing to fund the expansion of its myLotus product in the Chinese market.
Frontier IP Group PLC (LON:FIPP) said it has partnered with the UK’s Department for International Trade (DIT) to step up its presence in Portugal.
European Wealth Group Limited (LON:EWG) said major shareholder Astoria Investments has sUBScribed for 7.92mln shares at 16.5p each, raising £1.31mln for the company and lifting Astoria's stake from 13.7% to 18%.
Metminco Limited (LON:MNC) (ASX:MNC) has announced the appointment of Nick Winer to the role of director of exploration, based in Medellin, Colombia. Winer is a geologist with over 30 years' experience in gold, base metals in South America and will lead the company's activities in Colombia, in particular, the advancement of the portfolio of gold assets in the Quinchia district.
IronRidge Resources PLC (LON:IRR) has carried out an additional 1,000m of drilling at Ewoyaa in Ghana after discovering extensions of lithium-bearing pegmatite not visible on the surface. Len Kolff, IronRidge’s chief geologist said: "Drilling has identified a new pegmatite extension to the central Main Zone with an additional 400m strike length of pegmatite drilled and still open to the north, that has no obvious surface expression and occurs within a valley below recent sediment cover.
A further planning roadblock has been revealed for the Wressle oil project onshore UK, in Lincolnshire, where the latest decision has gone against the group of companies hoping to bring the new field into production. Europa Oil & Gas Holdings PLC (LON:EOG) hold a 30% stake in Wressle; Union Jack Oil PLC (LON:UJO) retains a 27.5% stake.
Mosman Oil And Gas Limited (LON:MSMN) the oil exploration, development and production company, has appointed SVS Securities as joint broker to the company, effective immediately. The group said SP Angel remains its nominated adviser and joint broker.
CentralNic Group PLC (LON:CNIC), the internet platform that derives revenue from the worldwide sales of internet domain names and associated web presence services, has said the acquisition of KeyDrive SA and associated placing of 46,153,847 new ordinary shares to raise approximately £24mln, announced on 16 July 2018, are now complete. Ben Crawford, CentralNic's CEO, said: "The transaction is a milestone in the Company's history as it cements CentralNic's position as a consolidator in the market to rival its competitors, including large and influential US players."
6.45am: FTSE 100 set to open in the red
The Footsie is expected to open in the red this morning as investors wait for the interest rate decision from the Bank of England’s Monetary Policy Committee.
Spread betting firm IG expects the FTSE 100 index to open around 30 points lower after closing down more than 90 points on Wednesday at 7,652.
Michael Hewson, chief market analyst at CMC Markets UK, says that a rate rise, promised by Bank of England governor and so-called ‘unreliable boyfriend’ Mark Carney at various times since 2014, would be justified as the UK economy had rebounded from what appeared to be only a temporary weakness in the first quarter, although he added that the Brexit-related political instability that rocked the national government at the end of July “might cause some on the committee to lose their nerve”.
He said however, that “[a] failure to act would be a big surprise, given the lack of any pushback in the past few weeks on market expectations from UK policymakers in contrast to last April, when Bank of England governor Carney was quite vocal in stating that a rate rise wasn’t the done deal markets were pricing in”.
“No such warning has been forthcoming this time which would appear to suggest that a rate rise of 0.25%, to 0.75% will be announced later. The vote probably won’t be unanimous, as there could be one or two dissents, while a failure to act would in all likelihood trigger a sharp selloff in the pound, given the rate rise is already priced in” Hewson said.
In the US markets yesterday, the Dow Jones Industrial Average closed down 81 points at 25,333 while the S&P 500 closed 2.9 points lower at 2,813 as the Federal Reserve left rates unchanged, but signalled an imminent rate increase next month. The Nasdaq however, bucked the trend to finish 35 points higher at 7,707, boosted by a strong quarterly performance from tech giant Apple Inc (NASDAQ:AAPL).
In Asia today, the Japanese Nikkei 225 slumped 226 points to 22,519 while Hong Kong’s Hang Seng plummeted 681 points to 27,655 as trade war fears weighed on market sentiment.
On the currency markets, the pound was down 0.1% at US$1.31 against the dollar and relatively flat against the euro at €1.1245.
In addition to its rate decision, the Bank of England’s growth and inflation outlook for the UK could cause weakness in the pound if the bank is too dovish in its guidance.
Another busy day for big company announcements
On the corporate front, the long-winded epic mess that is the typical results update from lender Barclays is just one of many big announcements expected.
UBS forecasts Barclay’s first-half adjusted pre-tax profit coming in at £1.3bn, with a tangible net asset value per share of 253p.
However, recent news that the Serious Fraud Investigation is set to reinstate charges over its fund-raising in 2008 with Qatar has raised concerns.
Results from sector peer BAE Systems were a bit mixed but power systems developer Rolls-Royce will be hoping to make a more positive impact with its interims.
Deutsche Bank is forecasting revenue of £6.86bn, which is more or less unchanged from the first half of 2017.
Earnings before interest, tax and amortisation will be a paltry £2mln while the underlying loss before tax is expected to be £61mln, versus a profit of £287mln a year earlier.
Significant announcements expected on Thursday August 2:
Bank of England UK rate decision, inflation report
Interims: Barclays PLC (LON:BARC), Rolls-Royce Holdings PLC (LON:RR.), Shire PLC (LON:SHP), Aviva PLC (LON:AV.), RSA Insurance PLC (LON:RSA), London Stock Exchange PLC (LON:LSE), ConvaTec PLC (LON:CTEC), Serco Group PLC (LON:SRP), Merlin Entertainments PLC (LON:MERL), RPS Group PLC (LON:RPS), Ferrexpo PLC (LON:FXPO), Inmarsat PLC (LON:ISAT), Spirent Communications PLC (LON:SPT), Portmeirion Group PLC (LON:PMP), UK Commercial Property REIT PLC (LON:UKCM), Non-Standard Finance PLC (LON:NSF)
Finals: Clipper Logistics PLC (LON:CLG)
Trading updates: Sage Group PLC (LON:SGE). Mitchells & Butlers PLC (LON:MAB)
Ex-dividends: To cut 2.7 points off FTSE 100 index - Micro Focus International PLC (LON:MCRO), RELX PLC (LON:RELX), Unilever PLC (LON:ULVR)
Economic data: UK construction PMI; US weekly jobless claims; US factory orders; US challenger job cuts
Around the markets:
• Sterling: US$1.31, down 0.18%
• Gold: US$1,215.3 an ounce, down 0.69%
• Brent crude: US$72.55 a barrel, up 0.22%
City Headlines:
• Financial Times: Drugmakers, including Sanofi and Novartis, are drawing up plans to stockpile life-saving medicines in British warehouses as the pharmaceuticals industry prepares for a no-deal Brexit.
• The Daily Telegraph: House of Fraser yesterday launched a frantic search for new cash injection after the Chinese backer C.banner pulled out of a rescue deal.
• The Times: Beijing has insisted it will not bow to America’s attempts at “blackmail” as Washington considers doubling their planned tariffs on a $200 billion catalogue of Chinese products.
• Financial Times: Google is considering a relaunch of its search engine in China that would adhere to the country's censorship rules.