FTSE closes shade lower
US indices up
All eyes on tomorrow's US jobs report
FTSE 100 closed near flat on Thursday, with traders awaiting the key monthly jobs report across the pond tomorrow.
It will come two days after the Fed decided to make its first interest rate cut in over a decade.
The non-farm payrolls report, believe commentators, will show another positive read, signaling the labour market is still a bright spot in the US economy but that the data could also show that further monetary easing in the year ahead was likely as risks continue to linger.
Footsie closed Thursday down nearly two points at 7,584, while midcap cousin FTSE 250 also fell, down around 32 points at 19,634.
Analyst Michael Hewson, at CMC markets, noted that Footsie was under pressure for the third day in succession, weighed down by some disappointing numbers from the oil and gas sector, which accounts for 16% of the index's market cap.
"US markets opened higher after yesterday’s big tantrum, after the Federal Reserve didn’t give them what they wanted, in terms of a more dovish view. The Fed did say that any decision to cut rates further would be data dependant which helps explain the gains we’ve seen in the wake of this afternoon’s latest ISM manufacturing survey which showed that economic activity slowed in July, and prices paid slumped further," he said.
The Dow Jones Industrial Average is up around 248 points at the time of writing, while the Nasdaq is ahead by over 117.
3.15pm:US stocks start higher
As expected, US markets have opened higher but have only clawed back a small fraction of yesterday’s dramatic losses.
The Dow Jones was up 53 points (0.2%) at 26,917 in early deals while the S&P 500 was 7.4 points (0.3%) firmer at 2,987.8.
Back in Blighty, attention in dealing rooms is rumoured to be more focused on the first test in the Ashes series, where at least something is happening. As for the Footsie, it’s trapped on the back foot, down 21 points (0.3%) at 7,565, thanks largely to the weakness of resource stocks and a recovery by sterling, which is back – just – above US$1.21.
Bank of England statement on #brexit. Mark Carney..— Jude #FBPE (@jude5456) August 1, 2019
"No deal, means no deal. No deal means no side arrangements, no deal means the trading relationship goes instantly to WTO tariffs and product standards and has the associated economic effects". pic.twitter.com/gFss3HRnrr
One stock in rude health is ConvaTec Group PLC (LON:CTEC) after well-received first half results.
The group reported revenue of US$888.9mln was flat on a like-for-like basis but with an improving trend in the second quarter.
The shares were up 18% at 184.05p.
2.00pm: US stocks set to open higher
While the pundits mull the non-event that was the Bank of England interest rate decision, US markets are poised to claw back some of yesterday's losses.
Those losses were prompted by the US central bank’s decision to lop a quarter of a point off its key interest rate or, perhaps more accurately, the decision by two of the Federal Reserve’s policy-making committee to vote against the first US interest rate cut in a decade.
Having fallen 334 points yesterday, the Dow Jones is expected to recoup some 33 points and open at 27,897. the S&P 500, which plunged 33 points, is expected to rise a couple of points to just shy of 2,982.
Back in the UK, Craig Erlam of Oanda noted that so-called “Super Thursday” - signifying the release of the interest rate decision and the inflation report – was a predictable misnomer.
“These quarterly events are often at least one of the highlights of the week, with there being an interest rate decision, new economic projections and a press conference with the Governor and his colleagues but with the UK being three months from potentially exiting the EU without a deal, the BoE’s hands were tied and their forecasts borderline useless,” Erlam said.
“Apart from reassure everyone of their readiness to act in the worst case, no-deal scenario, there isn't much they could offer. There's no incentive to cut rates at the moment as the economy is doing all right and much of the data is supportive of higher rates, not lower,” Erlam said.
On the foreign-exchange markets, the pound was down a tad more than half a cent at US$1.2106.
Among commodities, gold was US$20.40 (1.4%) lower at US$1,417.40 an ounce. Brent crude was trading 83 cents (1.3%) at US$64.22 a barrel.
London’s index of heavyweight shares has had an up-and-down morning – mostly down, despite sterling’s weakness. The index was down 21 points at 7,565.
British American Tobacco PLC (LON:BATS), a major beneficiary of a strong dollar, was up 5.9% at 3,125p on a day on which it appointed Jerry Fowden, the executive chairman of drinks maker Cott Corporation, as a non-executive director.
12.45pm: Bank of England leaves its interest rate unchanged
The Bank of England, as expected, has held its key interest rate unchanged.
“With Boris Johnson taking the helm, risk of a no-deal Brexit has continued to rise as we sail closer to the October deadline. The Monetary Policy Committee (MPC) has continued its wait-and-see approach, and with good reason, as the country grapples with the prospect of new economic policies and sustained Brexit uncertainty,” said Nancy Curtin, the chief investment officer of Close Brothers Asset Management.
“The recent slump in the pound may push up prices and hit consumers, which in turn is likely to lead to a fall in confidence. The increasing risk of a no-deal Brexit makes the possibility of a rate cut before the end of the year more likely; however the MPC will weigh any rate cut against ‘boosterism’—the Prime Minister’s pledge to support the economy through fiscal (public sector and infrastructure) spending,” she added.
Phil Smeaton, the chief investment officer at Sanlam UK, said a decision to cut rates is “not without risk as inflationary pressures remain substantial”.
“Not only is wage growth at its highest rate since 2008, but Sterling is weaker now than during the financial crash as fears grow about the prospect of a ’no deal’ exit from the EU. Carney continues to keep his powder dry, hoping for a surer footing but a cut by the end of the year looks almost certain,” Smeaton added.
Meanwhile, the Footsie has continued its up and down day; it is now back in a down phase, off 16 points (0.2%) at 7,571.
11.45am: Footsie in credit after mid-morning rally
London’s index of leading shares staged a mid-morning rally and is now in positive territory, despite some iffy UK manufacturing data.
The FTSE 100 was up 16 points (0.2%) at 7,602.
The UK manufacturing purchasing managers’ index (PMI) for July was below the 50 point level that marks the crossover between contraction and expansion for the third month in a row.
The 48.0 reading was unchanged from June and was marginally above the consensus forecast of 47.6.
“UK manufacturing took a hit during the second quarter as companies cut back on new orders, whilst they grappled with elevated stock levels but where these firms have destocked, the latest PMI hints that they are beginning to resume the inventory building process as the October Brexit deadline inches nearer,” commented ING Economics.
“While the PMI points to a lacklustre start to the third quarter for manufacturing – driven partly by the global slowdown in demand – the Markit/CIPS press release suggests that the inventory story may be starting to evolve. The new 31 October Brexit deadline is drawing nearer, and firms are once again ramping up preparations for a potential ‘no deal’ scenario. Stocks of finished goods inched higher in July – albeit more slowly than earlier in the year,” ING Economics added.
Mining stocks are off the pace and few more so than Rio Tinto PLC (LON:RIO) after its half-year results.
The shares were down 2.5% at 4,579.5p despite the company announcing a special dividend that will cost the company US$1bn.
10.00am: Positive reactions to updates from bankers Barclays and Standard Chartered fail to prevent Footsie's fall
The Footsie took a bit of a shellacking – with the emphasis on the “shell” - at the outset but has since stabilised at lower levels.
The FTSE 100 was down 29 points (0.4%) at 7,557, largely as a result of heavily-weighted index constituent Royal Dutch Shell PLC (LON:RDSB) tumbling 4.8% to 2,478p after it failed to meet expectations with its second-quarter numbers.
“Factors such as lower oil, gas and LNG [liquefied natural gas] prices and lower margins in chemicals meant Q2 [second quarter] earnings were just under US$3bn for the second quarter, roughly half of what they earned in the first quarter of this year and the comparable quarter last year and materially below expectations,” reported Helal Miah, an investment research analyst at The Share Centre.
Packaging company Mondi PLC (LON:MNDI) was the worst-performing Footsie constituent, however; its shares were down 5.5% at 1,704p after its half-year report.
The company’s outlook statement was patchy, to say the least, with management saying demand is generally softer across the markets in which the group operates, while prices for key paper grades are currently below those of the first half.
“Furthermore, we expect a significantly lower forestry fair value gain in the second half,” Mondi said.
Offsetting these losses were gains for London Stock Exchange Group PLC (LON:LSE), Standard Chartered PLC (LON:STAN), RSA Insurance Group PLC (LON:RSA) and Barclays PLC (LON:BARC), all of which updated the market today.
Bourses operator London Stock Exchange was up 6.2% at 7,036p after it boasted of a strong financial performance in the first half of the year despite challenging market conditions.
The company has decided to pull the trigger on its acquisition of the old Reuters data business, Refinitiv, in an all share transaction for a total enterprise value of roughly US$27bn.
Emerging markets-focused lender Standard Chartered grew income 4% and improved profits by 13% year-on-year in constant currency terms.
The shares were up 3.9% at 703.40p.
RSA Insurance climbed 2.8% to 576p after what it called “solid first-half results” with the current year underwriting profit up 70%.
Banking titan Barclays PLC (LON:BARC) hardened 2.7% to 158.3p after its half-year results.
Chief executive and whistle-blowing detective Jes Staley said the group expects to reduce expenses to below £13.6bn for 2019, which some wags suggested sounded like he was intending to quit and reduce the payroll.
8.45am: Collateral damage from Wall Street's collapse
The FTSE 100 opened 43 points lower at 7,544.60 as it sustained some collateral damage after Wall Street fell out of bed.
The first US rate cut in decade appeared to be universally derided by the US equity markets with the Dow Jones Industrial Average closing 333 points lower and the broader-based S&P 500 off 33 points, or 1%.
A quarter-point tweak to the base rate had been more than factored in; however, traders were looking for a more aggressive stance on monetary easing.
They were to be disappointed. In fact, two US Federal Reserve officials actively argued against cutting rates.
This, analysts pointed out, would make it difficult to push through further reductions to borrowing costs this year.
“The Fed cut rates for the first time in a decade, but stocks fell as the market wanted more in terms of forward guidance. This was a hawkish cut,” said Neil Wilson, of Markets.com.
“Two key, related, things come out of this for me. One the market is still racing too far ahead and still hooked on stimulus. Two, the Fed is lacking direction and suffering from communication problems.”
Here in the UK, it was another busy day for corporate news.
The London Stock Exchange (LON:LSE) topped the risers’ board after it said it agreed to buy the former Reuters terminals and data business Refinitiv for £22bn. The shares rose 3.3%.
On the flipside, a second-quarter earnings miss put Royal Dutch Shell (LON:RDSA) in the hole as the stock dropped 4%.
6.30am: US markets fall off cliff
US markets fell off a cliff yesterday following the Federal Reserve’s first rate cut in a decade but UK investors are in more sanguine mood.
Ahead of today’s Bank of England rate decision and August inflation report, the FTSE 100 was expected to open just three points lower at 7,584.
The US central bank cut its key interest rate by a quarter of a point – 25 basis points (bp) in the jargon – but two members of the Fed’s policy-making committee (the FOMC) voted against the cut, which prompted US investors to throw their toys out of the pram.
The Dow Jones slumped 334 points to 26,864 and the S&P 500 plunged 33 points to 2,980.
“The committee also decided to end the reduction in its balance sheet in August, which has been underway since October 2017. Previously, the FOMC said that it would end its balance sheet run-off in October,” reported Wells Fargo Securities.
“Those two actions were essentially the only nods toward a dovish policy action. For starters, the statement that accompanied today’s announcement was very similar to that which was released after the last FOMC meeting on June 19. The committee characterised the labour market as ‘strong’ and said that ‘economic activity has been rising at a moderate rate’,” Wells Fargo added.
“The committee views a sustained expansion in economic activity as the most likely outcome but acknowledged that there are uncertainties associated with this view,” the US securities firm noted.
James Bentley, a director of Financial Markets Online, noted that the cut was “bang on expectations” and that the real surprise was “the deeply dovish tone of the accompanying statement”.
“Stripped of the ‘first cut in a decade’ hyperbole, this is the action of a Fed deeply concerned about America’s weak wage growth and global trade tensions and holding dollars will now start paying steadily less.
“The net effect of those factors will likely be a greenback sell-off and a dollar that backs off the dizzy highs it clocked earlier this week against both sterling and the euro,” Bentley suggested.
So far, the dollar is more than holding its own against the pound, which has continued its pre-Brexit England-style batting collapse and is down about a third of a cent against the US currency.
That would normally be catnip for equity bulls in London but traders look to be keeping their powder dry ahead of the Bank of England’s pronouncements, scheduled for later today.
The Bank’s key interest rate is expected to stay at 0.75% but the inflation report could reveal above-target inflation, according to Danske Daily.
“[The ]BoE's tonality could become more dovish ahead of increasing uncertainty ahead of 'hard' Brexit in the environment of economic slowdown and given the possibility of a technical recession,” the Nordic bank predicted.
In Asia, Japan’s Nikkei 225 was in phlegmatic form, sliding 25 points to 21,497 but the Hang Seng was more wobbly, diving 215 points 27,562.
On the corporate scene, the cavalcade of big-name updates continues with Royal Dutch Shell PLC (LON:RDSB), British American Tobacco PLC (LON:BATS), Barclays PLC (LON:BARC) and London Stock Exchange Group (LON:LSE) among those set to update the market.
Shell profits should be down
A half-year update from Royal Dutch Shell on Thursday comes after a recent rebound in crude oil prices amid tensions in the Persian Gulf.
UBS has forecast net income of $5.259bn for the second quarter, down 1% on the first quarter despite the higher oil price but up 12% this time last year.
“This result would still leave Shell by some distance the most profitable and cash generative of the oil majors.”
LSE interims follow Refinitiv revelation
LSE is riding high, helped by its confirmation at the start of this week that it is in talks to buy US$27bn financial data firm Refinitiv.
Even before that news, the shares were on the front foot on the back of strong trading so far this year.
For the first half, gross revenues are expected to rise 5% year-on-year to £1.1bn, predicted UBS, with gross profit of £1.0bn forecast, with adjusted underlying earnings (EBITDA) expected to rise 8% to £589mln.
Barclays follows Lloyds PPI surprise
Shares in Barclays are down 20% over the past 12 months, worse than its FTSE 100 banking peers, and not much higher than they were three years ago.
After rival Lloyds unveiled a whopping £550mln of PPI charges a day earlier, investors will be eyeing restructuring costs, loan impairments and litigation and conduct costs at Barclays, which were £2.5bn in the first half of last year.
Significant announcements expected today
Interims: Royal Dutch Shell PLC (Q2) (LON:RDSA), Barclays PLC (LON:BARC), Standard Chartered PLC (LON:STAN), Rio Tinto PLC (LON:RIO), RSA Insurance PLC (LON:RSA), British American Tobacco PLC (LON:BATS), London Stock Exchange Group PLC (LON:LSE), Schroders PLC (LON:SDR), Intertek PLC (LON:ITRK), Mondi PLC (LON:MNDI), Spirent PLC (LON:SPT), Coats PLC (LON:COA), ConvaTec PLC (LON:CTEC), Merlin Entertainments PLC (LON:MERL), RPS Group PLC (LON:RPS), T Clarke PLC (LON:CTO), UK Commercial Property trust PLC (LON:UKCM), FBD Holdings PLC (LON:FBD)
FTSE 100 ex-dividends: none
Economic data: US weekly jobless, US ISM manufacturing, Bank of England rate decision and inflation report
Around the markets
- Sterling: US$1,2129, down 0.322 cents
- 10-year gilt: yielding 0.611%m down 2.56 bps
- Gold: US$1,421.20 an ounce, down US$16.60
- Brent crude: US$64.36 a barrel, down 69 cents
- Bitcoin: US$9,995, down US$38
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Next posted better than expected sales at its high-street stores as it upped annual profit expectations by £10 million to £725 million while full-price sales rose by 4% in the three months to 27 July.
Gambling Commission has slapped £5.9 million penalty on Ladbrokes Coral over “systemic failings” to protect problem gamblers.
British defence giant BAE Systems revealed a 36% rise in profits and hiked the dividend.
Lloyds Banking Group has reported a 7% decline in half-year pre-tax profits and revealed another £550 million hit from the payment protection insurance scandal.
Shares in funeral firm Dignity fell sharply after it reported profits were 61% down in the first half of this year compared to same period in 2018.