FTSE 100 closes 52 points lower
Sterling up a shade against the US dollar
Boohoo wanted after Karen Millen and Coast swoop
5.20pm: Footsie still fearful
FTSE 100 closed the day in the red as traders remained fearful fearful of escalating trade tensions between the US and China.
Yesterday, global stocks tanked as China seemingly let its currency slump to levels not seen since 2008 after President Trump’s imposition last week of 10% tariffs on a further US$300 billion of imported Chinese goods from September 1
But China restrained the yuan's fall on Tuesday, with the central bank fixing the dollar rate at 6.9683.
"The fact the People’s Bank of China (PBoC) slighted strengthened the currency in reaction to the US accusing them of currency manipulation has been seen as a sign that Beijing are easing up on their stance a little," said market analyst David Madden, at CMC Markets.
FTSE 100 closed the day down 52.16 points at 7,171, while the mid-cap FTSE 250 shed around 25 at 18,846.
Against the US dollar, sterling was up a tad weaker against the greenback.
3.30pm: Footsie goes into reverse
The Footsie, having idled for most of the day, shifted into reverse in the final hour of trading.
London's index of heavyweight shares was down 44 points (0.6%) at 7,180, as sterling clawed back some losses on foreign exchange markets, rising about half a cent to US$1.2188.
“A stronger pound prevented the FTSE from keeping up with its European peers. Sterling pushed higher versus both the dollar and the euro despite no-deal Brexit fears,” reported City Index's Fiona Cincotta.
“The pound was finding some support from suggestions that Jeremy Corbyn is planning an early vote of no confidence against Boris Johnson after the summer recess. With opposition growing in Parliament over Bojo’s do or die Brexit mantra on 31st October there could well be enough support for a new leader at the helm,” Cincotta speculated.
With the British Retail Consortium reporting that retail sales last month reported the weakest year-on-year growth of any July on record, it was not a celebratory day for retailers but online fashion flogger, boohoo Group PLC (LON:BOO) eked out a 4.5% gain to 240.4p after it agreed to buy the internet operations of UK fashion brands Karen Millen and Coast for £18.2mln.
“Boohoo’s offer to buy the online businesses of Karen Millen and Coast makes perfect sense,” according to Jonathan Buxton, the head of retail & consumer at Cavendish Corporate Finance.
“They are both very complementary additions and broaden the appeal of Boohoo’s fashion ranges to more mature shoppers. The acquisitions would also give the company some very powerful new distribution channels with combined online sales for Karen Millen and Coast worth about £50 million last year.
“The deal illustrates the power of digitally native vertical brands such as Boohoo, which has enjoyed very fast-paced growth. They are able to use their direct, digital dialogue with consumers and close links with suppliers to respond quickly and create new products that precisely match consumer trends.
“With the e-commerce market predicted to grow by some 10% annually in Europe over the next few years and projected to be the world’s single largest retail channel by 2021, we can expect more deals of this nature as it increasingly becomes the key battleground for retail and consumer businesses seeking to build market share and dominate their particular sectors,” he added.
3.00pm: Strong rebound by US benchmarks
US indices opened higher than expected, clawing back a decent chunk of yesterday's heavy losses.
The Dow Jones industrial average was up 195 (0.8%) at 25,912 while the S&P 500 was up 22 points (-.8%) at 2,867.
In the UK, it has been a far more tranquil day, with the Footsie bobbing above and below last night's close.
Currently, the index of blue-chip shares is up a couple of points (0.0%) at 7,226.
Smurfit Kappa Group PLC (LON:SKG) was among the losers, shedding 0.9% at 2,416p after it revealed that an Italian subsidiary had been fined €124mln for engaging in anti-competitive practices in Italy.
The group intends to appeal against the decision.
2.00pm: US stocks expected to bounce back strongly
After yesterday's shake-out, US indices are expected to claw back some losses today.
The Dow Jones, which plunged 767 points to close at 25,718, is expected to open some 90 points higher at 25,808 while the S&P 500, which crashed 87 points (3.0%) to 2,845, is expected to rise 10 points to 2,855.
In the UK, the FTSE 100 has slipped back into the red by 7 points (0.1%) to 7,216.
On the foreign exchange markets, the pound has fallen back below US$1.22 against the greenback to US$1.2170 but is still up three-tenths of a cent on the day.
12.30pm: Equity investors welcome reassuringly boring session
There is a definite sense that all the excitement is happening on the foreign exchange markets today while equities are, perhaps mercifully, dull.
The FTSE 100 was up 9 points (0.1%) at 7,233, just a few points below its high point of the day.
“The People’s Bank of China [PBOC] applied a lower than expected gap between onshore and offshore yuan rates at its daily fix. Since this happened just a day [after] the PBOC deliberately allowed the renminbi to weaken below the highly symbolic rate of seven yuan per US dollar, investors interpret the moves as still constructive for market stability, even if the central bank had sought to project a clear message with the renminbi’s first breach of the guided level in five years,” explained Ken Odeluga at City Index.
“As such, Beijing demonstrates that it wants to keep its ‘adult-in-the-room’ stance. Regardless of how authentic that posture may be, it implies limits to the pace or even degree of escalation that’s likely still to come,” Odeluga added.
Edward Moya at Oanda said markets are relieved by the PBOC's decision to weaken the yuan at a slower pace, and said it might be “a sign that we might not just yet see the peak escalation in the US-China trade war”.
“The PBOC’s stronger-than-expected fixing comes after the US labelled the country as a currency manipulator. China’s currency decision is probably more of a move to deliver some stability following Monday’s collapse and not a reaction to any action or rhetoric from the US. Since tariffs have come into play, China has been steadily lowering the yuan to offset the tariffs. If they lower the yuan another 3%, that would pretty much cover the whole 25% tariff on the US$300 billion of Chinese goods,” Moya said.
Further to the US Treasury's accusation of currency manipulation, Michael Every at Rabobank dials the acidity up to 11 in his observations.
“The last time China was assessed by the US Treasury on those grounds was a few months ago, where it was found not to be a currency manipulator as it didn’t meet all three of the US’ own criteria (large bilateral trade surplus – tick; current account surplus as % GDP – no tick; persistent intervention to weaken the currency – no tick). Yet now the CNY [yuan] is finally moving lower in line with its real fundamentals, it IS labelled a manipulator. The irony!”
“So what will the US do? If you think the answer is nothing then I have a Chinese-funded bridge to sell you. Far more likely they will move forward with more tariffs or countervailing duties,” Every said.
The FTSE 100 may be largely treading water but the mid-cap FTSE 250 is pedalling higher, up 156 points (0.8%) at 19,027, despite index constituent Sirius Minerals PLC (LON:SXX) losing a quarter of its value after it pulled the plug on its proposed loan note offering.
“The company needs to get the fundraise away by the end of September, as that is a crucial term and condition of getting the additional US$2.5 billion in lending via a revolving credit facility (RCF) that JPMorgan will initially provide, which in turn is vital to being able to build the mine,” explains Russ Mould, the investment director at AJ Bell.
“This deadline feels uncomfortably close and the company’s insistence that it will return to the bond market later in the quarter is likely to do little to reassure investors. After all what happens if market conditions deteriorate rather than getting better?” Mould asks.
Half-year results from Rotork PLC (LON:ROR) and Meggitt PLC (LON:MGGT) got the thumbs-up from investors, giving the FTSE 250 a fillip in the process.
Investors were pumped over the improvement in order intake in the second quarter at the valves specialist, Rotork, and chased the shares 8.3% higher to 309.7p.
Meggitt, another engineering company that does not seem to have got the memo about Britain being purely a service economy, rose 5.4% to 601.8p after it upgraded its organic revenue growth outlook.
Meggitt's 2019 interim results have now been published, please click on the link to find out more and watch the live webcast scheduled at 11am... https://t.co/xmOCexCxCq pic.twitter.com/LeNyxEBKk2
— Meggitt (@Meggittglobal) August 6, 2019
11.15am: The Footsie sidles into positive territory
In a surprise development – especially so given sterling's rally – the Footsie has legged it into positive territory.
The top-shares index was up 9 points (0.1%) at 7,233, despite the pound gaining almost two-thirds of a cent against the US dollar at US$1.2207.
The two big beasts reporting today – hotels operator Intercontinental Hotels Group PLC (LON:IHG) and propulsion systems designer Rolls-Royce Holdings PLC (LON:RR.) - both got the cold shoulder from the market.
Intercontinental was off 1.1% at 5,231p while Rolls-Royce was down 1.4% at 803.8p.
“InterContinental have added another record number of rooms to the portfolio, with the global estate now made up of over 850,000 rooms. That’s certainly impressive, but does of course mean there’s even more rooms to fill. Spending on hotels is one of the first things to be scaled back in the face of economic turbulence – on both a corporate, and personal leisure basis. We can see dents to divisional revenues in places like Hong Kong and Paris, due to upheaval from political unrest, which acts as a reminder of IHG’s close ties to the ups and downs of the political and economic climates it operates in,” said Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.
The IHG hotel group plans to remove all those mini shampoo bottles from 843,000 guest rooms in 5,600 hotels https://t.co/xQau8eZBlL
— The New York Times (@nytimes) July 30, 2019
As for Rolls-Royce, Ian Forrest, an investment research analyst at The Share Centre, stuck with his 'buy' recommendation ad the company posted a reduction in the loss before tax.
“It’s reassuring for investors to hear that the company is confident it can cope with Brexit, even the No Deal version, thanks to a build-up of inventory. Ongoing problems with the Trent 1000 engines are a concern but we continue with our ‘Buy’ recommendation for investors seeking a balanced return and willing to accept a medium level of risk,” Forrest said.
Britain’s Rolls Royce said it was prepared to cope with the fallout from a disorderly Brexit after the aero-engine maker spent around 100 million pounds to increase inventory among other preparations, its chief executive said.https://t.co/ajiidGAzkV pic.twitter.com/fytWywX5AT
— Torbay Intelligence (@TorbayIntel) August 6, 2019
9.50am: BRC report for July provides more gloomy news on the retail sector
Such has been the battering taken by the Footsie of late, a 43 point fall seems like getting off lightly.
London’s leading share index was down by 0.6% at 7,181, with fallers outnumbering risers by about two-to-one in the Footsie constituent list.
“European markets have opened in a slightly better fashion that was expected to be the case a few hours ago,” observed Michael Hewson at CMC Markets.
“The reason for this modest stabilisation appears to have been the decision by the Peoples Bank of China to fix the yuan higher than expected, in this latest game of trade war cat and mouse. The central bank allowed it to weaken through the 7 level yesterday, as a counter-response to President Trump’s decision to announce 10% tariffs on the remaining $300bn of Chinese goods, from the 1st September.
“It would appear that the Chinese are sending a message in its decision to fix the yuan higher than expected. In pulling the yuan higher it is not only looking to manage any decline but also looking to contain any damage in terms of confidence in their stewardship of the Chinese currency and economy,” Hewson opined.
No one likes to stick the boot into a wounded body rolling in the gutter but the British Retail Consortium & KPMG do not really have the option of skipping over the publication of their monthly retail sales monitor.
The July reading was the worst July on record in terms of year-on-year growth, with sales up 0.3% on July 2018, when sales were up 1.6% year-on-year.
Sales were up just 0.1% year-on-year on a like-for-like basis, which was an improvement on June’s 1.6% fall but well below the consensus forecast of a rise of 0.7%.
“While any growth is welcome after two months of decline, it’s clear that most players need more than sunshine to get back on their feet,” conceded Paul Martin, the UK head of retail at KPMG.
Helen Dickinson, the chief executive of the British Retail Consortium (BRC), said the last few months have been “punishing” for the retail trade.
“The combination of slow real wage growth and Brexit uncertainty has left consumer spending languishing with the 12-month average total sales falling to a new low of just 0.5%.
“Whereas last year’s glorious sunshine and World Cup Finals led to strong consumer demand over the summer, this year has been weak in comparison, with both June and July showing the lowest sales on record for their respective months,” she noted.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said the BRC's numbers “are consistent with a small month-to-month drop in retail sales volumes last month”.
“One sub-par month, however, is nothing to worry about, when consumers remain upbeat—consumers’ confidence in the outlook for their personal finances exceeded its 37-year average in July, according to GfK data—and are enjoying strong growth in their real incomes. CPI [consumer price index] inflation looks set to fall to a low of 1.5% in the autumn, from 2.0% in June, thanks to falling energy prices,” Tombs said.
“In addition, employment should rise at a solid 1.0% year-over-year rate, according to the latest Markit/CIPS PMIs {purchasing managers’ indices]. Disposable incomes also should be boosted modestly by a renewed fall in new mortgage rates. Accordingly, we still expect momentum in households’ spending to keep the economy ticking over this year,” he disclosed.
" Probably just one isolated soft month; consumers have the means to spend more." @samueltombs on U.K. BRC Retail Sales Monitor, July #PantheonMacro
— Pantheon Macro (@PantheonMacro) August 6, 2019
8.35am: FTSE 100 losses hit £100bn mark
The FTSE 100 kicked off a third day on the back foot – though the trade-inspired decline wasn’t quite as precipitous as either Friday or Monday’s.
The index of blue chips opened 35 points in the red at 7,188.50, meaning the UK has lost around £100bn in value since Thursday’s close.
“We’ve had such heavy selling I wouldn’t be surprised to see some bump-ups as bulls test the water for a dip,” said Neil Wilson, analyst at Markets.com.
“But this is a risk for sure – the nature of China’s retaliation, and the latest move by the US to name China a currency manipulator, is such we should expect things to get worse before they get better.
“There is likely a bit more pain ahead, but I feel the market will eventually turn around on (hopes for) an eventual trade deal in 2020 and the Fed to riding the rescue.”
Intercontinental Hotels Group (LON:IHG) led the Footsie's charge lower with the shares tumbling 4% early on after it revealed growth had stagnated Stateside.
On the up were the miners, though the gains of Anglo American (LON:AAL) and Antofagasta (LON:ANTO) were muted.
The industry’s big faller was to be found in the second-tier as Sirius Minerals (LON:SXX) tanked after suspending its US$500mln bond fundraiser, citing market conditions. The shares lost almost a third of their value.
6.30am: FTSE 100 to start in the red
The FTSE 100 is expected to start in the red on Tuesday as investors around the world continue to retreat over trade war worries.
London’s index of blue chips was being called 31 points lower at 7193.4, which would be small beer compared to the previous day’s blood-letting.
Overnight, Wall Street got off to its own bloody start to the week as Donald Trump officially labelled China “a currency manipulator” after the Peoples Bank of China (PBoC) sat back and gave the yuan more freedom against the dollar.
The Dow Jones fell 2.9% to 25,717.74 and the S&P 500 lost 3% and the Nasdaq tumbled 3.5%, while the US dollar index has tumbled by 1.75% since the beginning of the month.
It seems safe to say that a trade deal between the US and China “seems like a faraway dream”, said market analyst Ipek Ozkardeskaya at London Capital Group.
“One thing is sure, the falling yuan adds fuel to the fire in the White House. Donald Trump increases the pressure on the Federal Reserve for lower interest rates.”
Asian equities all dived early doors after the US sell-off but have recovered some of their losses as trading wore on, with the Nikkei down 0.7%, the Hang Seng 0.6% lower and the Shanghai Composite down 1.4%.
Is IHG's valuation too toppy?
Intercontinental Hotels Group PLC (LON:IHG) shares hit an all-time high last week, as more investors checked in ahead of the Holiday Inn owner’s interims on Tuesday.
The FTSE 100 group switched to an asset-light business model in the middle of the decade, selling off many of its major flagship properties and focusing on franchising and managing hotels, which lowered leverage and beefed up return on capital and cashflow generation.
In recent months the shares have continued to rise like a lift to the penthouse suite despite a mixed first-quarter update and a few bearish broker notes.
May’s trading update revealed that IHG had opened its 400th hotel in China, among roughly 12,000 rooms opened across the first quarter, but disappointed investors with news that occupancy fell 0.2 percentage points.
Comparable revenue per available room (revpar) was up 0.3% against strong comparative numbers this time last year.
UBS analysts warned last month that said the stock was benefiting from the weak pound, but the premium to the market was “pricing in too much future growth” amid slowing revpar trends that are expected to worsen.
Barclays also suggested the valuation is a bit toppy as it seems to ignore “the significant downside risks associated with a macro slowdown”, with hotels being a highly cyclical industry with any decline in revenue per available room tending to be significant.
The consensus forecast is for revenues of US$1bn underlying earnings (EBITA) of US$410mln.
IWG trying to be more like IHG
Shares in IWG PLC (LON:IWG), the former Regus, have been on a stormer this year, up 80% as investors like the sound of longtime boss Mark Dixon’s strategic pivot to make IWG more like IHG.
Dixon, the Essex-born and now Monaco-based businessman who founded the serviced office group in 1989, will have seen the results of IHG’s move to an asset-light business model and the stratospheric rise of office rival WeWork to a valuation of around US$50bn despite never having made a profit.
In April, IWG inked a strategic partnership in Japan which some analysts see as showing the sort of valuation the group’s assets will command from the pivot towards a franchise business model, selling for 3.4 times revenue, 3.3 times assets and 20 times EBITDA when IWG was trading on 1.4 time revenue, 1.6 times assets and 8.4 times EV/EBITDA.
IWG evolution will be benefits to financial leverage, return on capital, volatility and valuation multiples, Credit Suisse said in a note to clients at the time.
At the group’s subsequent first-quarter update, Dixon said "it’s our ability to engage with the level of interest” that is the constraining factor on the rate at which franchise agreements are signed, not the level of interest itself.
Yet with no more deals have been signed since the Japan agreement, broker Peel Hunt said if no further deals are announced in these interims, “given the confidence expressed in March, and the knowledge that the process started as early as November 2018, 3.5 months is a long time to wait.”
New head chef for Domino's Pizza?
Speculation that Domino’s Pizza Group PLC (LON:DOM) could soon appoint a new chief executive sent shares rising in recent months, though they are now back to where they started the year.
It has been rumoured that Andrew Rennie, the chief executive for Europe at Aussie-owned Domino’s Pizza Enterprises, will take over from David Wild as the London-listed firm’s new boss.
While Rennie is well thought of after opening his first franchised store in Darwin, City broker Liberum sees no quick fix for Domino’s in the UK.
For the half-year, Peel Hunt forecasts adjusted profit before tax down 7% to £42.5mln with UK profits up 6% but overseas losses also increasing and higher interest costs.
Proactive news headlines
Media and technology business Iconic Labs Plc (LSE:ICON) has agreed to acquire social media agency, Social Alchemist Limited.
City broker SVS has been forced out of business by the FCA, following an investigation. The news prompted change of broker announcements from Kibo Energy PLC (LON:KIBO) and its sister company Katoro Gold PLC (LON:KAT). Sunrise Resources (LON:SRES) was affected too, and opted to move to Beaumont Cornish.
KRM22 PLC (LON:KRM) has added digital onboarding to its risk assessment platform through a partnership with Veridate Financial.
Greencoat UK Wind PLC (LON:UKW) has appointed a former director of SSE PLC (LON:SSE), one of the UK’s big six energy suppliers, to its board.
Caoimhe Giblin, who spent seven years at SSE Renewables until 2014 in various senior roles including as director of finance, will join Greencoat as a non-executive director on September 1.
88 Energy Limited (LON:88E) said an exclusivity agreement over its Project Icewine asset in Alaska has been executed with Burgundy Xploration.
Argo Blockchain PLC (LON:ARB), a UK-based provider of enterprise-scale crypto mining services, generated 163 bitcoins in July. That equates to £1.36mln of crypto-assets based on a bitcoin price of US$10,122 (as at the end of July).
NQ Minerals PLC (AQSE:NQMI)(OTCQB:NQMLF) has made a further strategic investment in private Tasmanian mining company Tasmania Energy Metals Pty Ltd.
One of the co-founders of Ashley House PLC (LON:ASH) has stepped down from the board to preserve good governance. Stephen Minion, one of the original directors and shareholders of the health and care facility developer, has departed with immediate effect as the company looks to raise funds for three extra care schemes.
Tidal power group Simec Atlantis PLC (LON:SAE) is to raise up to £7mln through peer-to-peer lending platform Abdundance.
BlueRock Diamonds PLC (LON:BRD) has signed a contract with South Africa’s Teichmann Group to mine the ore at its Kareelvlei mine near Kimberley.
hVIVO PLC (AIM: HVO) said it has successfully conducted a human challenge study in older people for the respiratory syncytial virus, or RSV.
Crossword Cybersecurity Plc (LON:CCS) has won a contract with three local councils in the UK to use its software to manage compliance with GDPR (General Data Protection Regulation).
ValiRx PLC (LON:VAL) said discussions to form a joint venture with investment firm Alpha Blue Ocean have not progressed beyond what it told the market in May and June.
Salt Lake Potash Ltd (ASX:SO4) has completed the placement of 10.58 million shares to international fund manager Fidelity International raising $7.4 million.
Tekcapital PLC’s (LON:TEK) portfolio company Belluscara has raised £750,000 of additional funding to help launch its e X-PLOR portable oxygen concentrator. That brings the total amount raised by Belluscura in 2019 to £2.15m.
IQ-AI Ltd (LON:IQAI) has raised £275,000 through the placing of ordinary shares to support the commercialisation and development of two of Imaging Biometric's projects.
Tuesday August 6:
Interims: Genel Energy PLC (LON:GENL), Intercontinental Hotels PLC (LON:IHG), IWG PLC (LON:IWG), Rolls-Royce Holdings PLC (LON:RR.), Rotork PLC (LON:ROR), Synthomer PLC (LON:SYNT), TP ICAP PLC (LON:TCAP), Zotefoams Plc (LON:ZTF)
Economic data: UK retail sales