FTSE 100 closes in red as trader optimism swiftly fizzles out

The UK's premier share index closed around 64 points lower at 7,125

  • FTSE 100 closes in red
  • Germany would think about ‘practical solutions’ to the backstop, Merkel says
  • Supermarkets hit after Kantar report

5.15pm: Footsie closes down

FTSE 100 closed in the red on Tuesday as traders fretted about global economics and the political uncertainty in Italy.

The UK's premier share index closed around 64 points lower at 7,125.

The FTSE 250 slumped nearly 90 points at 19,008.

"Giuseppe Conte resigned as Prime Minister of Italy, and that could bring about political upheaval in the third-largest economy in the eurozone," noted market analyst David Madden, at CMC Markets.

"The nation’s banks haven’t fully recovered from the credit crisis, and the financial institutions have massive exposure to the government bond market, which is likely to come under pressure due to the political uncertainty. Italy could be facing a general election in a few months. The Italian political news isn’t a shock, but nonetheless it chips away at investor confidence."

Things weren't much better over in the USA, with the Dow Jones Industrial Average down around 44 points at 26,091. The S&P 500 shed around six points at 2,917.

3.40pm: Footsie slides

London's top-shares index continued to slide in the afternoon session as the pound regained its poise on foreign exchange markets.

The FTSE 100 index was off 51 points (0.7%) as sterling moved a tenth of a cent higher against the US dollar following comments by the German chancellor, Angela Merkel.

“Sterling shot higher in a brief flurry of buying panic as algos [trading alogrithms] were triggered by comments from Germany’s Angela Merkel on Brexit. She said Germany would think about ‘practical solutions’ to the backstop, adding that this is a matter of the political declaration, not of the withdrawal agreement,” reported Neil Wilson of markets.com.

“We await to see if cable can consolidate around 1.250 and if buyers can come in at 1.2180 – the initial indication is not. Nevertheless, this was a very large and indicates how sensitive the pound will be to Brexit-related rumours and news flow over the coming weeks as we head towards Oct 31st,” Wilson said.

Sterling is currently trading at around US$1.2138.

The FTSE 250 is not normally as influenced by sterling's movements as its bigger brother but even so it was 74 points (0.4%) lower at 19,024.

The fall would have been worse but for enthusiasm for pubs operators Mitchells & Butlers PLC (LON:MAB) and Marston's PLC (LON:MARS), after the agreed bid for Greene King PLC (LON:GNK).

READ Ka-Shing! Hong Kong’s richest man to buy Greene King for £2.7bn

Li Ka-Shing is paying 850p per share for Greene King, 51% above last Friday’s closing price.

Greene King shares currently trade at 841.2p – down 1.0% on the day but up 277.6p on Friday's close.

2.45pm: Losses lengthen

Having dipped its toe into the red towards the end of the lunchtime trading session, the Footsie had decided to venture in up to its knees.

The FTSE 100 was down 23 points (0.3%) at 7,166 while across the pond, red was also the new black, with the Dow Jones sliding 51 points (0.2%) TO 26,084 and the S&P 500 shedding 11 points (0.4%) at 2,912.

Despite the Footsie's slide, bright spots have not completely disappeared from the market.

Among the small caps, the mining company, Avesoro Resources Inc (LON:ASO), was 27% higher after it revealed its controlling shareholder is considering making an offer for all the shares it does not currently own.

Another resources play, Power Metal Resources PLC (LON:POW) was 25% higher after the completion of its strategic and operational review.

READ Power Metal Resources promotes Johnson to CEO role

2.15pm: Blue-chips turn red as traders brace themselves for a weak start on Wall Street

The Footsie has sunk gently into the red ahead of what is expected to be a soft opening on Wall Street.

The FTSE 100 was down 7 points (0.1%) at 7,182.

In the US, spread betting quotes point to the Dow Jones opening around 44 points lower at 26,091 and the S&P 500 shedding 6 points to open at around 2,917.5.

The CBI Industrial Trends survey for the manufacturing sector reported a slight month-on-month improvement in August.

The order book balance improved to -13 from -34 in July while the export orders balance clocked in at -15.

“The survey does little to suggest that the manufacturing sector will be of much help to the UK economy as it looks to return to growth in the third quarter. A balance of 3% of manufacturers reported that their output had fallen over the 3 months to August,” reported Howard Archer, the chief economic advisor to the EY ITEM Club.

12.20pm: Steady progress for the Footsie but nothing to set the pulses racing

The blue-chip index was trading near its high point for the day but the advance is not setting anyone's pulses racing.

The FTSE 100 was up 38 points (0.5%) at 7,228, with risers among the index's constituents outnumbering fallers by around two-to-one.

Craig Erlam at Oanda suggested that traders are waiting for what Jerome Powell, the chair of the US Federal Reserve, will say on Friday at the meeting of central bank head honchos in Jackson Hole.

“Once again we're in a situation whereby the week hangs on what Jerome Powell says about interest rates and whether he can live up to the huge expectations set by the market. Given his reluctance in the past and the current positioning, I feel the market has set itself up for disappointment but I guess we'll see,” Erlam said.

“What's interesting is that this huge void between Fed signals and market positioning stems from the fact that markets have had no time for remarks that indicate a gradual easing at best. Their response has been to fully price in rate cuts and assume the Fed will do as its told, like a naughty school child,” Erlam continued.

“Powell needs to either strongly signal that markets are wrong, which will cause a jolt and have repercussions, or lay the foundations clearly. I fear he'll do neither,” Erlam said.

Shoddy housebuilder Persimmon PLC (LON:PSN) was up 1.3% at 1,886.5p after a half-year results statement that seemed to focus more on the company’s efforts to improve its reputation with house buyers than its profit & loss.

“In normal circumstances a drop in completions and revenues would be a warning sign for a housebuilder, but while the blip to the top line might not make for pleasant reading, it’s actually good to see Persimmon applying the brakes. Following a flurry of customer dissatisfaction, it took the decision to temper the speed at which it released homes to market, in a bid to avoid a repeat performance,” noted Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.

“That’s not to say there aren’t things to remain mindful of – Help to Buy ends in a few years, and as things stand this scheme is responsible for a big chunk of Persimmon’s business. 3,082 of new home sales in the first half were sold to first time buyers, representing 52% of all private sales,” she noted.

Ian Forrest, an investment research analyst at The Share Centre, said the figures were “reassuring”.

“Growth rates for the sector may have already peaked so we view the shares at best as a ‘hold’ for investors willing to accept a higher level of risk,” Forrest said.

10.50m: FTSE 100 cements its position above 7,200

London’s index of heavyweight shares has cemented its position above 7,200 as investors get used to this “risk-on” frame of mind.

The Footsie was up 26 points (0.4%) at 7,215, with grocery plays Ocado and Sainsbury’s leading the way, with gains of around 2.35%.

Mining giant BHP Group PLC (LON:BHP) found itself at the wrong end of the Footsie leader-board, shedding 0.9% after its results for the year to the end of June.

“With iron ore prices riding high, and rival Rio Tinto rewarding its shareholders with two big special dividends this year, expectations for BHP had been mounting. Lower costs and higher prices have generated huge cash flow, more of which investors may have hoped would find its way to them via dividends,” suggested Nigel Fish, the finance director of Link Market Services.

“BHP has hiked its final payout by almost a quarter, a record payout for the company, and enough to number it among the top six payers in the UK this year for the first time but in truth the increase is a little disappointing given the fair winds the company is enjoying just now,” Fish opined.

Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said BHP had been able to shrug off headwinds – so far – such as increasing trade tensions and a slowing Chinese economy.

“With net debt towards the bottom of the target range, management have braced the business for a shock if a major downturn appears on the horizon. All very sensible in our view, and with the hard work done, the profits from the group’s high margin assets can be funnelled back to investors in the meantime,” Hyett said, echoing Fish’s theme.

“It's not all been plain sailing, with lower ore grades at the vast Escondida copper mine and more capital spending in the coal portfolio denting results this year, but that’s part and parcel of mining. A resilient financial position means that for those prepared to weather some ups and downs the 7% dividend yield could make BHP an attractive option,” he said.



10.00am: Investors get out their wallets as sterling slides on foreign exchange markets

London's leading stocks have made headway this morning, helped by sterling's weakness against the US dollar.

The FTSE 100 was up 19 points (0.3%) at 7,209, with supermarket group J Sainsbury PLC (LON:SBRY) leading the advance with a 2.3% rise to 192.27p. Rumours continue to swirl that the groceries seller is lining up a replacement for chief executive, Mike Coupe, whose star has waned since the unsuccessful merger attempt with Asda.

Coincidentally, today is the day that the grocery market share figures have been released, covering the 12 weeks to 11 August 2019.

Year-on-year supermarket sales were flat during the period as the tough comparisons with 2018’s strong summer continue, market research group Kantar reported.

“July’s hottest day on record wasn’t enough to shift the market into growth, but the grocers will have been encouraged by glimpses of better weather during the past four weeks which helped boost sales of summer staples like hay fever remedies, suncare and burgers by 17%, 8% and 5% respectively,” said Fraser McKevitt, the head of retail and consumer insight at Kantar.

The German hard discounters continued to eat away at the market shares of the established British players.

Lidl’s sales increased by 7.7% year-on-year, taking its market shares up to 5.9%. Aldi’s sales rose 6.2%.

According to McKevitt, nearly half of all households shopped in an Aldi during the past 12 weeks, and this figure rises to 58.4% in the north of England where the retailer is most popular.

“Once again Ocado claimed the top spot as the UK’s fastest-growing grocer, increasing sales by 12.6% this period. The online retailer increased its shopper base by 7% and encouraged its customers to spend £1.93 more each delivery. Ocado’s share of the total grocery market now stands at 1.4%, while it commands 18% of all online supermarket sales,” McKevitt revealed.

Ocado Group PLC’s (LON:OCDO) shares were up 2.0% at 2,094p.

Sainsbury’s accounted for 15.4% of supermarket sales during the period.

“While each of the big four lost share, Sainsbury’s will be cheered to be the strongest performer among this cohort for the first time since November 2017. Bucking the market-wide own-label trend, sales of branded goods at Sainsbury’s rose by 1.5%, driven by higher levels of promotion and its price lockdown strategy,” McKevitt said.

Tesco PLC (LON:TSCO) and Wm Morrison Supermarkets PLC (LON:MRW) were both barely changed; the former was down a little and the latter up a tad.

8.40am: Stocks off to a better start than expected

The FTSE 100 got off to a better than expected start, rising 22 points to 7,211.63 as it built on Monday’s gains.

Driven by Wall Street and Asia’s main markets, the blue-chip index defied early predictions of a flat start.

The catalyst for this renewed optimism, less than a week after traders were crying that the recessionary sky was falling in?

Well, the same group of price-makers are now betting the major world economies will weigh in with an assortment of fiscal stimulus packages if growth dries up.

“Risk sentiment continues to improve after taking a significant hit in the previous week,” said Jasper Lawler of London Capital Group.

“The prospect of policymakers being willing to offer additional support to their economies is music to the ears of traders.

“This is the sugar high that is cushioning the market from continued uncertainty.”

On the market, AstraZeneca (LON:AZN) topped the leader board with a 1.7% gain following another clinical trial success.

After years of R&D failure, the Anglo-Swedish giant doesn’t seem to be able to miss the target these days.

Off 1.8% and heading the losers was BHP (LON:BHP). While a record full-year dividend provided a cushion for investors, it was required given the pessimistic assessment of prospects provided by the mining major.

6.30am: FTSE 100 set for a breather 

The FTSE 100 is set to take a breather on Tuesday after a strong day of gains for stocks around the globe.

London's blue-chip benchmark was being called one point higher to 7,197 by spread-betters in the Square Mile.  

Stock markets in Asia are mostly in the green on Tuesday as China’s new floating loan rate changes comes into effect, with the Shanghai Composite adding 0.2%, Hong Kong’s Hang Seng inching up 0.1% and Tokyo’s Nikkei climbing 0.5%.

Overnight, Wall Street also had a third positive session in a row, with the Dow Jones rising 250 point or 1% to 26,135.79 and the S&P 500 adding 1.2% and the Nasdaq notching up a 1.4% gain.

This came on the back of the US government delaying restrictions on Chinese tech giant Huawei for another 90 days. 

The stabilisation of equity markets owes more to a rebound in bond yields than to any optimism over a stabilisation in the US-China trade situation, said Michael Hewson at CMC Markets.

“It still remains highly unlikely that we will see a speedy resolution here and there remains a real risk that President Trump may turn his attention to the European Union given his remarks last week that the EU treats the US worse than China, when it comes to trade.”

Meanwhile, President Trump was heaping more pressure on the Federal Reserve.

“The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well," he said.

"If that happened, our economy would be even better, and the world economy would be greatly and quickly enhanced-good for everyone.”

He also tweeted that he enjoyed a conversation with Prime Minister Boris Johnson and a potential post-Brexit free trade deal.

Currency traders did not make much of this, with the pound remaining pretty unmoved against the dollar at 1.2121. 

Persimmon looking to clean up its image

There's a relatively busy day in store for UK corporate results, including half-year results from Persimmon on Tuesday that are another opportunity for the housebuilder to rebuild its reputation and a share price that has materially underperformed sector peers this year.

As well as lingering investor discontent over boardroom pay, Persimmon has fielded a wave of customer complaints about poor build quality and, along with grievances about punitive leasehold terms, this fed worries and rumours that that government could curtail its ongoing participation in the lucrative Help to Buy scheme.

In a trading update last month, the FTSE 100 group revealed it had sold fewer houses than last year so far in 2019 as management look to hold back sales until later in the construction process to try and improve customer satisfaction levels.

Investors will be keen to see further progress around this issue under new chairman Roger Devlin and chief executive David Jenkinson, who took over after ex-boss Jeff Fairburn stepped down last November after condemnation of his £75mln bonus, but this is coming at a price of squeezed profit margins.

Having already announced sales volumes down 6% to 7,584 and average selling prices just above flat at £217,000, Persimmon is expected to reveal first-half margins just below the 31% achieved in 2018, despite slightly higher selling prices.

“It won't be an overnight fix but Persimmon is a well-run business, which has not had its priorities in the right order in the last few years,” said broker Peel Hunt.

“Inevitably, fixing the problems will cost the group some money but with industry leading margins it can afford to do so. Arguably, it can't afford not to do so if the Government gets tough on quality in return for the use of Help to Buy.” 

UBS analysts have pencilled in a pre-tax profit of £509mln (H1 18: £520mln), adding that sales and margin guidance will be “key”.

NSF investors await next steps after failed Provi bid

Non-Standard Finance will also be focusing firmly forward at its interim results on Tuesday, trying its best to sweep its failed hostile takeover bid for Provident Financial PLC (LON:PFG) under the rug.

The sub-prime lender’s shares have halved this year as it abandoned a months-long battle to buy its rival due to resistance from shareholders.

A key focus for investors in the first-half numbers will be on one-off costs related to the deal, which are expected to come to £10.0-10.5mln, plus any remarks about what the company plans to do next.

As for the financials, Peel Hunt expects NSF to post a 45% rise in adjusted pre-tax profit to just over £8mln, reflecting a strong ongoing loan book growth in guarantor and branch-based lending while home collected credit is expected to be more modest.

Finablr posts first results since IPO

Reporting its maiden interim results will be Travelex owner Finablr, which floated on the main market in May.

The UAE-based payments and bureau de change group was forced to slash the pricing of the initial public offer to 174p per share from the initial 210p-260p range.

Since the IPO, the company has put out a first-quarter trading update for Travelex, where revenue grew 3% to £174.5mln, amid a “strong” performance for the Middle East and Turkey.

Underlying earnings (EBITDA) from the core Travelex business, excluding disposed operations, gained 79% to £2.9mln.

“Travelex's revenue is generally lower for the first quarter of the year because a significant part of its business serves the leisure segment of the travel industry, which is particularly active during the summer season in the Northern hemisphere,” management said.

JPMorgan Cazenove, which was a sponsor on the IPO, is estimating that the group can generate compound annual EBITDA growth of 19% for the period from 2018 to 2021.

With the shares having hit a low as 140p and rallied but still below the IPO price, Barclays, which was a joint co-ordinator on the IPO, said it expects “it will take time and a number of positive data points for the market to attribute fair value to the stock”.

Blue-chip miners in shadow of global slowdown

BHP Group’s share price has been under pressure this month amid concerns over global growth, the US-China trade spat and a slowdown in Chinese construction activity.

Earnings forecasts for the group have already been revised down after a mixed production update in July, so future production levels for the company’s various commodities, particularly iron ore, will be closely watched by investors when the group reports its finals on Monday.

Wood investors await restructuring and dividend news

Not dissimilarly, recent volatility in the oil price has caused issues for many companies in the oilfield services sector, and John Wood is likely to be no exception when it reports its interims.

The FTSE 250 group's results will be watched for any news on how its restructuring programme is progressing, as well as whether it still expects a 25% increase in operating profits as it guided back in June.

Investors will also be hoping for any news on increased dividends as the company’s cash flow has steadily improved this year, raising hopes of a higher pay-out.

Tuesday August 20

FinalsBHP Group PLC (LON:BHP), Scancell Holdings PLC (LON:SCLP)

InterimsNon-Standard Finance PLC (LON:NSF), Empiric PLC (LON:ESP), Finablr PLC (LON:FIN), Global Ports Holding PLC (LON:GPH), Kenmare Resources PLC (LON:KMR), Persimmon PLC (LON:PSN), John Wood Group PLC (LON:WG.)

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