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FTSE 100 reverses gains to close in red as retail sales fail to lift sterling

The Footsie finished down around 20 points, or 0.27% at 7,436 on Thursday

Lloyds Banking Group - FTSE 100 to start on backfoot with coronavirus and US Federal Reserve steering sentiments
The upbeat January retail sales figures did little to cheer Footsie
  • FTSE 100 closes around 20 points down
  • Coronavirus begins to bite
  • US dollar and gold in demand

5pm: Footsie closes in the red

FTSE 100 index reversed late gains to close lower on Thursday, following the trend set in Wall Street and the rest of Europe where stocks fell.

The Footsie finished down around 20 points, or 0.27% at 7,436.    

It came  after January's UK retail sales coming in better than economists had expected  - at an increase of 0.9% after declines in November and December last year.

"On a day that has seen a sharp improvement to the UK retail outlook, markets clearly paid little attention as they focused on the dominant dollar which left the pound in its wake," noted Joshua Mahony, senior market analyst at IG.

He added that the scepticism seen was partly warranted given the volatile nature of this reading.

"After all, a rise in retail sales simply goes about releasing temporary pent-up demand after months of uncertainty rather than heralding a new norm," he suggested.

The pound sank 0.32% against the US dollar at US$1.2878. The Dow Jones Industrial Average sank 269 points at 29,078, while the S&P 500 shed around 31 points at 2,255.

3.40pm: UK stocks out of step

UK stocks were out of step with most global indices today, with the FTSE 100 putting on a late spurt.

The index was up 22 points (0.3%) at 7,479, despite the likes of Unilever, GlaxoSmithKline and IMPs trading in ex-dividend form.

Generally speaking, however, the dollar and gold have been the asset classes to be in today.

The latter was up US$11.60 (0.7%) at US$1,623.50 an ounce and has risen every day this week as risk-averse investors seek a haven against a background of mounting concern over how the COVID-19 virus is beginning to disrupt supply chains.

Air France-KLM, Maersk and Qantas have all recently warned about the commercial fall-out from the spread of the virus.

Closer to home, ASOS PLC (LON:ASC) shares were down 1.9% at 3,292p on fears that the online fashion flogger's supply chain would be disrupted by the COVID-19 virus.

B&M European Value Retail SA (LON:BME), down 2% at 374.2p, was another that was hit by stock shortage fears.

“There could be shortages that start to appear on shelves in the next six weeks,” according to Shore Capital's Greg Lawless.

2.45pm: Oil tiddlers provide some excitement

US indices made a better fist of things than expected at the outset, with the Dow Jones barely changed.

The S&P 500, meanwhile, was down just 6 points (0.2%) at 3,380.

In London, the FTSE 100 was up 6 points (0.1%) at 7,463, which by the standards of today's trading counts as a violent movement.

If the blue-chip scene has been a bit on the docile side today there has, as usual, been plenty of excitement among the tiddlers, especially in the resources sector.

Baron Oil Plc (LON:BOIL) shot up 27% to 0.14p after the company said that as part of its conditional placing and subscription (announced on Valentine's Day) it will be granting 117mln warrants to Turner Pope Investments, exercisable at 0.1p.

Falcon Oil & Gas Ltd (LON:FOG) soared 8.8% to 12.35p after it revealed that drilling operations have been successfully completed for the Kyalla 117 N2-1H ST2 horizontal well at the Beetaloo shale project in Australia.

2.20pm: US indices to open lower

US indices are expected to open lower in a few minutes while the Footsie remains becalmed.

Spread betting quotes point to the Dow Jones opening 60 points lower at 29,288 and the S&P 500 starting 7 points lower at 3,379.

In the UK, the FTSE 100 remains on the starting grid.

Gold seems to be the thing to have this week with the price of the yellow metal on the futures markets rising US$7.40 (0.5%) to US$1,619.20 an ounce.

Results from FTSE 100 constituents Smith & Nephew and Lloyds Banking Group garnered much of the attention this morning leaving BAE Systems PLC (LON:BA.), appropriately enough, to fly under the radar.

The shares were up 2.5% at 656p after full-year underlying earnings (EBITA) rose 5% from the year before to £2.1bn.

“The Trump administration loosened defence purse strings, and BAE has been able to capitalise on the trend, with increasing volumes of things like US Combat Vehicles bolstering order backlogs. BAE also seems to think this level of spending will be sustained in the near-term, which would be good news for business,” said Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.

“Things are a little less clear when it comes to the provisional sale of 48 Typhoon fighter jets to Saudi Arabia. Lingering political tension means it’s not yet a case of all systems go for this £10bn transaction, and the deal is something BAE will be keen to land at some point.

“BAE has made progress on its hefty pension deficit, having agreed to make a debt-funded £1bn payment in the coming months. That means the decks are being cleared faster than originally planned, and there’s scope for free cash flow to sail higher from 2022,” she added.

12.55pm: Footsie going nowhere

London’s benchmark index remains tightly tethered to last night’s closing value, and it looks like US indices will follow suit.

The FTSE 100 index was up/down (flip a coin) by (pick a number between zero and five), as it has been most of the day – or if you prefer the actual numbers, the index was up 3 points (0.0%) at 7,460.

“The stock market rally appears to be losing a little momentum, with Europe paring gains again and the US poised for small losses on the open,” said Craig Erlam, the senior market analyst at OANDA Europe.

“Investors have a knack of finding some reason to buy the dips though so don't be surprised if we're back in record territory in no time. That said, the stuttering rally is coinciding with various companies warnings about the impact of the coronavirus on sales and production which suggests first quarter results will likely have a few nasty surprises.

“That list is likely to get much longer over the coming weeks as the PR teams look to manage expectations and avoid any major shocks on reporting day. We're not getting too much detail at the moment, which is understandable as many of them are still not running at full capacity, but early indications aren't great,” he added.

There was no mention of the coronavirus (or COVID-19) in this morning’s CBI industrial trends survey, where the total orders balance (companies per 100 surveyed reporting an increase in orders minus companies per 100 reporting a decrease) improved to -18 in February from -22 in January.

“Conditions in the manufacturing sector are effectively unchanged from January,” declared Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.

“The total orders balance is not seasonally adjusted—respondents are asked to report whether orders and above or below ‘normal’ levels—and since 1978 it has risen by an average of four points between January and February. As a result, February’s increase is just a usual seasonal fluctuation, not an underlying improvement,” Tombs maintained.

“On past form, the orders index remain consistent with manufacturing output falling at a 2% year-over-year rate in Q1. Total orders and export orders are falling at the same rate, suggesting that U.K. demand is not firmer than overseas demand,” he added.

Talking of the coronavirus, shares in Norcros PLC (LON:NXR), the bathroom and kitchen products firm, tumbled 37.4p to 253.6p after it said it expected to experience some supply chain disruption after Chinese factories had a longer than anticipated Lunar New Year break as a result of the virus outbreak.

 

The Confederation of British Industry’s (CBI) monthly survey indicated the decline in new orders in British manufacturing is slowing.

The balance of manufacturers seeing increased orders in February rose to a reading of -18, from -22 in January; the consensus forecast had been for a reading of -19.

Manufacturing activity remained weak in the three months to February, with output volumes falling for a fifth rolling quarter in a row, albeit at a slower pace than in January, according to the latest CBI monthly Industrial Trends Survey.

The survey of 318 manufacturing firms reported that both total and export order books improved slightly, to their strongest positions in six months – in particular, export order books are now in line with their long-run average.

“It is encouraging to see manufacturers reporting some early signs of a turnaround in activity, but it’s probably still too early to say whether we’ve seen the end of the slowdown in the sector. Notwithstanding improving optimism, the sector is still grappling with longer-term uncertainty over the UK’s future relationship with the EU,” said Alpesh Paleja, the CBI's lead economist.

“While the government makes progress on new trading arrangements, the upcoming Budget offers a real opportunity to support manufacturers. Measures such as by reforming business rates, increasing the R&D tax credit, and creating catapult quarters for high-tech research hubs present a real opportunity to shore up competitiveness, both in manufacturing and in the wider economy,” the economist added.

11.10am: Supermarkets perk up after strong retail sales data

UK blue-chips are modestly lower on balance, although supermarket shares have received a boost from January’ strong retail sales figures.

The FTSE 100 was down 7 points (0.1%) at 7,450 but the likes of J Sainsbury PLC (LON:SBRY) and Wm Morrison Supermarkets PLC (LON:MRW) are wanted following a 0.9% month-on-month increase in retail sales in January. Sainsbury's is up 1.1% and Morrisons 0.5%.

Howard Archer, the chief economic advisor to the EY ITEM Club, said it was “pretty encouraging news for first-quarter growth prospects”.

“This was the largest rise since March 2019. Furthermore, sales volumes were up 1.6% month-on-month excluding fuel sales – the best performance since May 2018. This raises hopes that the improvement in consumer confidence seen since December’s election is translating into increased spending,” Archer said.

“January’s healthy rise in retail sales raises hopes that a marked rise in consumer confidence following December’s decisive General Election has at least temporarily lifted their willingness to spend.

“This is evident in a number of surveys,” Archer added.

“A key factor for growth prospects is will this improvement in confidence continue and will it translate into greater willingness to spend on a sustained basis?

“The fundamentals for consumers are likely to be pretty decent over the coming months with employment high and real earnings growth at a reasonable level. Indeed, employment rose 180,000 in the three months to January to be at a record high of 32.934 million while real earnings growth was a respectable 1.4%.

“Nevertheless, earnings growth has moderated since mid-2019 and we suspect that employment growth will likely be lower overall in 2020 than in 2019,” Archer said.

Tom Stevenson, the investment director for personal investing at Fidelity International, said the retail sales figures add weight to the theory that the economy is enjoying a “Boris Bounce”.

“The numbers should get progressively better as the dismal picture in the run-up to Christmas falls out of the comparisons,” Stevenson noted.

“It’s early days yet, though. A heightened awareness around sustainable consumption, as well as a more cautious attitude from shoppers in how they spend their money, has played a hand in keeping High Streets quiet. This week’s CPI [consumer price index] and wage growth figures aren’t encouraging either, with real wage growth sliding. A particularly stormy start to the year has done nothing to get sales back on track,” he noted.

9.50am: Strong retail sales put the kibosh on rate cut hopes

UK retail sales volumes (excluding fuel purchases) rose by 1.6% in January, the Office for National Statistics (ONS) said.

The figure was well above the 0.8% increase economists had been expecting.

Sales including fuel purchases rose 0.9%, recovering from the falls in the previous two months; the increase was mainly because of moderate growth in both food stores (1.7%) and non-food stores (1.3%), the ONS revealed.

Fuel saw a month-on-month fall of 5.7% in the quantity bought in January 2020, which coincides with a rise in fuel prices of 2.3 pence per litre between December and January.

Online sales as a proportion of all retailing were 19.0% in January 2020, down from 19.3% in December 2019.

Sterling ebbed from around US$1.2918 to around US$1.2909 against the US dollar, suggesting traders are betting the Bank of England will be in no hurry to cut interest rates following the retail sales release.

A soft exchange rate is generally reckoned to be good for blue-chips but the Footsie has surrendered early gains and is now unchanged at 7,457.

9.20am: Smith & Nephew leads the Footsie higher

Despite a few big dividend stocks going ex-dividend today, the Footsie has got off to a positive start.

London's index of heavyweight shares was up 12 points (0.2%) at 7,469.

Medical devices maker Smith & Nephew PLC (LON:SN.) led the way with an 8.5% increase to 2,002p after delivering full-year revenue growth that was at the top end of the guidance range.

“Investors ignored the fact that its 2020 performance will be determined by the coronavirus, instead choosing to focus on a record revenue of $5 billion,” suggested Connor Campbell at Spreadex.

Retail investors' favourite Lloyds Banking Group PLC (LON:LLOY) was up 3.4% at 57.7p after a generally favourable reaction to its full-year results.

“The results and outlook are satisfactory and we are pleased to see the dividend increasing. The valuation remains attractive given the return profile, assuming a steady macro backdrop and no more material conduct issues. We are also pleased with their ambition to reduce the amount of carbon emission that they finance by more than 50% by 2030,” said Richard Garstang, a co-manager of Oldfield Partners' Overstone Global Equity Income Fund.

Richard Hunter, the head of markets at interactive investor, was a bit harder to please, saying it was a case of “close … but no cigar” for the scandal-hit bank.

“The largely mixed performances in the season so far from its UK banking rivals had presented Lloyds with an open goal, but it has failed to convert the chance. One of the main culprits for the performance was the previously advised PPI [payment protection insurance] provision, which totalled £2.5 billion for the year and, in particular, all but erased profit for the third quarter,” Hunter noted.

“Lloyds has had the worst record for PPI claims and, although £1.6 billion of the provision remains as yet unused, the scale of the number inevitably feeds through to make uncomfortable reading for some of the headline numbers. Pre-tax profit, down 26% year on year and shy of analyst expectations, was also hindered by other regulatory costs, while compression on asset margins remain and the mortgage market, in which Lloyds is a significant player, still suffers from intense competitive pressure,” he added.

“Seen as a barometer for the UK economy, its fortunes are likely still to remain somewhat out of its hands as negotiations with Europe unfold over the year,” Hunter suggested. (READ more on Lloyds results here.)

8.35am: Limbo dance

The FTSE 100 opened in the City equivalent of no man’s land with the coronavirus spread outweighing some guardedly optimistic mutterings from the US Federal Reserve minutes after hours.

On the market, there was trading cheer for replacement hip maker Smith & Nephew (LON:SN.), which rose 5.3% after saying 2019 revenue growth had been at the upper end of forecasts.

Also in demand early on were shares in Lloyds Banking Group (LON:LLOY), a particular favourite of private investors.

The stock was up 2.3% with investors appearing impervious to the latest round of payment protection (PPI) claims.

“Today’s final numbers for 2019 have confirmed the bank set aside a total of £2.5bn PPI provision for this year alone, a big chunk of change for a bank that has seen its profits squeezed anyway as a result of narrowing interest margins,” said Michael Hewson of CMC Markets.

“The upside to all of this is that at least the PPI saga looks to be finally behind them, with no further provisions made in this quarter, so there’s a big silver lining there.”

Imperial Brands (LON:IMB) fell 4.4% and was the market’s biggest loser after trading without an entitlement to the fairly chunky dividend payment.

6.46am: FTSE 100 set to start in reverse gear

The FTSE 100 is set to start Thursday on the back foot as coronavirus, US politics and the Federal Reserve all factor in the headlines.

CFD and spreadbetting firm IG Markets makes the London index around 7 points lower with its quote pitched at 7,448 to 7,451 with just over an hour to go until the open.

“US markets hit new records as investors shrugged off concerns about the coronavirus, even as the death toll continues to rise, and cases start to spread across Asia,” said Michael Hewson, analyst at CMC Markets.

“The belief that central banks and governments can offset any economic downside from the virus with monetary and fiscal stimulus has continued to help drive asset prices higher, with Asia markets also rising this morning as China announced another reduction in its loan prime rate, in a move that wasn’t unexpected.    

The analyst added: “In a sign that caution was still very much at the forefront of investor thinking we also had the sight of a higher US dollar, which moved up towards a three year high, and gold prices hitting their highest levels since 2013, as some haven buying also took place.

“It is clear that while investors appear happy to continue buying stocks, they are hedging their exposure, and this is likely to continue as long as there is uncertainty as to how transitory the effects of any coronavirus ripple out effect is likely to be.”

Federal Reserves meeting minutes released on Wednesday showed confidence but also some reservation over the broader impacts of coronavirus on global economics, even if those concerns do not appear immediate.

On Wall Street, last night, equities marked a positive session.

The Dow Jones closed 115 points or 0.4% higher at 29,348, while the S&P 500 rose by 15 points to finish 0.47% higher at 3,386. The Nasdaq meanwhile made a stronger close, ending 0.87% higher at 9.817.

In Asia, Japan’s Nikkei gained 0.34% to 23,479 while Hong Kong’s Hang Seng was down 0.19% to 27,603 and the Shanghai Composite rallied 1.7% to 3,026.

London, meanwhile, looks set for a busy morning of corporate announcements with the likes of Lloyds Banking Group Plc (LON:LLOY), Anglo American plc (LON:AAL) BAE Systems Plc (LON:BA) and Hays PLC (LON:HAS) among those in the diary.

Around the markets

The pound: US$1.2908, down 0.09%

Gold: US$1,607 per ounce, unchanged

Brent crude: US$59.37 per barrel, up 2.7%

Bitcoin: US$9,582, down 5.44%

Thursday February 20:

Finals: Lloyds Banking Group PLC (LON:LLOY), Anglo American plc (LON:AAL), BAE Systems PLC (LON:BA.), KAZ Minerals PLC (LON:KAZ), Moneysupermarket.com Group PLC (LON:MONY), Morgan Sindall PLC (LON:MGNS), Rathbone Bros. PLC (LON:RAT), Smith & Nephew PLC (LON:SN.)

Interims: Hays PLC (LON:HAS), McBride PLC (LON:MCB)

FTSE 100 ex-dividends: Carnival PLC (LON:CCL), GlaxoSmithKline PLC (LON:GSK), Imperial Brands PLC (LON:IMB), Unilever PLC (LON:ULVR)

Economic data: UK retail sales; US weekly jobless claims; Philly Fed manufacturing index

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