FTSE 100 rebounds 0.5% as Covid Delta variant fears persist

Reopening stocks and housebuilders lead the Footsie as the index closed near 6900

heathrow airport
  • FTSE gains 37 points at close
  • Rolls-Royce lifted by broker note
  • Ocado on the slide as sales growth cools

5.00pm: FTSE gains 37 points to close 0.5% higher

The FTSE 100 ended Tuesday’s trading session up 37 points, or 0.5%, to hit 6,881 as reopening stocks and housebuilders lead the gains.

“The recent UK market volatility has seen reopening stocks swing between outperformers and underperformers as investor sentiment shifts on a daily basis,” commented IG senior market analyst Joshua Mahony. “Despite fears that the Delta variant could undermine travel and consumer activity, today’s gains for the likes of Rolls-Royce, Hammerson, and Cineworld highlight how reopening stocks are likely to be at the forefront of recent volatility.”

Mahony added: “Housebuilders has been one sector in favour today, with the fall in treasury yields highlighting how many perceive this recent rise in Covid cases as lessening the risk of inflation-led monetary tightening.”  

Propulsion systems maker Rolls-Royce Holdings PLC (LON:RR.) was 3.8% heavier at 90.31p and the best blue-chip performer while Melrose Industries PLC (LON:MRS), which owns aerospace engineer GKN, was 3.0% to the good at 147.3p.

Citigroup posted a positive broker note on Rolls today.

Supermarkets were largely out of favour after the release of the market share data this morning. Ocado Group PLC (LON:OCDO) was down 2.0% at 1,736.5p as its growth slowed over the past 12 weeks to 3.0%; sentiment towards the food delivery specialist has also been hit by last Friday’s fire at its warehouse in Erith, Kent.

3.15pm: US stocks off to a fast start

US equities flew out of the traps at the start of trading, clawing back a proportion of yesterday’s heavy gains.

The Dow Jones index was up 435 points (1.3%) at 34,405, while the S&P 500 jumped 37 points (0.9%) to 4,295.

June housing starts in the US rose 6.3% to 1.64mln, compared to a consensus forecast of 1.59mln.

The number of building permits fell 5.1% to 1.60mln, which was comfortably below the consensus forecast of 1.70mln.

“Housing bulls will want to focus on the jump in starts to a three-month high, split evenly between single- and multi-family homes. The bad news is that permits lead starts, and they are trending inexorably downwards, in the wake of the fall in new home sales. Permits are much less erratic than starts from month to month, so we are inclined to see June jump in starts as noise rather than signal. Housing market activity, both sales and starts, has not yet fully adjusted to the near-30% drop in mortgage applications since their December peak, so we expect further declines over the next few months. Note too that we can’t yet be sure that mortgage applications have stopped falling,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

On the foreign exchange markets, sterling is taking another biffing, sliding almost three-quarters of a cent against the US dollar to US$1.36.

A weak pound is normally a boon to the FTSE 100 but not so much today; London’s index of blue-chip stocks is up 33 points (0.5%) at 6,877.

The day’s best performer thus far has been Catenaa innovation PLC (LON:CTEA), which even after a 27% surge to 1.02p is the very definition of a tiddler with a market capitalisation of just £2.83mln.

The digital media and technology firm’s shares have risen despite there being no news flow for the company today.

The biggest faller is Falcon Oil & Gas Ltd (LON:FOG), which is 15% lighter at 5.15p after providing an update on its 2021 work programme.

Activity has focussed on the continued clean-up of the Kyalla 117 well at the Beetaloo prospect in preparation for extended production testing. The well has begun flowing again without assistance for intermittent periods; however, production has not been sustained and there is evidence of a potential downhole flow restriction, Falcon revealed.

2.00pm: Housebuilders in demand

The morning’s excitement has dissipated and US trading has not yet started so we are in that lull period, otherwise known as “lunchtime”.

The FTSE had at one point made it back above 6,900 but is now languishing at 6,865, up 21 points (0.3%) on the day, helped by renewed enthusiasm for housebuilders.

Berkeley Group Holdings PLC (LON:BKG), up 2.8% at 4,728p, is the top performer while Persimmon PLC (LON:PSN), up 1.5% at 2,941p, is also going well.

“Updates from the sector have been rosy over the past few months, providing a positive backdrop to the shares, and with the sector down some 13% from its peak in April it looks like the time is ripe to go shopping in the likes of Persimmon and Barratt Developments,” said Chris Beauchamp.

Aside from the housebuilders, however, early gains seem to be atrophying. Still, as someone’s dear old mum no doubt once said, there’s always someone worse off than yourself and today that someone appears to be Joe Crypto, the heavy metal band T-shirt wearing investor in cryptocurrencies.

Bitcoin, which I understand to be last year’s thing in the crypto world, is off 3.4% at US$29.753.

Ethereum, the fuel of choice for electric vehicle drivers, is down 3.6% at US$1,753.89 while Ripple, where you get a chocolate-covered flake with every purchase, is 5.8% weaker at US$0.5271.

I’ll have to check that last price; the decimal point seems to be in the wrong place.

“Bitcoin has not been immune to market volatility and is another casualty of the sell-off across financial markets. Investors edged away from crypto wallets after stocks plunged, with Bitcoin dropping below $30,000 to hit $29,577 the lowest level since June 22. Ethereum and Dogecoin have also suffered steep falls over the past 24 hours, with Cardano falling by more than 10% as investors pulled back from riskier assets in the search for safety,” said Susannah Streeter at Hargreaves Lansdown, who sounds a bit more clued up than me about this crypto malarkey.

“As crypto holdings dropped, demand for government bonds have risen, with yields on 10-year treasuries falling to their lowest level in five months. In such a volatile market it seems more investors are heeding warnings from financial watchdogs, that they could risk losing all their money if they hold risky crypto assets.

“Other traders are likely to be watching closely, to buy into assets they consider a cheap price, confident in the longer-term outlook for crypto but this sell-off also comes as speculation mounts about what impact the development of central bank digital currencies will have on the crypto world, and whether the establishment of CBDCs will dent the long term crypto use case. The intensifying crackdown in some parts of the world, with Indonesian authorities destroying bitcoin mining factories using energy illegally, has again shone the light on crypto as a magnet for criminals,’’ she added.

Well, one man’s criminal is another man’s investment banking CEO.

Meanwhile, Blockarabia.com – I think it is a cryptocurrency website rather than a protest movement but it is hard to tell because it is not in English – has revealed close to 10,500 new crypto cash machines – ATMs, if you want to go with the American terminology and avoid the apparent oxymoron of “crypto cash”- have been installed worldwide so far in 2021, which is 55% more than the whole of 2020.

Great news for tech-savvy muggers everywhere, and bad news for tech-savvy “muggees”.

“The number of crypto ATMs in the United Kingdom, as the third-largest market, continues falling. Statistics show the number of BTMs in the country plunged by 25% since September 2020, landing at 194 last week,” said BlockArabia’s Jastra Kranjec.

So now you know but do you care?

12.40pm: US markets expected to rally

US equity prices are set to claw back some of yesterday’s heavy losses.

Spread betting quotes point to the Dow Jones index rising 171 points to 34,133, the S&P 500 advancing 22 points to 4,280 and the Nasdaq 100 climbing 77 points to 14,626.

“Yesterday’s ‘risk-off’ price action delivered a healthy pullback for equity markets,” according to Julien Lafargue, the chief market strategist at Barclays Private Bank.

“The worsening of COVID-19 infections, vaccinations, hospitalisations, and fatalities – accompanied by the reintroduction of some restrictions and signs of further economic slowdown, weighed on sentiment. The narrative of ‘peak everything’, in terms of earnings, macroeconomic momentum and policy approach, seems to be becoming a reality.

“This is happening at a time when the market’s ability to absorb setbacks looks limited as optimism is running high and valuations appear full. In addition, investors are struggling to see who will come to their rescue this time around. We already have vaccines, central banks and governments aren’t keen to increase stimulus, and corporate earnings are already expected to surprise positively.

“The volatile summer is upon us, and the price action could remain choppy,” Larargue said.

It is hard to (Laf)argue with him ...

“Yet, the current backdrop could not necessarily result in a significant or long-lasting correction. If anything, there appears to be a supportive feedback loop: higher COVID-19 cases could ultimately dampen consumption, reducing inflationary pressures, and therefore allowing central banks to remain accommodative for longer. In this context, focusing on higher-quality assets could be important for many investors,” he added.

Bargain hunters will be sniffing around, according to Susannah Streeter at Hargreaves Lansdown, but “nervousness is still largely the sentiment rippling through the markets, as concerns are growing that higher infection rates will bring about a fresh economic slowdown”.

“It isn’t just the spread of new variants causing jitters, rising tensions between the US and China are also a worry after the Biden administration accused Beijing of being behind the hack of Microsoft’s exchange email server software. As China grows increasingly isolated, it’s sparked fresh worries that global trade will suffer as a consequence,” she noted.

In a sign of the levels of corporate nervousness, tech giant Apple Corp (NASDAQ:AAPL) has reportedly postponed a return to the office for its employees.

The Bloomberg news agency reported that the iPhone maker’s employees were set to be summoned to the (fabulously engineered, massively overpriced) treadmill in September but this has been pushed back to October at the earliest.

Apparently, working at Apple all day does not keep the doctor away.

In London, the rally is definitely running out of steam, with the FTSE 100 clinging on to a gain of 18 points (0.3%) at 6,862.

11.50am: Speciality metals tipped to surge as raw materials shortage starts to bite

A fast-developing shortage of critical materials will prompt a reality check for executives and government policymakers, according to fund manager Baker Steel Capital Managers.

An increasing number of companies have been grumbling at the rising costs of raw materials, most notably the housebuilders and today glamour stock Fevertree Drinks PLC (LON:FEVR) joined the throng, sending its shares 6.7% lower to 2,286p.

Figures from the Department for Business, Energy, and Industrial Strategies (BEIS) indicate the cost of materials for all construction work rose 10.2% year on year in May.

Meanwhile, there has been a shortage of semiconductor chips for some months now, which is hitting car makers especially hard, although in some cases they only have themselves to blame as they cancelled orders a year or so ago during the first COVID-inspired period of disruption in the West, forcing suppliers to find new customers.

Research group Gartner predicts the worldwide semiconductor shortage will last until the second quarter of 2022, which is bad news for makers of smartphones and other gadgets..

Baker Steel reckons the chip shortage has resulted in 1.4mln fewer cars being produced globally during the first quarter of this year.

“We believe the semiconductor shortage can be seen in the context of a much larger issue for green technology manufacturers and governments around the world, in terms of supply chain management in an increasingly uncertain and polarised world,” Baker Steel said.

READ Baker Steel says transformational bull market for speciality metals is underway

It reckons “a transformational bull market” is underway for speciality metals, and that “commodity prices appear well-supported as economic recovery, vaccine-rollout and rising inflationary pressure put upwards pressure on raw material prices”.

The fund manager believes certain sub-sectors will do better than their commodities brethren, namely battery metals (nickel, neodymium, graphite, cobalt and also copper.

There’s no immediate sign of investors rushing out today to stock up on copper and nickel. The price of the former is US$132 lower at US$9,264.65 a ton, while nickel is US$29 cheaper at US$18,867 a ton.

Furthermore, miners have dropped out of the upper echelons of the FTSE 100’s best performers, indeed, precious metals miner Fresnillo PLC (LON:FRES), down 1.7% at 779.6p, is the second-worst blue-chip performer behind Just Eat Takeaway.com NV (LON:JET), which is off 2.7% at 5,874p.

The FTSE 100 was up 31 points (0.5%) at 6,875.

11.00am: Grocery sales slide in June despite Euro binge

Grocery sales fell by 5.1% over the 12 weeks to 11 July 2021 compared to a year earlier but were higher than in the same period of 2019.

Market research firm Kantar said shoppers spent £3bn more on groceries in the 12-week period compared with the same period in 2019.

“It was a huge month for British football, with major tournaments usually providing a significant boost to supermarkets but with many fans choosing to make the most of newfound freedoms and watch the matches in pubs and bars, take-home sales of alcohol over the four weeks to mid-July were actually down by 3% compared with the previous month,” said Fraser McKevitt, the head of retail ad consumer insight at Kantar.

“That said, shoppers still spent £1.2 billion on the category – a 24% increase on the same period in 2019. Crisps and snack brands also enjoyed a boost from those of us who gathered round to watch the games at home and sales grew by 23% compared with two years ago. It’s the trademark food of Italy, England’s rival in the Euro 2020 final, but that didn’t stop people spending an extra £10 million on chilled and frozen pizzas in the past month,” McKevitt said.

Sales at Tesco PLC (LON:TSCO) were down 3.7% year-on-year but up 10.8% on the same period of 2019. For J Sainsbury PLC (LON:SBRY) the comparisons were -3.0%/+10.1%; Morrison (Wm) Supermarkets PLC (LON:MRW), -6.7%/+9.6%; Ocado Group Holdings PLC (LON:OCDO), -3.0%/+49.9%.

Asda, which is unquoted, saw its sales fall 6.1% compared to last year (+4.3% versus 2019).

Aldi and Lidl both won market share this period. Aldi gained 0.4 percentage points to hold 8.2% while Lidl’s share of the market increased by 0.2 percentage points to 6.1%. Tesco won its biggest year-on-year share increase since December 2016 this period, growing from 26.7% last year up to 27.1% in the latest 12 weeks,” McKevitt said.

“Sainsbury’s, where online sales continue to perform strongly, moved its share up to 15.2% from 14.9% last year. Asda’s share slipped by 0.1 percentage points to 14.0% and Morrisons fell from 10.3% last year to 10.1% this period,” he added.

Tesco’s shares are up 1.5% at 232.65p, Sainsbury’s are down 0.9% at 280.2p, Morrisons are virtually unchanged and Ocado is 0.6% firmer at 1,781.5p.

The FTSE 100 is up 43 points (0.6%) at 6,887.

9.55am: And the last one now shall later be first

The Footsie is on the comeback trail today with some of today’s big winners looking suspiciously similar to yesterday’s big losers.

London’s index of heavyweight shares is up 70 points (1.0%) at 6,915, with Rolls-Royce Holdings PLC (LON:RR.) - one of those big losers from yesterday – leading the rally with a 2.7% gain at 89.37p.

Miners were also under the cosh yesterday but the likes of Antofgasta PLC (LON:ANTO) and Rio Tinto PLC (LON:RIO), up 2.5% and 2.1% respectively, are back in favour today.

BHP PLC (LON:BHP) was 1.8% firmer at 2,185.5p after its operational review for the year to the end of June 2021.

"BHP safely delivered another year of excellent operational performance and its second consecutive financial year with zero fatalities at our operated assets. We set several production records and brought on four major projects safely, on schedule and on budget,” said Mike Henry, the chief executive officer of BHP.

“Investors appear to have taken the view that yesterday’s global markets sell-off was overdone and now it is time to buy some of the stocks worst hit,” opined AJ Bell’s investment director Russ Mould.

“This feels more like a dead cat bounce rather than a healthy rebound as all the arguments behind yesterday’s sell-off remain today.

“Inflation is still a major threat and there are plenty of reasons to expect the global economic recovery to slow down.

“White goods seller Electrolux and car maker Volvo have both warned about pressures from supply chain issues, and we will no doubt get more companies issuing more mixed outlook comments when they report second-quarter earnings over the coming weeks.

“There is no need to panic, but investors should remain cautious in the current environment,” Mould suggest.

8.55am: Are Morrisons bidders ready to shuffle the pack?

The FTSE 100 recouped some of the ground lost after a stormy opening to the trading week.

While worries over the spread of the Covid delta variant and the threat of inflation could derail the largely positive momentum seen among the blue-chips, the mood was one of calm.

And there are some bargains to be had in the wake of Monday’s sell-off, according to Richard Hunter, head of markets at Interactive Investor.

“A weak showing in markets globally may provide some buying opportunities on the dip, but for the moment and despite a strong start to the earnings season, sentiment rather than performance is the overriding factor,” he added.

The day’s corporate headlines were hogged not by the Footsie stocks, but one of the second tier’s largest players – the grocer Morrisons (LON:MRW), or more correctly the actions of putative bidder Apollo Global Management.

The private equity group is in talks to join a consortium led by rival PE giant Fortress Investment, which has agreed a £6.3bn recommended deal for the Bradford-based grocer. The shares held steady at 261p.

On the Footsie, the sold-off hospitality stocks were marked higher in early trade with InterContinental Hotel Group (LON:IHG) leading the pack with a 2.4% advance. The shares were helped by a Stifel upgrade to ‘buy’.

Heavily sold off on Monday, Cineworld (LON:CINE) recovered some of its poise as it opened 4.9% higher.

6.50 am: Rebound predicted 

The FTSE 100 is expected to make a slight rebound after starting the week at its lowest closing point in three months as global markets got the jitters about resurgent coronavirus cases, with the pound back to lows seen at the start of the year.

London’s blue-chip index has been called 14 points higher on the IG spread-betting platform, having finished down 163.7 points or 2.3% lower at 6,844.39 in its biggest one-day fall since May.

Similarly, US stocks suffered a rare down day yesterday too, with the Dow Jones leading the retreat with a 2.1% decline – its worst fall since October – while the S&P 500 slid 1.6% and the Nasdaq 1.1%.

Stocks correlated with a successful post-pandemic reopening, such as travel companies, took the brunt of the blow, with cruise lines and airlines slumping, along with financial sector names.

“Global markets sank into a sea of red yesterday, thumped by concerns that rising virus cases would prompt a slowdown in the global recovery story,” said market analyst Michael Hewson.

“The pound also saw heavy falls, falling to its lowest levels against the US dollar since mid-April, over concerns that the reopening of the economy may well cause more problems than anticipated. The rise in cases could also be prompting some to pare back the prospect of a tightening of policy in the short to medium term if the disruptions currently being experienced across certain sections of the economy get worse.”

With the US putting the UK on its ‘no not travel’ list, due to the sharp rise in virus cases, investors will expect more fall-out from affected sectors in London this morning.

In the world of cryptocurrencies, Bitcoin is falling again, and analyst Naeem Aslam at AvaTrade says investors are continuing to wonder when the bulls will return to the arena.

“The digital asset has broken through its key support level of $30,000, it is critical that the digital coin regains ground above the $30,000 level, as a significant breach could result in a massive technical selloff,” he said.

“Having said that, crypto traders are well aware that the price action of cryptocurrencies is highly volatile, and the decline in prices should not come as a surprise given that similar price fluctuations have occurred in the past.”

Around the markets

  • Pound - down 0.03% at 1.3664 per dollar
  • Oil - up 0.3% at US$68.81 per barrel of Brent
  • Gold  - up 0.2% to US$1,815.52 per oz
  • Bitcoin - down 7% (over 24hrs) to US$29,696.59

6.50am: Early Markets - Asia / Australia

Stocks in the Asia-Pacific region were lower on Tuesday as China kept its benchmark lending rate unchanged, with the one-year Loan Prime Rate (LPR) steady at 3.85% while the five-year LPR was also left at 4.65%.

The Shanghai Composite in China fell 0.50% and Hong Kong’s Hang Seng index slumped 1.19%

In Japan, the Nikkei 225 slipped 0.92% while South Korea’s Kospi declined 0.84%.

Shares in Australia dipped, with the S&P/ASX 200 trading 0.72% lower.


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