- FTSE 100 rises 46.65 points
- Miners lead the advance
- SMT friendless as tech sell-off continues
Britain's benchmark FTSE 100 index closed higher after a negative start, with chemicals and travel underperforming, while basic resources and telecoms emerged on top thanks to a near 10% stake purchase of Vodafone by a United Arab Emirates rival.
The blue-chip FTSE 100 made up of the largest companies listed on the London Stock Exchange, closed higher by 0.6%, or 46.65 points, to 7,464.80.
Vodafone shares are higher after reports emerged that Abu Dhabi’s Etisalat had bought a 9.8% stake in the UK telecoms provider for £3.6 billion.
“While Etisalat have insisted that they have no designs on wanting a seat on the board, the move is likely to increase pressure on Vodafone CEO Nick Read whose performance has come under increased scrutiny in recent months due to the underperformance in the share price, and inability to create alliances to shore up its position across the UK and Europe over the last two years,” said CMC markets’ Michael Hewson.
“The shares have serially underperformed ever since management got rid of the Verizon stake,” he added.
Market watchers also noted that the FTSE 100 got a boost from companies that dabble with basic resources, despite weakness in commodity prices.
4.03pm: FTSE set to end day with modest gains
The Footsie looks set to end the day with modest gains, despite investors getting the heebie-jeebies this morning from some Covid-affected Chinese data.
London’s index of leading shares was up 29 points at 7,447, some 14 points below its highest point of the day.
“After an early dip prompted by a sharp slowdown in Chinese retail sales in April, markets in Europe have recovered to some extent from their intraday lows,” said CMC markets’ Michael Hewson.
“To give an indication of how badly the Chinese economy has been hit by lockdowns, the latest car sales data for April showed that no cars were sold in Shanghai through the entire month, compared to 26,311 a year ago. For a major exporter like Germany that’s not good news, with weakness in the likes of Porsche, BMW and Mercedes-Benz.
“On the FTSE100 the best sector has been basic resources despite weakness in commodity prices, although copper prices have managed to hold onto Friday’s gains,” he added.
Precious metals miner Fresnillo PLC (LSE:FRES), up 5.1% at 760.2p, was the day’s performer while Scottish Mortgage Investment Trust PLC (LSE:SMT), down 3.6% at 777p, was the worst.
3.00pm: Ofgem changes provoke furious reaction
As expected, US markets have opened lower, with the tech-heavy Nasdaq Composite once again the worst performer of the Big Three indices.
The Nasdaq was down 120 points (1.0%) at 11,685 while the Dow Jones 30 shed 195 points (0.6%) at 32,001 and the S&P 500 tumbled 32 points (0.8%) to 3,991.
Fast food flogger McDonald’s has announced that it will sell its business in Russia.
“McDonald’s’ decision to take one step further from the suspension of operations in Russia, to pushing on with the sale of its restaurants, isn’t too much of a surprise and the market’s reaction has been relatively subdued with shares broadly flat in pre-market trading. Pressure was mounting before the business announced its operations had been suspended back in March, and many were calling for a longer-term pull out to be initiated,” said Matt Britzman, an equity analyst at Hargreaves Lansdown.
“With 850 restaurants in Russia, the suspension of service was also weighing on performance - with US$127mln of costs reported in Q1 with respect to closures in Russia and Ukraine. The sale’s expected to result in a non-cash charge of around US$1.2bn-US$1.4bn to write off its investment once the sale to an unnamed local buyer completes. Looking past the impact it’ll have for this year, the Russian estate was largely made up of the less profitable company-owned stores as opposed to franchised ones, and for many investors, it’ll ease the uncertainty that previously lingered,” Britzman suggested.
In the UK, energy markets watchdog Ofgem is to switch to updating the energy price cap four times a year as it attempts to keep pace with rapidly fluctuating energy prices.
Currently, the price cap is reviewed in April and October but the regulator is proposing to introduce January and July reviews.
Martin Lewis of the popular Moneysavingexpert.com web site, accused Ofgem of being more interested in ensuring electricity companies do not go bust than it is in cheaper prices for hard-pressed consumers.
Upon hearing Ofgem’s new proposals, Lewis said he was staggered to learn the aims of the regulator are “to effectively stop firms undercutting the price cut”.
To journalists writing about today's Ofgem changes - don't ignore the 'market stabilization' announcement.
Its a disaster that means if wholesale prices fall & a new firm gets a switcher, it must pay 85% of difference to old firm. Killing hopes of firms launching cheaper deals.
— Martin Lewis (@MartinSLewis) May 16, 2022
“Its logic was this'd prevent other firms needing to 'exit the market'. For years I've been pushing it for better controls in who they allow to set up energy firms.
“Yet now its way to stop it to lock in advantage to higher charging incumbent former monopoly firms…” he said in a tweet.
“Combine that with meeting industry's demand for a new more frequent 'every 3mth' price cap change - carefully calibrated for the first 3mths to include SIX months of wholesale prices (so the price factors in the highest wholesale rates in history) so firms don't miss out…” said an enraged Lewis.
Jonathan Brearley, the chief executive of Ofgem, said the proposed change “would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers.”
To journalists writing about today's Ofgem changes - don't ignore the 'market stabilization' announcement.
Its a disaster that means if wholesale prices fall & a new firm gets a switcher, it must pay 85% of difference to old firm. Killing hopes of firms launching cheaper deals.
— Martin Lewis (@MartinSLewis) May 16, 2022
Makes me wonder what is the point of privatisation? We might as well have a single government owned supplier, if the cap is the lowest option. Where does this offer competition? Seems to be about the suppliers not the customers ????♂️
— Mike W (@MikeW21793040) May 16, 2022
The FTSE 100 roused itself from its lunchtime snooze to climb 31 points (0.4%) to 7,450.
1.35pm: Snoozy lunchtime
Not much has happened over the lunchtime trading session, with leading equities mixed.
The FTSE 100 was up 6 points (0.1%) at 7,424.
Scottish Mortgage Investment Trust PLC (LSE:SMT), down 2.7% at 783.8p, is one of the worst blue-chip performers as investors continue to rotate out of tech stocks.
The investment trust said today its net asset valuer per share, as of last Friday, was 841.54p, suggesting the shares have been oversold.
“The VIX, or ‘fear index,’ trades near 30 and CNN’s Greed and Fear index at just 12, so with near-term sentiment seemingly washed out this could be a key test of investors’ appetite for buying tech and meme stocks and cryptocurrencies on the dip, a tactic that has served them so well since the market bottom reached in the wake of the Great Financial Crisis in spring 2009,” according to AJ Bell’s Russ Mould.
“However, history would suggest that caution is needed. No fewer than nine major rallies produced an average gain of 23% during technology stocks’ last major fall from grace and all they did was expose buyers to a fresh mauling from a bear market as the NASDAQ plunged by 78% from its March 2000 peak of 5,049 to its October 2002 low of 1,114,” Mould said.
“Students of market history will also note how only one rally reached the previous peak and every subsequent retreat set a fresh low, to gradually beat any positive sentiment out of dip buyers. Bulls of the US equity market, and NASDAQ and tech stocks, in particular, will therefore be hoping that new sequence of lower highs and lower lows does not establish itself or there could indeed be trouble ahead,” Mould said.
Someone else who has been staring at charts is Fawad Razaqzada of City Index, who thinks gold is undervalued.
“The precious metal has been a victim of a strong US dollar and rising bond yields, making this non-interest-bearing commodity less appealing for yield seekers. Its performance has surprised many market participants, us included. Given the elevated levels of uncertainty, as evidenced by the volatility in the stocks and crypto markets, you would expect to see some haven demand; however, that hasn’t been the case, with the metal giving back some 13% after nearly sitting a new record high but came short by US$5 at US$2070 on March 8. Those seeking to protect their wealth being eroded by inflation must be equally surprised to see the metal trade around US$1800,” Razaqzada said.
Gold is trading US$4.20 lower at US$1,804.00 on futures markets.
On the corporate front, Made.com Group PLC (LSE:MADE) said trading this year has been more challenging than expected.
Online furniture business https://t.co/fL6uKnuGOK $MADE has issued another warning, saying “trading has been volatile...and more challenging than anticipated"
Further evidence that the #CostOfLivingCrisis is denting online sales, this sector is looking more vulnerable than most
— James Brumby (@JamesAtLangton) May 16, 2022
The furniture seller said it is now assuming the market will remain “highly challenging” for the rest of the 2022 and has revised its full-year guidance accordingly.
The shares were listed in June of last year at 200p a share and have slumped to 55.2p, down 13% today.
11.55am: US indices tipped to open lower
US stocks were expected to open lower on Monday, continuing their general downtrend from recent weeks as investors worry that higher inflation and rising interest rates will crimp economic growth.
News that retail sales and industrial output in China had dropped in April weighed on sentiment, underscoring wider concerns about the global economy and signalling that the uncertain tone in equity markets is likely to continue.
Futures for the Dow Jones Industrial Average lost 0.2% in premarket trading, while those for the broader S&P 500 index shed 0.4%, and contracts for the Nasdaq-100 slipped 0.7%.
“The (Chinese) data has made traders anxious about the global economic outlook. The general trend is likely to prevail in the market, which is that the dollar index continues to act as a safe haven, Treasuries will soar, and oil prices may move further lower; this shows that this week could be another week of weakness for the global equity markets,” said Naeem Aslam, chief market analyst at avatrade.com.
In data out today, China’s industrial output fell 2.9% in April from the year-ago period while retail sales slipped 11.1%.
“The disappointing Chinese economic numbers are dampening economic sentiment further. Clearly, it is China’s zero-tolerance policy that is causing the industrial output and consumer spending to break down, and currently, they are sitting at their worst level since the pandemic began,” added Aslam.
Investors are increasingly worried that the wider global economy is heading for a slowdown and that corporate bottom lines will suffer as a result.
“Market players are highly concerned that a recession is likely to happen, and central banks from the developed world are increasing interest rates when economic growth is slowing down,” said Aslam.
“Geopolitical tensions aren’t going away as Finland and Sweden’s intentions of applying for NATO aren’t helping the Russia and Ukraine conflict situation,” he noted.
Despite a modest rebound at the end of last week, the S&P 500 is on its worst losing streak since June 2011.
US data last week showed that inflation remains a key concern. Headline CPI inflation was 8.3% in April, slower than the 8.5% seen in March but higher than expectations of around 8.1%. There is no indication yet whether inflation has peaked. Meanwhile, the US Fed is set on a path of aggressive interest rate increases and Fed chairman Jerome Powell said, in an interview with Marketplace last week, that it would be a challenge to achieve a soft landing for the world’s biggest economy.
Elsewhere, oil futures were lower. WTI crude futures were down 0.6% to US$109.78 a barrel while Brent crude futures fell 0.8% to US$110.64 a barrel.
In dear old Blighty, the FTSE 100 has subsided more or less back to Friday’s closing level after a mid-morning burst into positive territory.
The FTSE 100 index is up just 3 points (0.0%) at 7,421, with Vodafone Group PLC (LSE:VOD), giving up pole position to precious metals producer Fresnillo PLC (LSE:FRES), which is up 3.4%.
Voda is on the up because Abu Dhabi telecoms group e& has taken a large stake in the company.
“Four years ago, the telecoms sector was deemed as dull as dishwater, with no sign of any excitement. Since then, we’ve had Vodafone spin off part of its assets as Vantage Towers, Euskaltel bought by Masmovil, BT form a joint venture for its sports arm and attract a strategic investor at the group level, and private equity firm KKR try to buy Telecom Italia,” said Russ Mould, the investment director at AJ Bell.
“Now Abu Dhabi telecoms group e& has taken a big slice of Vodafone. This comes hot on the heels of talk that activist investor Cevian Capital has also taken a big stake with a view to getting Vodafone to sell some operations, consolidate its position in key markets, return more cash to shareholders and bring more telecoms experience onto the board. Furthermore, there has been chatter that Vodafone was in talks to merge its UK operations with competitor Three UK.
“The infrastructure sector has become hot property in recent years as investors have realised its role in the provision of essential services and the long-term potential for strong cash generation. Valuations have also been cheap among telecom stocks, making it a logical place for various people to plant flags and try and either enforce change or build market scale,” he added.
10.35am: Greggs warns of cost pressures
London’s leading equities are slowly getting into their stride after waking up with that Monday morning feeling.
The FTSE 100 index was up 19 points (0.3%) at 7,437, which is a decent recovery from 7,362, which is the current intra-day low for the Footsie.
Investors were initially scared by what was described by Pantheon Macroeconomics as “a brutal April for Chinese activity”.
“The tightening of zero-Covid measures from mid-March has absolutely crushed Chinese activity, with workplace closures a key ingredient in explaining the weakness of industrial production. The y/y [year-on-year] drop of 2.9% implies a monthly drop of 9.0%, though this moderates - slightly - to a fall of 7.1% m/m [month-on-month], seasonally adjusted. Unsurprisingly, this is the worst performance for industrial production since the start of the pandemic,” said Pantheon’s Craig Botham.
Dreadful data from China means we expect its growth rate to contract this quarter. Blame the strict anti-Covid lockdownshttps://t.co/eFMeGOp2pa
— ING Economics (@ING_Economics) May 16, 2022
Not yet done with the colourful language, Botham also said it was “a bloodbath for retail sales” in the People’s Republic.
“The monthly drop in retail sales was 13.9%, even worse than the 8.0% drop in March. Partly this was seasonal effects, but even seasonally adjusted, we estimate retail sales fell 5.9% m/m in April, from a 2.7% decline previously. Retail had already been hit in March by the tightening of restrictions, with the sector always first in line for workplace closures, and hit by the restrictions on social gatherings that tend to precede full-blown lockdowns. Still, there was worse to come on this front, as the restrictions spread across China; catering services fell 22.7% y/y in April, from -16.4% y/y in March, though the pace of decline slowed; we estimate that sales by the sector fell 7.1% m/m, seasonally adjusted, after a drop of 8.5% in March,” Botham said.
On to more parochial matters and whether pastries at Greggs PLC (LSE:GRG), Britain’s answer to McDonald’s, are selling like hotcakes.
The answer seems to be yes but the fast-food chain does have some things to worry about, such as rising costs.
The shares edged 0.2% higher to 2,174p after the company left its forecast for the full year unchanged after like-for-like sales rose 27.4% from the year before in the 19 weeks to 14 May.
“Greggs is clearly worried that the big squeeze on disposable incomes may lead to some flakier sales in months to come,” quipped Susannah Streeter of hargreaves Lansdown.
“Already cost pressures had been increasing and given that flour is an essential ingredient for its array of baked treats, rising wheat costs will be adding to concerns,” she added, referring to rising wheat prices after India unexpectedly announced restrictions on wheat exports.
9.25am: On an even-keel after a wobbly start
After a wobbly start, the Footsie has recovered to Friday’s closing level.
The index was up 4 points (0.1%) at 7,422, with mining stocks doing much of the heavy lifting.
Glencore PLC (LSE:GLEN), Antofagasta PLC (LSE:ANTO), Fresnillo PLC (LSE:FRES) and Anglo American PLC (LSE:AAL) are all better by 1.6% or more.
Vodafone Group PLC (LSE:VOD), however, is the Footsie’s top riser with a 3.1% gain to 121.46p after the Emirates Telecommunications Group Company (Etisalat) revealed it has built a 9.81% stake in the company.
Vodafone said it is looking forward to building a longer-term relationship with Etisalat.
Etisalat said has made the investment in Vodafone to gain “significant exposure to a world leader in connectivity and digital services. Vodafone is one of the strongest and most globally recognised brands across the telecom industry”.
$VOD Middle Eastern investor takes US$4.4bn stake in Vodafone https://t.co/es5JTKHcAy #VOD #Katie_Proactive
— Proactive (@proactive_UK) May 16, 2022
Credit-checking firm Experian (LSE:EXPN) PLC was 1.5% lower at 2,656p after it agreed to acquire a majority stake in MOVA, a Brazilian fintech company serving the small and medium-sized enterprises market.
6.45am: Chinese shadow over London
The FTSE 100 looks set to open in the red with the spectre of global recession driving sentiment.
It seems certain London’s traders will take their cue from Asia, where China’s economic woes were laid bare.
Investors were spooked by an 11.1% fall in monthly retail sales (double the figure predicted) and a 2.9% drop in industrial output (against a prediction of a modest gain).
That the world’s second-largest economy, once the global engine for growth, is starting to stutter and fail in this fashion will only add to the worries stalking equity markets.
Inflation, rising interest rates and the war in Ukraine have all left their mark on Western economies, with American markets particularly hard hit of late.
“US markets appear more vulnerable given that of all three central banks, the Federal Reserve appears the more determined of all the others in driving inflation lower, with a strong US dollar helping it to achieve that very goal,” said Michael Hewson of CMC Markets.
“It is true that pressure is increasing on the European Central Bank to raise rates by the summer, but anyone who thinks they will be able to raise them much above zero is probably deluding themselves.”
Here at home, expect the oil and gas companies to come under early pressure after chancellor Rishi Sunak said he still has not ruled out a windfall tax on the energy crisis’ big earners.
On Tuesday, Labour is expected to call for a parliamentary vote on the issue.
Looking ahead, there the corporate diary looks packed with updates expected from Aviva, Royal Mail, easyJet, Ryanair, Imperial Brands, TalkTalk and Greggs.
Around the markets
- Pound US$1.2245 (-0.14%)
- Bitcoin US$30,401.60 (-2.48%)
- Gold US$1,806.40 (0.10%)
- Brent crude US$109.26 (-2.05%)