- FTSE 100 closes just 0.6 points lower
- US stocks trip back from early gains
- No recovery from a poor first half
4.50pm: July starts flat
The FTSE 100 index ended almost flat on Friday after choppy session as Wall Street lost an early rally with the new month and second half of the year started in the same dismal fashion that it left the last amid ongoing global recovery on worries.
At the close, the UK blue-chip index was just 0.63 points lower at 7,168.65, below the session peak of 7,214.82 but well above the day’s low of 7,101.38.
In New York, around London’s close, the Dow Jones Industrial Average was down 41 points, or 0.1% at 30,733, while the broader S&P 500 index and the tech-laden Nasdaq Composite were both down 0.2%.
Chris Beauchamp, chief market analyst at online trading platform IG said: “The losses of the first half do not seem to have created any immediate desire to buy the dip it seems. An initial recovery for US markets from the lows of the morning has given way to more losses, and even the prospect of a long weekend in the US hasn’t tempted the dip buyers in.
"There is a growing unease about the summer, especially with a potentially very gloomy Q2 earnings season nearly upon us. It really does look like we have another big leg lower before this bear market is done.”
3.20pm: Choppy week
Craig Erlam, senior market analyst at OANDA, reflects on a choppy week for the markets.
"We're seeing choppy trading as we head into the weekend amid a flurry of economic data from across Europe."
"Things got underway with a plethora of PMI readings, although most were revised figures that aren't typically subject to large revisions meaning the market impact is relatively minimal."
"The euro area inflation data was always going to be this morning's headliner and considering the market reaction, it's been taken quite well."
"On the face of it, it looks like a mixed bag with the headline number hitting a new record - 8.6% - higher again than expected, while the core reading actually fell marginally to 3.7%, a positive surprise given it was expected to rise a little."
"You could argue that the core number was flattered by fiscal measures in Germany, such as temporary reductions in rail fares but that was known ahead of the release which is perhaps why investors have been happy to brush off the increase in the headline number."
"As is the case in most parts of the world, energy and food inflation remains a major driver overall."
"In terms of what this means for the ECB, the answer is probably very little."
"It would have taken something far more substantial for markets to price in a 50 basis point hike in a few weeks. That said, like everyone else, we'll be paying very close attention to comments from policymakers in the interim for any indication that a super-sized lift-off is on the cards."
2.50pm: COVID-19 is back
Covid infections are back on the rise again, jumping more than 30% in a week.
New data from the Office of National Statistics showed that around 2.3mln people in the UK had coronavirus last week to 24 June.
This is up by about 32% from around 1.7m the week before, with the rise likely caused by Omicron variants BA.4 and BA.5.
That's about 3.5% of the population testing positive for Covid (roughly one in 30 people), up from roughly one in 35 the week before.
England, the estimated number of people testing positive in the week up to 24 June was 1,829,100.
That's 3.35% of the population or about 1 in 30 people. A week earlier that rate was 1 in 40.
2.20pm: Rolls-Royce leads the way
Rolls Royce leads the way as London’s largest riser, up 3.6% to 85p.
The manufacturer of plane parts and engines was likely boosted by a positive sentiment among the market, although comments from Citibank a few days ago also likely helped.
Brokers at the bank reiterated their Buy rating and set a lofty target price of 147p, believing that Rolls-Royce should be judged on its cash-flow, and this is something the Footsie company does well.
“Rolls-Royce is fundamentally different to Safran and MTU as we expect it to have about 120-130% cash conversion of operating profit over the long-term vs roughly 95-100% for the other two.
2.10pm: More credit, less saving
Households deposited less money into accounts in May than in April, the latest Bank of England data shows.
Around £5.7bn was saved in May, down from a net flow of £6.3bn in April, with inflation leaving households with less cash to save.
Consumers also borrowed an additional £800m in consumer credit last month, including £400m more on credit cards.
Consumer credit often rises during good economic times, as people are confident they can borrow more, but can also be a sign people are relying on credit.
1.20pm: VAT cut on the card
Steve Barclay, the prime minister’s chief of staff, has suggested a reduction in the current VAT rate, at 20%, as a way to curb inflation and help with the spiralling cost of living crisis.
Barclay told The Times that a temporary cut would reduce the ease the tax burden for millions and ease inflation, which is at 9.1%, its highest for 40 years.
However, the Treasury is concerned that the move could do the opposite, and ultimately fuel inflation by overstimulating the economy, as well as benefitting wealthier households over poorer ones.
A 2.5% cut in the tax would reportedly cost the government about £18bn.
12.51pm: US preview
US stocks are expected to open lower on Friday, starting the second half of the year on a somber note amid growing fears that the US is heading for a recession amid elevated levels of inflation.
The first half of the year was rough for equity markets, with the S&P index recording its worst performance since 1970.
Futures for the Dow Jones Industrial Average were trading 0.3% lower pre-market on Friday, while those for the broader S&P 500 index were down 0.2% and futures for the tech-laden Nasdaq-100 were off 0.3%.
“Fears rattling financial markets show little sign of subsiding, with investors spooked about signs of looming recessions, while inflation stays stubbornly high,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said.
On top of the falls on the S&P 500, the tech-heavy NASDAQ has been wracked by volatility, has plummeted by a third this year and is on track for the biggest ever yearly drop, she noted.
“There are concerns that, just like in the seventies era, demand and inflation won’t fall back easily, and that the Federal Reserve and other central banks will have to step on the accelerator of interest rate hikes to bring red hot prices under control,” Streeter said. “The risk is that could see economies slam into a brick wall of recession, with ripple effects around the world.”
On the economic data front, the ISM manufacturing sector index for June is due at 10.00am ET and will give a snapshot of how the sector is faring amid rising prices and interest rates.
In energy markets, WTI crude oil futures were up 1.8% at $107.66 a barrel while Brent crude futures were 1.9% higher at $111.15.
12.21pm: Eurozone inflation
Inflation in the eurozone hit a record high in June, turning the screw on Brussels to act.
Consumer prices jumped 8.6% in June from a year earlier, up from 8.1% in May.
Russia’s war in Ukraine and gas supply threats push bills ever higher, along with soaring food and energy costs were behind the jump.
Price rises in France, Italy and Spain all reached new all-time highs.
Of all EU member states, Germany was the only one to report a slowdown in inflation, driven by fuel tax cuts and public transport discounts rolled out by the Government.
The ECB has been slower to act than other central banks but is planning to raise interest rates for the first time in more than a decade at its meeting this month.
12.04pm: Bus drivers the next to strike
Bus drivers and other workers are the latest set of union members set to walk out due to disputes over pay, as the UK’s summer of strike shows no signs of slowing down.
Members of Unite employed by Stagecoach Group PLC (LSE:SGC) in Merseyside will walk out on July 4, 15, 18, 20, 22, 25, 28 and 29.
According to Matt Davies, managing director of Stagecoach Merseyside, the company had made a ‘substantial’ pay offer.
“Bus users will be angered that the bus services that they depend on to access work, education, the high street, and keep in touch with their families are being deliberately targeted by the union in this way.
“The fact is that even in these difficult times, we have offered a substantial pay increase of more than 10% to our employees that would make them the highest paid bus drivers in Merseyside from July.”
However, Unite general secretary Sharon Graham said its members deserved a decent wage.
“Stagecoach makes money hand over fist. Our members are making it abundantly clear that they will not accept being underpaid by this wealthy company any longer.”
11.25: BT hits the back of the net with Champions League deal
BT Group PLC (LSE:BT.A) has confirmed that it will pay £305mln per season to keep showing UEFA Champions League matches on UK television and online streaming from 2024 to 2027.
After yesterday's news that its call centre workers and Openreach engineers have voted to go on strike, the telecoms group said the £1.2bn package will secure its broadcast rights for Champions League games, as well as Europa League and the Europa Conference League, with 533 of the 550 games available for showing on TV.
Under a new format, which involves more teams, there will be 113 or 27% more games for customers to watch each season.
If the agreed merger of BT Sport into a new joint venture with Eurosport owner Warner Bros Discovery gets clearance by UK competition authorities, which is expected by the end of this year, BT said the JV will pay the rights costs, less a £60mln deposit that it will front-up this month.
As part of the UEFA auction, Amazon also continued its incursion into the UK sports broadcast scene, adding to its English Premier League rights, while the BBC won rights to show highlights as part of a Wednesday night show.
BT shares are down 0.7% at 185.05p.
10.30: Mortgage approvals
The Bank of England earlier released its Money & Credit report for May.
After April’s sharp drop, mortgage approvals increased only slightly, up to 66,200 from the previous 66,100, which was well below recent peaks, remaining close to the pre-pandemic average of 66,000 a month, ending a long period of outperformance during the past two years.
Net unsecured lending fell to a four-month low of £0.8bn, from £1.4bn in April, due to a spike in repayments.
Total lending picked up strongly in May and is now some way above pre-pandemic levels.
May's increase in household deposits was £5.4bn, which is only slightly above the average of the five years before the pandemic.
Economist Martin Beck at the EY ITEM Club said: "Higher gross unsecured lending and a smaller increase in deposits in May were consistent with the UK household sector trying to sustain consumption in the face of falling real incomes.
"With high inflation continuing to eat into spending power, further dis-saving is going to be required if the consumer sector is to avoid a more significant slowdown.
"The UK housing market is cooling as stretched affordability, rising interest rates, and falling real incomes weigh on demand. But a hard landing should be avoided as higher interest rates will feed in gradually, and the labour market remains in good shape."
Remortgaging remained unchanged, with Andrew Burrell at Capital Economics noting that fears about rising mortgage rate rises had boosted re-mortgaging in early 2022.
"Even before the recent dip, re-mortgaging activity had lagged pre-pandemic levels, though as these data only capture switching to different lenders, this likely hides significant numbers who have moved onto new deals with their current provider."
Summing up, he added that the data provided "further evidence that interest rate rises are starting to weigh on housing demand. And as interest rates rise further and the pressures of the cost-of-living crisis take their toll on borrowers, we think this slowdown will continue and transactions will slow abruptly over the next 12 months."
10.20am: Moving on up
The FTSE 100 has moved into the green, up 20 points to 7,190.
Manufacturing growth slowed in June however, hitting a two-year low according to latest figures.
???????? Growth in the UK’s manufacturing sector slowed in June with the #PMI at a 2-year low of 52.8 (May: 54.6). Weaker economic outlook, the war in Ukraine and raw material shortages led to a reduction in demand. Read more: https://t.co/MxsAa9RScr pic.twitter.com/AVAw3zeLTm
— S&P Global PMI™ (@SPGlobalPMI) July 1, 2022
10.00am: Real wage loss
The UK has lost a decade of real wage growth, with a helpful Twitter user putting it into context with other nations globally.
Shouldn’t be a surprising chart, but UK’s lost decade of real wage growth in into context quite something, via @Lem_Exeter pic.twitter.com/FZBu5X2gYW
— Toby Nangle (@toby_n) June 30, 2022
9.45am: Quick snapshot
Spare a thought also for US investors, where Wall Street had its worst six months in over half a century as soaring inflation put the economy into turmoil. Cryptocurrencies had their worst quarter in 11 years.
The European Union meanwhile has agreed on rules for regulating crypto assets, which are expected to come into force at the end of 2023. The new law, known as markets in crypto assets (MiCA), was agreed by representatives from the EU states and the European Parliament.
Aston Martin is its considering funding options including hundreds of millions from Saudi Arabia’s sovereign wealth fund. The luxury carmaker has £1.2bn of existing loans, bank drafts and bonds on its balance sheet.
More positively in the luxury car market, Lamborghini is set to invest US$1.9bn in the path towards electrification, while Volvo said it has committed to building a US$1.25bn electric-only plant in Slovakia.
Harry Potter publisher Bloomsbury was named Company of the Year at the annual Small Cap Awards. “We are delighted to have been presented with Small Cap Network's Company of the Year Award for 2022,” said chief executive Nigel Newton.
Braemar Shipping said trading in the new financial year continues to be very strong and ahead of management expectations. The shipbroker added it has delayed its results for 2022 again due to audit work on the sale of Cory Vertom taking longer than expected.
9.17am: No snap election
A snap election has been ruled out by Boris Johnson as the latest poll spell bad news for the Conservative Party.
Rumours had been circulating that the Prime Minister may go to the voting booths to sure up his position as rebel Tories circle to oust their leader.
But asked in an interview with LBC’s Nick Ferrari (NYSE:RACE) whether the idea of an early election was “ridiculous”, Mr Johnson replied: “Totally, totally.”
“Let me give you the demarcation."
"Right what my job is, is to talk about the government’s agenda, to talk about policy, to talk about the UK, to talk about how we’re fixing the cost of living problems, the cost of living crisis, talk about everything we’re doing to strengthen the UK economy, our plan for a stronger economy, which is what I believe in."
8.57am: Energy companies lead the way
Energy and water providers such as Harbour Energy, United Utilities and Severn Trent lead the way as some of the index’s largest fallers as a torrid week for the market draws to a close.
Their movement is likely linked to energy price hikes introduced in Northern Ireland, and generally rising prices affecting the entire country.
Perhaps somewhat surprisingly, IAG, which owns British Airways, leads the way, gaining 2.51% to 110p.
This is despite British Airways, along with other airlines, announcing a raft of cancellations yesterday as Brits’ travel plans continued to be disrupted by airport chaos.
8.13: London opens lower
London’s blue-chip index opened lower as expected, falling 38 points to 7,131.
6.44am: FTSE to open lower
FTSE 100 indicators were pointing towards another fall at the open to add to the beating the blue-chip index took on Thursday.
Footsie closed down 143 points or almost 2% and with another tough session overnight in the US and Asia financial spread bet firms were pencilling in another 20 points drop when trading gets underway today.
Even oil giants such as BP and Shell, which have been propping up the index of late, might be under pressure as crude headed for its third week running of declines.
Oil prices eased lower as OPEC+ stuck to its planned 648,000 barrel increase in August and refrained from any decision beyond then
Bitcoin, meanwhile fell below US$19,000, a 61% drop since March 28, on the collapse of Three Arrows Capital and talk of more margin calls and losses for crypto investors and exchanges.
In the US, another down day confirmed the first half of 2022 as the worst since 1970
In the last six months, the S&P 500 index fell 20.6%, while other major US indexes have also dropped sharply.
Recession talk is the main cause and Wells Fargo yesterday predicted that would occur in the US next year with the UK to follow soon after.
“With the US economy, in our view, now expected to fall into recession in 2023, we also expect the UK to experience an economic recession by early next year.”
UK economic data is due today on mortgage approvals, consumer credit and the health of manufacturing, with none expected to show an improvement.
Europe, meanwhile, will have eyes on the latest inflation update
“There are no signs that inflationary pressures have abated in the meantime, with energy inflation set to trend higher again on squeezed gas supply and the oil embargo, which have both caused market prices to increase again,” said ING Bank.
6.50am: Early Markets - Asia / Australia
Asian shares were lower on Friday as Japanese manufacturers’ sentiment worsened in the April-to-June period, according to the Bank of Japan’s quarterly Tankan business sentiment survey.
The headline index for large manufacturers’ sentiment came in at 9, a fall from the previous quarter’s reading of 14.
Japan’s Nikkei tumbled 457 points or 1.73% to trade at 25,935 whilst Hong Kong’s Hang Seng was also volatile, losing 0.62% to 21,859.
Similarly, the Shanghai Composite was on the back foot, albeit by only 0.35%.
Australia’s S&P/ASX200 slipped 0.4% to 6539.9 in the first session of the new financial year, taking its weekly decline to 0.6%.