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FTSE 100 reverses to finish in the red as traders weigh up strong US jobs print and global economic outlook

Last updated: 16:44 05 Aug 2022 BST, First published: 07:06 05 Aug 2022 BST

markets
  • FTSE 100 closes in red
  • US jobs data eases fears of a US recession
  • More aggressive interest rate policy seen by the Fed following data

4.45pm: FTSE finishes lower

The FTSE 100 closed in the red on Friday, having bounced into positive territory briefly earlier, as traders weighed up a strong US jobs number alongside the murky global economic outlook.

Britain's benchmark of blue-chip shares closed down around 8 points, or 0.11%, at 7,439.

"While America might be in good shape, the rest of the world is worse off, and this risks pulling the USA into a recession in spite of good US data," said Chris Beauchamp, chief market analyst at online trading firm IG, in a note to clients.

"Sterling in particular seems likely to weaken further as the disparity between the US and UK grows wider," he added.

"Further drops for sterling will counter much of the BoE’s efforts to control inflation, leaving yesterday’s gloomy outlook firmly in place."

3.50pm: Blue-chips bounce back

The FTSE 100 bounced back strongly as it headed to the close with the lead index hitting positive territory after spending most of the session in the red.

Markets were volatile after better than expected US jobs data which dampened talk of a recession in the US but raised the likelihood of a more aggressive pattern of interest rate rises by the Federal Reserve.

Another 75bps rate hike is now seen as possible at September’s FOMC meeting although analysts were quick to stress there is a lot of data to come before then.

In London the blue-chip index was trading up 10.58 points at 7,458.64.

In the US stocks bounced back strongly after large initial falls with the Dow Jones Industrial Average trading 45 points lower at 32,681, well off earlier lows, the S&P 500 was down 9 points at 4,142 points, and the Nasdaq Composite was down 36 points at 12,684 points.

David Goebel, associate director of investment strategy at UK wealth manager Evelyn Partners, said: “While some economic indicators like PMIs are deteriorating, the jobs market continues to be a bright spot for the US economy.”

“While this is good news from a growth perspective, it will be of concern to the Federal Reserve, given the upward pressure such a strong labour market could have on inflation.”

“It strengthens the case for another increase of 75bps at their meeting on the 21 September, but that is still a long way off, and there will be more data to digest in the interim.”

“Next week brings the release of the Consumer Price Inflation for July, which is expected to show a slowdown from last month’s upside-surprise figure.”

“If that is the case, then it will temper hawkish reaction to today’s jobs data and likely limit the potential for future upside rate surprises.”

2.45pm: FTSE 100 off lows but US suffer heavy falls

FTSE 100 off lows which followed the release of stronger than expected US non-farm payrolls figures in July and despite heavy falls on US stock markets on Friday.

US stocks plummeted into the red at the open on Friday after jobs data for the month of July showed the American labour market remains red-hot despite inflationary pressures and talk of layoffs.

The better than expected numbers fuelled the likelihood of more aggressive interest rate increases by the Federal Reserve as recent rises do not appear to be impacting the jobs market.

Just after the open, the Dow Jones Industrial Average had dipped 210 points or 0.6% at 32,510 points, the S&P 500 was down 40 points or 0.9% at 4,113 points, and the Nasdaq Composite was down 172 points or 1.3% at 12,548 points.

In London, the lead index was trading 15.61 points lower at 7,432.45.

The non-farm payrolls were the talk of the town smashing expectations.

Simon Harvey, head of FX analysis at Monex Europe, said the “payrolls data highlighted that labour demand still remains high in the US economy, endorsing the messages from other FOMC members this week that the Fed will need to continue tightening policy at a faster pace.”

“In response to the strong beat in the data, swap markets began to price a third successive 75bp hike as their base case.”

 “The US labour market added 528k jobs in July, more than doubling expectations for a slowdown in hiring to 250k, bringing both the total nonfarm employment and unemployment rate back to February 2020 pre-pandemic levels for the first time.”

“This runs against the signs in corporate earnings calls and the soft survey data, such as July’s ISM and PMI reports.”

“Job gains were broad-based in July, with all sectors of the labour market exhibiting flat or positive employment growth.”

2.10pm: US data could increase the pace of US rate rises

Reacting to the non-farm payrolls data Rupert Thompson, investment strategist at Kingswood said: “US employment rose a much larger than expected 528,000 gain in July and the unemployment rate edged down to 3.5%.”

“These numbers make it all the more unlikely that the US has entered a recession, as the consecutive falls in GDP seen in both the first and second quarters would normally suggest.”

“The data can only encourage the Fed to continue tightening policy at a rapid pace, particularly as wages posted another strong gain in July and there is minimal sign yet of any easing in underlying inflation pressures.”

1.55pm: FTSE falls back despite better than expected US jobless figures

FTSE 100 fell despite better than expected US non-farm payrolls data with investors believing this will justify further interest rate increases by the Federal Reserve.

US non-farm payrolls smashed expectations with an increase of 528,000 against forecasts for a rise of 250,000.

Wage growth was also stronger than expected.

Commentators pointed out the recent interest rate increases by the Fed were not hurting the US jobs market and supported those who believe the US is not in a recession despite two quarters of negative GDP figures.

Traders were suggesting this could provide more fuel to the Fed’s planned rate increases with some suggesting it could be even more aggressive at its September meeting than previously forecast with talk of a 75bps rate hike.

The blue chip index in London dipped on the news and by 1.45pm was trading 24.30 points lower at 7,423.76 with US futures suggesting US stocks would open lower.

 

12.25pm: FTSE 100 little changed ahead of US data

FTSE 100 remained slightly lower in early afternoon trading awaiting the key US non-farm payrolls figures.

At 12.25pm the lead index was trading 12.90 points lower at 7,435.16 with investors sidelined ahead of the news.

US stock index futures were steady on Friday ahead of data expected to show the pace of job growth slowed in July but stayed strong enough to keep the Federal Reserve on its policy tightening path.

The Labour Department's employment report is likely to show nonfarm payrolls rose by 250,000 jobs last month after rising by 372,000 in June, and that the unemployment rate remained unchanged at 3.6% for a fifth straight month.

In London, advertising agency WPP saw its shares fall by 6.83% in morning trading following release of its first half results.

The group announced like for like revenue growth of 8.7% to £6,755mln and a 6.1% increase in reported pre-tax profits to £419mln.

AJ Bell Investment Director Russ Mould: ““WPP’s first-half numbers actually look fairly solid, but investors are so concerned about the economic backdrop, and what it says about WPP’s prospects, they have reacted negatively.”

“Clearly there is a belief that WPP’s recent momentum, which helped it lift its annual sales outlook, can’t last in the long-term.”

“While chief executive Mark Read argues WPP is yet to see any evidence of a big retrenchment in spending by its clients, this feels likely to come at some point.”

 

11.12am: FTSE 100 remains lower, Tullow Oil falls 

FTSE 100 remains range bound with investors preferring to stay sidelined ahead of the US non-farm payrolls figures.

At 11.12am, the blue chip index was down 7.71 to 7,440.35.

Shares in Tullow Oil dropped 2% after the company said it had plugged and abandoned an exploration well offshore Guyana.

There was better news from drilling operations at the Beebei-Potaro exploration well which have been completed.

The company said the well encountered good quality reservoir in the primary and secondary targets but both targets were water bearing.

Tullow said it would integrate the well results into its regional subsurface models and work with its joint venture partners before deciding on next steps.

SP Angel said “Tullow’s disappointing run of high impact exploration wells continues, though we feel that investor focus remains on the proposed all-share merger with Capricorn Energy.”

10.10am: Footsie trading in narrow range ahead of US data

FTSE 100 was down slightly mid-morning, stuck in a narrow trading range, with investors wary of taking positions ahead of today’s US non-farm payrolls figures.

By 10.10am the blue chip index was down 11.87 at 7,436.19 with the broader FTSE 250 almost unchanged at 20,155.97.

“After yesterday’s shocking assessment of the UK economy from the Bank of England, the FTSE 100 was down modestly this morning,” says AJ Bell investment director Russ Mould.

“Actually the resulting weakness in the pound is not a bad thing for the index as it flatters the relative value of its dominant overseas earnings.”

“That is balanced out this morning by weakness among heavyweights BP and Shell as oil prices dip on the negative economic outlook.”

“We should get some further insight into the health of the world’s largest economy later with the release of the influential non-farm payrolls data.”

“Back in the UK, the gravity-defying run in house prices seems to be over, at least for now.”

“The property market had eluded rising mortgage costs and wider pressures on consumer spending power for months.”

“But the latest data from Halifax shows the first fall in more than a year.”

“Shares in the housebuilders are broadly flat this morning and the market has arguably already priced in a softening of the housing market.”

“However, rising input costs mean even a slight drop in selling prices could put industry profitability under real pressure.”

9.55am: House prices fell in July - Halifax

The EY ITEM club said the latest Halifax numbers on the housing market provide more evidence that it is losing steam.

Prices fell 0.1% in July month on month, the first fall since June 2021 although annual growth was still a heated 11.8%, but the weight of headwinds facing housing demand point to subdued prospects for growth ahead, they said.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “After Nationwide’s measure of house prices showed a 0.1% rise in house prices in July, the Halifax measure went one further, delivering an outright fall.”

“July’s decline was the first fall since June 2021, and consistent with a housing market increasingly under pressure from a variety of headwinds.”

“Mortgage rates are rising quickly, with the average rate on a new mortgage reaching 2.16% in June, up almost 70bps from last autumn’s low and the highest since late 2016.”

“And high inflation, with the prospect of worse to come, means household incomes are experiencing the biggest real-terms squeeze in decades.”

 “However, pressure on the housing market is only going to increase in coming months and affordability is looking increasingly stretched.”

“But the EY ITEM Club isn’t expecting a significant contraction.”

“Previous significant corrections in values have tended to coincide with steep rises in unemployment, increasing the number of ‘forced’ sales.”

“But the backdrop this time looks far more benign” with “demand for workers very strong as evidenced by record-high vacancies."

8.45am: FTSE makes a weak to trading on Friday, oil stocks lower

FTSE 100 made a weak start to trading on Friday hit by falls in oil majors and energy stocks on concerns that slowing global economic growth would hit demand for energy.

By 8.45am the blue chip index was trading 14.70 points lower at 7,433.36 with BP (down 1.43%), Centrica PLC (LSE:CNA) (down 1.67%) and Shell down (1.41%).

Investors were still digesting yesterday’s grim economic update from the Bank of England and looking ahead to the key US non-farm payrolls data for evidence that the slowing US economy is finally hitting the jobs market.

In London there were some bright features.

Shares in Pets at Home PLC advanced 1.6% after the group announced quarter one numbers.

The pet care specialist retailer reiterated its full year guidance and reported continued growth in new customer acquisition and high levels of customer retention across both its retail and veterinary divisions.

Total group revenue rose 7.1% to £404.7mln, with group like-for-like revenue ahead by 6.0%, reflecting broad-based growth throughout the quarter.

Peel Hunt analyst Eleonora Dani reiterated her buy recommendation, adding “We think Pets at Home represents an opportunity within a retail sector where there are significant challenges but little in terms of value.”

Hargreaves Lansdown PLC (LSE:HL.) enjoyed a strong start to trading on Friday with shares rising 3.93% to 877.90p following better than expected first half results.

Shore Capital analyst Ben Williams said underlying pre-tax profits of £298mln were ahead of the £283mln consensus although net new business of £5.5bn was slightly below expectations.

He expected to raise his forecasts “a little” driven by higher revenue margin guidance and the new like for like costs guidance.

Williams has a fair value of c. 900p for the group, his concern is around net new money expectations for the full year 2023.

8.20am: London kicks off Friday in subdued fashion

FTSE 100 traded slightly lower on Friday when the market opened for trading.

At 8.20am the blue chip index was down 4.93 points at 7,443.13 with the broader FTSE 250 index up 2.11 points at 20,157.87.

Richard Hunter, Head of Markets at interactive investor commented: “The FTSE100 has opened in tentatively negative fashion, following a fairly flat Wall Street performance and despite a slightly more upbeat showing across Asian markets.”

“The UK’s premier index remains a rare beacon of light in global terms, having added 0.8% in the year to date, underpinned by a mix of strong overseas earnings, a selection of defensive options and the rise in energy prices.”

“The FTSE 250 has taken the brunt of concerns on UK economic prospects, however, being a more representative domestic index, and currently stands down by 14% in the year to date.”

Oil majors fell back on concerns that slowing economic growth would hit demand with Shell PLC (LSE:SHEL, NYSE:SHEL) (down 1.08%) and BP PLC (LSE:BP.) (down 0.97%) both lower.

The London Stock Exchange was a firm early feature with shares up 1.18% to 8,233p after announcing a £750mln share buy back alongside strong first half results.

But WPP fell back 3.49% to 861.40p after its first half numbers.

The advertising group announced like for like revenue growth of 8.7% to £6,755mln and a 6.1% increase in reported pre-tax profits to £419m.

It said the group’s transformation programme was on track to deliver an expected £300mln of annual savings this year over a 2019 base and that it expects full year 2022 like for like revenue less pass-through costs growth to be 6.0-7.0%.

7.30am: FTSE 100 seen in lacklustre mood at Friday's open

FTSE 100 is seen little changed when trading starts on Friday with investors digesting yesterday’s news from the Bank of England and looking ahead to the US non-farm payrolls data this afternoon.

Spread betting companies are calling the blue chip index 7 points higher.

Michael Hewson Chief Market Analyst at CMC Markets UK said: “Despite the bad news that the market had to digest yesterday, it was surprising that European markets managed to finish the day in the green as investors absorbed the biggest rate hike by the Bank of England in 27 years.”

“US markets finished the session mixed, with the Nasdaq 100 closing higher with the Dow and S&P500 closing lower, while yields fell too.”

“Today’s July payrolls are expected to see 250k jobs added, which coincidentally was the forecast for June, which was beaten quite comfortably.”

“It will still be the lowest number this year, however the strength of the labour market may well be starting to increase in the level of importance when it comes to how aggressive the Fed is likely to be when it comes to tackling inflation.”

Referring to the Bank of England announcement Hewson said: “the Bank of England’s economic assessment was as dark as it could be.”

“There is little doubt that the new Prime Minister will need to take additional fiscal measures in the form of an emergency budget to support an economy that is already on the cusp of a recession, and where annual energy bills look set to rise to £3,850 next year.”

On a quieter day of corporate news WPP announced first half results with like for like revenue growth of 8.7% to £6,755mln and a 6.1% increase in reported pre-tax profits to £419mln.

The advertising giant said client demand strong across most segments and regions with US$3.4bn in new billings in the period.

The group’s transformation programme remains on track to deliver expected £300mln of annual savings this year over a 2019 base and WPP expects full year 2022 like for like revenue less pass-through costs growth to be 6.0-7.0%.

The London Stock Exchange launched a £750mln share buyback scheme as it reported its half year figures with strong progress in all divisions.

Adjusted pre-tax profit was £1,327mln against £1,033mln in the same period last year, total Income grew by £717mln to £3,735mln.

7.00am: FTSE 100 seen little changed at open

FTSE 100 is expected to make a lacklustre start to trading on Friday following a mixed showing in the US and ahead of the US jobs report on Friday.

Spread betting companies are calling the lead index around 7 points higher.

The Dow closed Thursday down 85 points, 0.3%, at 32,727, while the Nasdaq Composite added 52 points, 0.4%, to reach 12,721 and the S&P 500 ticked down 3 points, less than 0.1%, to 4,152.

The relative lack of movement could be a sign of investors waiting on Friday's jobs report. Economists project that roughly 250,000 jobs were added in July, which would be lower than 372,000 in June, according to media reports. The jobless rate is forecast to remain unchanged at 3.6%, according to FactSet.

“I would certainly consider today one of those wait-and-see days while we wait for the most important piece of data that comes out this week,” said Art Hogan, chief market strategist at B. Riley Financial, as reported by CNBC.

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