- FTSE 100 closes 45 points lower
- Wall Street weak; US services PMI drops to 44.1 from 47.3
- Crude prices rebound despite demand concerns
4.50pm: Footsie faltering
The FTSE 100 index ended back below the 7,500 level on Tuesday, with US stocks mixed after weak data stoked recession worries and also failed to ease fears over fresh rate hikes from the Federal Reserve as investors eye the Jackson Hole symposium at the end of this week.
At the close, the UK blue-chip index was 45.68 points, or 0.6% weaker at 7,488.11, above the day’s low of 7,467.56 but well below the session peak of 7,533.79.
On Wall Street, around London’s close, the Dow Jones Industrial Average was 112 points, or 0.3% lower at 32,950.79, while the broader S&P 500 index was flat, but the tech-laden Nasdaq Composite added 0.2%.
Joshua Mahony, senior market analyst at online trading platform IG commented: “The FTSE 100 has found itself at the bottom of the pack today, reversing the common thread that has been evident throughout the past week. While fear of economic collapse has been centred upon Europe, this afternoon has seen the US economy in the limelight as services activity crashed to the lowest level since May 2020. Easing inflation data and improved retail sales numbers had provided a false sense of security for some but today's PMI and new home sales data has served to highlight the struggles ahead for US businesses.”
The US services PMI July reading decreased to 44.1 from 47.3, when analysts had expected that it would grow to 49.2. Numbers below 50 show contraction and the shock weakness shows that high inflation has had a significant negative impact on consumer activity.
Mahoney noted, however, that gains by energy blue-chips helped limit the declines in London after crude prices rebounded despite ongoing demand concerns.
He said: “The price of crude has been on the rise today pushing sharply higher on the news that OPEC may opt to cut supply in the event that Iran strikes a nuclear deal. The recent declines seen in crude have been justified by the widespread downturn in PMI figures, with global demand expected to take a hit. European struggles obtaining energy throughout the winter could similarly cause business outages that also weaken the demand case for crude. Nonetheless the OPEC decision to broach the issue of supply restrictions does highlighting their willingness to regain control over prices after a volatile two-year period.”
3.40pm: US new homes sales disappoint
Wall Street remained mixed after around an hour of trading as data showed that US new home sales fell sharply in July as persistently high mortgage rates and house prices further eroded affordability.
US new home sales tumbled 12.6% to a seasonally adjusted annual rate of 511,000 units last month, according to the US Commerce Department, while June's sales pace was revised down to 585,000 units from the previously reported 590,000 units. Economists had forecast new home sales decreasing to 575,000 units.
In New York, around 3.35pm GMT, the Dow Jones Industrial Average was 46.94 points, or 0.1% lower at 33,016.67, but the broader S&P 500 index added 0.2% and the tech-laden Nasdaq Composite recovered 0.4%.
In London, the FTSE index remained down 44.47 points, or 0.6% at 7,486.34.
3.20pm: Nissan puts dent in UK manufacturing
In another blow to UK manufacturing prestige, Sky News has reported that Japanese car giant Nissan is to close its engine cylinder plant in Sunderland in 2024 when a contract with its only customer expires.
Nissan has decided to shut the area of the vast Sunderland site dedicated to making cylinder heads for Renault combustion engines, Sky News said.
The decision will not result in any job losses, however, with all 250 employees who work in the area being redeployed elsewhere in Sunderland, the affected workers were told on Tuesday morning, according to Sky.
Nissan's move will end more than 30 years of cylinder production at Sunderland, and underlines the industry's growing shift towards electric vehicle production, it added.
Around 3.20pm, the FTSE index was down 43.12 points, or 0.6% at 7,490.67, holding above the session low of 7,469.25.
2.45pm: US stocks start mixed
The FTSE 100 index remained weak in midafternoon trading as US stocks started mixed on Tuesday with investors cautiously awaiting the release of some key US economic data and the outcome of the Federal Reserve’s annual meeting at Jackson Hole later this week.
Just after the open, the Dow Jones Industrial Average was down 16 points or 0.05% at 33,048 points, while the S&P 500 was up 3 points or 0.06% at 4,140 points, and the Nasdaq Composite added 28 points or 0.2% at 12,409 points.
All eyes this week are on the Fed’s Jackson Hole symposium which runs from Thursday to Saturday, titled “Reassessing Constraints on the Economy and Policy.”
Charles Stanley (LSE:CAY) chief investment commentator Garry White noted that the true agenda of this meeting between leading central bankers and other experts is likely to consider whether they had done enough to get on top of inflation they were not expecting and how far they should go in raising rates and reversing the massive bond-buying most of them undertook over the last two years.
“Some introspection and retrospection are called for,” White said. “What was a necessary and major response to lockdown in 2020 became an extended experiment with large monetary stimulus which some think helped fuel the subsequent inflation.”
Around 2.45pm, the FTSE index was down 43.41 points, or 0.6% at 7,493.36, above the session low of 7,469.25 but well below the day’s peak of 7,533.79
2.20pm: Dull performances
UK stocks are sliding further into the red and those over in the US are heading for a fall too.
The FTSE 100 is down 0.8%, the FTSE 250 down 0.9%, though futures markets only point to the three major Wall Street indices heading for falls of 0.1% to 0.2%
Meanwhile, crypto prices are remaining roughly flat.
Bitcoin is "consolidating" around $21,300, says analyst Marcus Sotiriou at GlobalBlock, who flags that CoinShares has reported outflows for crypto focused funds for the second week in a row and weekly trading volumes have dropped to the second lowest level this year, around US$1bn.
"Despite Bitcoin and the general crypto ecosystem seeing crypto fund outflows, Ethereum (ETH) actually saw inflows of $2.9mln [over the week].
"This is a result of rising optimism leading up to Ethereum’s transition to Proof of Stake, which is the biggest talking point within the whole crypto space currently."
READ: Ethereum’s landmark update is coming… But what is The Merge?
Although crypto funds are seeing outflows, data from Glassnode shows heavy accumulation from smaller users, that is those with balances below 1 Bitcoin.
"This shows that there is a juxtaposition between institutional and retail demand for crypto currently, which is conflicting with previous downtrends where balances less than 1 Bitcoin have typically declined," said Sotiriou.
"This potentially shows how this downtrend was driven by institutions who have been caught offside, whilst retail have generally been HODLing and accumulating."
Elsewhere, US fund manager Invesco has joined the growing institutional interest in Web3 activities, launching a metaverse fund to tap into what it predicts will be a multi-trillion-dollar industry by the end of the decade.
1.21pm: Oil support
Two of the major drivers preventing the Footsie from falling further today are Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.).
This is thanks to oil prices rising again, with Brent crude up 1.4% to US$97.80, building on the recovery at the start of the week following output warnings from Saudi Arabia.
"Considering what we've seen in oil markets this year, the repeated inability of producers to hit output targets and the record profits of oil companies, it's quite staggering that the largest member of the OPEC+ alliance is even considering cutting production to address the falling price," said market analyst Craig Erlam at Oanda.
"It begs the question; even if a nuclear deal is reached between the US and Iran, how much of a positive impact will it actually have if OPEC+ will pare back production in order to prop up the price? It seems any hope of sub-$90 oil for a prolonged period of time is out of the window and producers won't be happy unless it's closer to, or above, $100."
12.25pm: UK's energy-intensive industries at risk of shuting some sites
The FTSE 100 and 250 have both lurched lower after reports emerged that energy-intensive industries are at risk of having to shutter some sites or lowering their operating levels due to gas and electricity prices.
Briefings to media by govt ministers suggest chemical and fertiliser manufacturers, cold storage, glass and cement are the highest risk, Bloomberg reported.
London's blue-chip index has dropped 49 points or 0.6% to 7,485, while the mid-caps are down 135 points or 0.7% to 19,365.
The warnings were forecast as part of 'Project Shine', which the Treasury commissioned last year and was prepared by officials and specialists at PwC.
EXCLUSIVE: Energy intensive UK industries are at risk of site closures or slowdowns due to soaring gas and electricity prices, according to briefings received by govt ministers
Chemical and fertiliser manufacturers, cold storage, glass, cement high riskhttps://t.co/hzUYMLee7t
— Alex Wickham (@alexwickham) August 23, 2022
This comes as the boss of EDF Energy’s retail business called for more government intervention as he said the UK faces a "dramatic and catastrophic winter", adding his voice to many similar warnings.
“We face, despite the support the government has already announced, a dramatic and catastrophic winter for customers. In January, half of the UK households might be in fuel poverty,” Philippe Commaret told BBC Radio.
Gas and electricity prices are forecast to hit around £3,500 this week and break past £5,000 by next April as Russia’s invasion of Ukraine and soaring inflation, also predicted to double in early 2023, hit consumers hard.
A new forecast for the energy price cap today predicts it will reach £6,500 when Ofgem reviews it in April 2023, the highest prediction yet.
11.25am: London weak, New York set for flattish start
The FTSE 100 index stayed weak in late morning but held off session lows with US stocks expected to open little changed on Tuesday as investors look cautiously ahead to upcoming economic data and the Federal Reserve’s annual symposium at Jackson Hole.
Futures for the Dow Jones Industrial Average were trading 0.1% higher pre-market, while those for the broader S&P 500 index and contracts for the tech-laden Nasdaq-100 were also both up 0.1%.
On Monday US stocks tumbled on resurgent fears that a recession is looming and interest rates will continue to rise in the world’s biggest economy. As things stand, those concerns are here to stay.
Monday’s drop had a lot to do with changing interest rate expectations, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Monday blues kicked in following a $7 trillion rally since July, which was mainly fueled by the expectation that the recession rhetoric would convince the Federal Reserve to stop raising the rates and even start thinking about cutting the rates. Now that the Jackson Hole meeting approaches, those bets are vanishing, as there is no way the Fed will soften its tone while inflation still hangs around the 8.5% level,” she noted.
Later this week, Fed chairman Jerome Powell will deliver a much-anticipated keynote speech at the Jackson Hole symposium, which is expected to be wide-ranging and to include his expectations for inflation, keeping investors wary ahead of the event.
Against that backdrop, upcoming economic data will also be key for market direction. Up for release today are US new home sales figures for July and manufacturing sector PMIs. Both will give an indication of how rising interest rates and elevated levels of inflation are affecting economic activity.
Around 11.25am in London, the FTSE 100 index was down 26.20 points, or 0.4% at 7,507.59, above the session low of 7,488.33 but below the day’s peak of 7,533.79.
11.11am: CBI data provides another recession warning
The CBI industrial trends survey for August has provided another recession signal, as it unexpectedly slid into negative territory.
August's balance of total orders fell to -7 from +8 in July, below the consensus forecast of +3.
The proportion of manufacturers reporting that orders were below normal levels exceeded those reporting they were above normal for the first time since April last year.
Deteriorating domestic demand seemed to be the key, with export orders holding steady.
After months of stock shortages, there was a slight majority of manufacturers reporting that stocks were more than adequate to meet demand.
Inflation signals ticked up though, with a net balance of manufacturers planning to increase prices rising to +57 from +48 in July, which is well above its average level over the previous decade but well below March’s +80 peak.
“From rising prices to bottlenecks in supply chains, manufacturers continue to operate against a background of high input costs and significant operational delays," said the CBI's lead economist Alpesh Paleja. "When coupled with an oncoming economic downturn, it’s not surprising to see orders and activity ebb away as we move through the year."
Looking ahead, Sam Tombs at Pantheon Macro said the recession in the manufacturing sector "likely will deepen over the winter, as extremely high energy prices render some production unprofitable, and consumer demand for goods potentially softens.
In the event of shortages of natural gas, heavy energy users in the manufacturing sector will be told to down tools first, he said.
"While Britain is less likely to run out of gas than other European countries, British manufacturers would still be adversely impacted through their connections with Eurozone suppliers and customers," Tombs said.
"Accordingly, the contraction in manufacturing output signalled by today’s S&P Global and CBI surveys in Q3 looks likely to be just the start of a protracted downturn."
10.50am: Gloomy surveys weigh
Gloomy readings of the latest economic survey data are rolling in from market watchers and economists, which is keeping pressure on the FTSE 100, which is down 30 points at 7,502, and even more on the more domestically focused FTSE 250, down at a month's low.
The mid-cap index has fallen below 19,500 for the first time in over four weeks, with 888 Holdings PLC, Dr Martens PLC and Wood Group bottom of the list today.
With the UK composite PMI survey dropping to its lowest level since February 2021 – when the UK still was in a full lockdown – this suggests "the economic recovery has come to a standstill," says economist Samuel Tombs at Pantheon Macroeconomics.
He noted that there is a "developing recession in the manufacturing sector", with the manufacturing new orders sub-index plunging and the orders-to-inventory ratio also continuing to fall, which "suggests that the output index likely will remain weak in the months ahead".
Services holding up much better is "perhaps due to the additional support to incomes provided by the government in July".
Even though the composite flash PMI stayed above the no-change level of 50.0 in August, Paul Dales at Capital Economics sais "it probably won’t be long before it joins other indications suggesting that the economy is already in recession".
At face value, Dales said the composite PMI is consistent with the 0.1% decline in GDP in the second quarter being followed by a rise of around 0.1% in the third.
"The good news is that the main prices balances declined for the fourth month in a row in response to the previous falls in some commodity prices and the easing in global goods shortages," he added, though noting that the composite prices charged balance remains very high.
"What’s more, this survey won’t reflect the huge jump in wholesale gas prices in recent days. The latter means CPI inflation will probably rise from 10.1% in June to above the rate of 12.5% we are currently forecasting for October.
"Overall, we suspect the composite PMI will be ringing the recession alarm bell before long. But with inflationary pressures still very intense, the Bank of England will have little choice but to continue raising interest rates, from 1.75% now to 3.00%."
Simon Harvey, head of FX analysis at Monex Europe, said the flash August PMIs don’t take the burden off the Bank of England.
"From a monetary policy perspective, the stagnation in the UK economy won’t come as a surprise, nor will it restrain policymakers from tightening interest rates," Harvey said.
"The Bank of England has already warned of a recession that they expect to commence as of Q4, when the Ofgem price cap is increased.
"Instead, their focus will be on how quickly the slowdown in economic momentum translates into reduced labour demand, thus putting downwards pressure on wage growth, and the ability of firms to transfer rising input costs into higher output costs.
"Despite evidence that input costs are easing and increased competition is making it more difficult for firms to pass these costs onto consumers, average prices charged are still above historical levels. Additionally, private sector employment continued to rise in August, specifically within the services sector, while staffing shortages in manufacturing put continued upwards pressure on wage growth.
"Today’s data, although denoting a slowdown in the UK economy, confirms our view that the BoE will likely conduct a second 50bp hike at their September meeting."
9.43am: UK factory sector contracting
The UK manufacturing sector weakened this month, but the larger services side has held up better than expected, according to the 'flash' PMI readings just out.
Manufacturing PMI dropped from 52.1 to 46.0 for the preliminary August reading, a 27-month low, but the services PMI dips less than forecast to 52.5 from 52.6.
Combining the two produces an 18-month low for the flash UK PMI composite index of 50.9, down from 52.1.
UK manufacturers signalled a sharp and accelerated fall in production during August, the S&P Global/CIPS survey report said, with the rate of reduction the quickest seen since May 2020.
"Reduced customer demand, the delayed delivery of inputs and labour shortages all weighed on performance, according to panel members," it said.
"Services companies meanwhile registered a modest increase in business activity that was the softest seen for a year-and-a-half."
There was also an 18-month low in new business received.
A further easing in the rate of input cost inflation was noted across the UK private sector, softening most notably at manufacturers.
Lower prices for some commodities such as metals had helped to ease overall cost pressures, many manufacturers said.
In the service sector, the rate of cost inflation picked up slightly compared to the previous month. Service providers typically noted higher salary payments, often spurred by rising living costs, though there were greater expenses for energy and fuel.
Dr John Glen, CIPS chief economist said: “A disappointing pace of business activity growth across the private sector, with the weakest rise in output levels for a year-and-a-half and the headline index moved another step closer to the no-change 50.0 mark.
“It was the service sector that held the side up as the manufacturing sector experienced a more downbeat month dropping further into contraction, and with the slowest rise in new orders since May 2020.
“Supply chain managers reported client reluctance to spend as the cost of living and the cost of doing business remained at elevated levels and both domestic and export orders were affected.
“In turn, job creation took a hit with the weakest rise for 17 months as confidence dropped amongst manufacturers to the lowest for over two years. Makers began to re-think their capacity-building strategies under challenging economic conditions and placing a question mark over whether they should continue hiring.”
9am: In the red
The FTSE 100 stayed lower in early trading taking its cue from falls in the US on Monday and Asia overnight.
By 9.00am the lead index was trading 33.24 points lower at 7,500.55 with the broader FTSE 250 index down 30.59 points at 19,468.75.
“European markets have opened on a weaker note with autos and technology underperforming while oil & gas and basic resources are the only sectors in the green,” says Victoria Scholar, head of investment at Interactive Investor.
She noted that overnight Japan’s August flash PMI saw factory activity grow at the slowest pace in 19 months, while France’s manufacturing PMI fell to a 27-month low of 49 in August, below the key 50 boom-bust divide.
Shares in BT Group PLC (LSE:BT.A) rose 1.5% to 158.57p following news that the UK government will not block Altice increasing its stake in the telecoms giant to 18%.
But Wood Group (LSE:WG.) slipped 3.5% after reporting a fall in operating profit from continuing operations and before exceptional items to US$41mln from US$45mln in the six months to June 30th.
Revenue from continuing operations was flat with growth in Operations (+18%) and Consulting (+2%) offset by the expected decline in Projects (-15%).
8.15am: Plenty for investors to fret about
FTSE 100 opened lower on Tuesday reflecting falls in global markets as investors fretted that the battle against inflation may prove to turn into a more protracted struggle than expected with interest rates having to stay higher, for longer.
PMI data to be released today will also give a guage as to the state of the gloabal economy and the pace at whuch it is declining.
By 8.10am the FTSE 100 was down 25.86 at 7,507.93 while the broader FTSE 250 fell 37.03 to 19,462.31.
Richard Hunter, Head of Markets at interactive investor commented: ““Global markets slumped amid a toxic cocktail of fears around inflation, possible recession and further shortages of energy supplies.”
“There is perhaps a growing realisation that the Federal Reserve will remain unmoved by recent data which suggested that inflation could be peaking and maintain its aggressive policy.”
“Investors unsettled by a new round of tightening are increasingly returning to the conclusion that the next Fed hike in September will be another rise of 0.75%, with the consensus having been for a lighter 0.5% over recent sessions.”
“The inversion of the yield curve also widened further, suggesting that the likelihood of recession is increasing at an alarming pace.”
“Growth stocks which had received some buying attention on the back of improving prospects were worst hit, as investors hunkered down and sought haven assets such as the US dollar.”
“A renewed spike in energy prices in Europe and a report which suggested the possibility of a horrific spike of 18% inflation in the UK also contributed to the deteriorating sentiment, with the FTSE100 opening in negative territory.”
“Amid a general markdown, housebuilders were under renewed pressure given the likelihood of further aggressive tightening by the Bank of England and a deteriorating consumer environment.”
“For the moment, global sentiment is both skittish and volatile. There is little cause for optimism on the immediate horizon, with any glimmers of economic hope yet to take hold on a sustainable basis.”
7.45am: UK won't block Altice's increased stake in BT
The UK government will not take any action over French group Altice increasing its stake in BT Group to 18%, the UK telecoms group said.
In May, Business Secretary Kwarteng used his call-in power under section 1 of the National Security and Investment Act 2021 to look at the Altice stakebuilding.
In a statement today, BT said the Business Secretary, had considered exercising his call-in power but it had now been informed by the government no further action would be taken.
Altice is owned by French-Israeli billionaire and telecoms magnate Patrick Drahi, who also owns Israeli cable television company HOT and has built stakes in multiple American and British telecoms companies.
The French group increased its stake in BT to 18% in December 2021.
7.30am: London to follow US and Asia lower
Blue chip stocks are set to open lower this morning following falls in US and Asian equity markets and ahead of the release of flash PMI data today.
Spread betting companies are calling the FTSE 100 down by around 35 points.
Michael Hewson chief market analyst at CMC Markets UK said the falls in equity markets “appears to suggest that investors are becoming increasingly concerned that the Federal Reserve may well not pivot on monetary policy next year.”
“It’s almost as if markets have got so conditioned to the Fed riding to the rescue that its hard to envisage them not doing so this time, however yesterday’s slide in US markets could be the gradual realisation that this time is different, as they posted their worst day since June, and yields rose sharply.”
“Now markets appear to be starting to price in the prospect that inflation may well be higher for longer, although the continued surge in natural gas prices yesterday has also helped.”
“It is becoming ever clearer that prices are likely to remain higher for longer, and if indeed that turns out to be the case, that means rates are likely to be higher for longer.”
“PMIs across Europe and the UK have remained in positive territory for nearly all this year despite the combined challenges of rising prices and weakening economic activity.”
“Up until a couple of months ago manufacturing had managed to remain remarkably resilient despite a challenging macro backdrop.”
In the UK Hewson said “with hiring patterns remaining robust, and while costs have been rising businesses have been able to pass on the increase in costs.”
“Whether that will be enough to prevent an August contraction is debatable, given that in July enthusiasm about the economic outlook was already starting to wane.”
“With August being a slow period due to holidays, we could well start to see economic activity on the PMI level start to slide into contraction territory, from 52.1 for manufacturing in July and from 52.6 for services in July.”
Wood Group (John) PLC reported a slight fall in operating profit from continuing operations and before exceptional items of $41mln from $45mln in the six months to June 30th.
Revenue from continuing operations was flat with growth in Operations (+18%) and Consulting (+2%) offset by the expected decline in Projects (-15%).
New chief executive officer Ken Gilmartin, said: "Since becoming CEO in July, I have been really encouraged to see the improving operational momentum across our business, including some great client wins.”
“The strong order book gives me confidence for the future but there is a lot more to do on cash generation and this is our top priority.”
6.55am: London seen lower after falls in global markets
The FTSE 100 is expected to open lower on Tuesday following heavy losses in the US on Monday and in Asia overnight ahead of key PMI data released today.
Spread betting companies are calling the lead index down by 20 points.
The Dow closed Monday down 643 points, 1.9%, at 33,064, the Nasdaq Composite slipped 324 points, 2.6%, to 12,382 and the S&P 500 lost 90 points, 2.1%, to 4,138. It was the Dow's worst single session since June.
Investors are again watching Federal Reserve Chair Jerome Powell, who will speak later this week at the Fed's annual meeting at Jackson Hole in Wyoming.
“When you see the market right now dropping down like this, this is the market saying the Fed has to be more aggressive to slow the economy down further," said Robert Cantwell, portfolio manager at Upholdings, as reported by CNBC.
In London, results are due from FTSE 250 listed Wood Group while in the first big macroeconomic data of the week there will be ‘flash’ purchasing managers’ index surveys released for the services and manufacturing sectors for the UK, US and other major economies, along with a composite reading that can sometimes raise an early red flag for later official data.
A month ago, the US and eurozone composite PMIs slipped below the 50 mark, which indicating contraction territory.