- FTSE 100 ends 77 points lower
- US stocks mixed after three days of falls
- Weak ADP data raises August US payrolls concerns
4.45pm: Footsie still cautious
The FTSE 100 index closed lower again on Wednesday reflecting fresh falls by heavyweight commodity issues and sterling weakness, while US benchmarks once again saw an early rally reverse and were mixed after data.
At the close, the UK blue-chip index was down 77.48 points, or 1.1% at 7,284.15, above the day’s low of 7,263.62 but well below the session peak of 7,378.44.
For the month of August, the Footsie lost just over 129 points or 1.74%, while the FTSE 250 index dropped 1,015.5 points or 5.06% to 19,063.75.
Joshua Mahony, market analyst at IG, said: “The FTSE 100 has led the losses in Europe, with a weakening pound doing little to help stifle the downdraft that sparked yet another one-month low for the index.”
“Unfortunately, the prominence of commodity stocks within UK markets has proven its undoing, with energy names Tullow oil, Energean, and BP feeling the pinch as oil looks to be heading for the worst losing run in over two months. On the flip-side, uranium has enjoyed a welcome return to the spotlight, with the growing support behind a nuclear resurgence helping to elevate stocks over the past week,” Mahoney added.
In New York, around London’s close, the Dow Jones Industrial Average was down 43.05 points or 0.1% at 31,747, but the S&P 500 added 0.1% and the Nasdaq Composite gained 0.2% in volatile trading.
At the start, Wall Street had recovered some poise after a sharp three-day sell-off engendered by monetary tightening fears following Federal Reserve chairman Jerome Powell’s blunt remarks at the Jackson Hole symposium on Friday.
But the mood soured as ADP’s latest US payrolls report showed private sector employers added only 132,000 jobs in August, far less than the 300,000 economists had expected and down from 270,000 additions in July, raising fears over Friday’s monthly US non-farm payrolls data, although what it means for interest rate hikes was unclear hence the mixed moves.
3.45pm: Inflation on the mind
The FTSE 100 headed to the close still nursing hefty losses, but well off earlier lows for the day, as gains on the S&P 500 and the Nasdaq gave hope of some stability in US markets after three days of falls although the Dow Jones Industrial Average traded lower.
At 3.45pm the lead index was trading 60.23 points lower at 7,301.40 while the broader FTSE 250 was 55.42 points worse off at 19,094.23.
Inflationary concerns were once more at the forefront of investors minds following strong Eurozone inflation figures and a report in the UK showing food price inflation was increasing rapidly.
As the pound plunged to lows last seen in the frenzy of the initial Covid outbreak and before that in the 1980s, one economist has forecast that sterling will an "all-time record low" against the dollar by summer next year and the FTSE 100 will fall further.
Paul Dales, chief UK economist at Capital Economics, is now forecasting the pound will fall to around US$1.05 by the middle of next year - below the levels reached before the 1985 Plaza Accord (US$1.09), after the UK left the ERM in 1992 (US$1.43), during the 2008/09 Global Financial Crisis ($1.38), after the 2016 Brexit vote (US$1.21) and during the 2020 COVID-19 crisis (US$1.15).
He also said this would be twinned with a "big decline" in the FTSE 100.
Michael Hewson chief market analyst at CMC Markets UK said: "It’s been another disappointing day for the FTSE 100, with a slide in energy prices weighing on the likes of BP and Shell, with both crude oil and natural gas prices sliding for the second day in succession."
"Up until the end of last week the FTSE100 had been on course for a positive month, however the last 3 days, and the hawkish tone from Powell’s Jackson Hole speech, has seen the rug pulled out from underneath the positive mood."
"We’re also seeing declines in the likes of National Grid, SSE and Centrica as concerns about a windfall tax on some of their profits resurfaces."
"Due to the way that electricity prices are linked to the gas price, some companies are reaping huge profits given their electricity is being generated by renewables, which has a lower cost of generation. This is giving these companies a nice windfall, which governments are starting to cast an envious eye over."
NatWest Group fined by the CMA
NatWest Group PLC (LSE:NWG) must pay £600,000 in refunds to business customers the Competition and Markets Authority (CMA) has ruled.
The CMA said the banking group had breached rules by forcing business customers to open “costly” current accounts to access loans in a a practice known as “bundling.”
The breach lasted for over three years, the CMA said, with NatWest failing to alert the CMA until January 2021 by which time over 700 customers had fallen foul of the scheme.
The CMA’s senior director of remedies Adam Land said that bundling the products was an “unacceptable” and “direct breach” of rules that had been in place for more than 20 years.
“NatWest should have known better,” Land said in a statement. “These rules are there for a reason: to make sure small businesses are treated fairly, and to make sure the market is competitive.”
The CMA said it has now issued legal directions to NatWest and the bank is in the process of refunding the affected customers.
3.00pm: Strike action continues apace in the UK
Thousands more workers walked out on strike today in the UK as demands for higher wages continue.
Postal workers embarked on their day of action, joining telecoms workers, who are are also out on strike.
On Wednesday 115,000 Royal Mail workers were on strike while 40,000 BT and Openreach workers stayed out, in action that began on Tuesday.
The postal worker strikes will disrupt delivery of packages and letters with Royal Mail staff planning further strikes on September 8th and 9th.
2.40pm: London bounces off hefty session lows
Blue chip stocks came off their lows for the session but remained sharply lower as US stocks showed signs of stabilising after three days of falls.
By 2.40pm the FTSE 100 was trading 64.40 points lower at 7,297.23 while the broader FTSE 250 was down 42.41 points at 19,107.24.
US stocks opened mixed after three days of sell-offs as new employment data suggested hiring slowed in August.
Just after the open, the Dow Jones Industrial Average had dipped 44 points at 31,747 points, while the S&P 500 was flat at 3,987 points, and the Nasdaq Composite had added 47 points at 11,929 points.
Non-farm private payrolls grew by just 132,000 in August according to the ADP’s monthly payroll report.
This figure comes in far below the analyst consensus according to Bloomberg of 300,000 and the 270,000 jobs added in July, indicating a slowing in hiring during the month.
However, Pantheon Macroeconomics chief economist Ian Shepherdson noted that the ADP’s measure was not necessarily a reliable indicator of employment.
“It seems to be better than the old one, probably,” he said. “We can’t say for sure because it’s not clear if the historical data using the new method are the initial estimates which would have been released at the time, or if they have been revised for late returns or updated seasonal factors.”
“We’re sticking to our forecast that private payrolls rose by 350,000, based on the strong Homebase data for the official survey week.”
Looking at the week ahead, AJ Bell investment director Russ Mould said all eyes would now be on Thursday’s manufacturing data as Tuesday’s batch of economic data may have eased fears of a recession, as consumer confidence rebounded and house prices stayed firm.
“The Institute for Supply Management’s purchasing managers’ index (PMI) for manufacturing is on a long losing streak that goes back to March 2021 and behind the headlines, the order number is looking weak, too,” he said.
“Another softer set of readings will only serve to highlight the US Federal Reserve’s dilemma, as it looks to fight inflation on one hand without crashing the world’s largest economy on the other.”
1.55pm: ADP jobs figures below expectations
Payroll processing company ADP said US companies have slowed thier pace of hiring in August as fears of an economic slowdown intensify in the US.
ADP reported that US private parolls rose by 132,000 this month, below last month's 270,000, and market expectations, suggesting the US jobs market may not be as robust as recent data has showed.
This is the first report by ADP using its new methodology.
US non-farm payrolls figures are due out tomorrow which will provide further evidence as to the strength of the US jobs market..
12.55pm: Russia closes Nordstream 1 for three days
Russia stopped the flow of gas into Europe via the Nord Stream 1 pipeline this morning, citing maintenance and repairs.
Gazprom, the Russian state energy company, turned off the pipeline at 4am Moscow time on Wednesday morning.
"Supply via Nord Stream has been completely stopped, today scheduled preventive work is starting at the gas pumping unit," the statement said.
The German government said it received no official correspondence that maintenance work would be undertaken and that the only information it received was via Gazprom’s statement.
The work would last for three days, according to reports, and Gazprom said it would then restore pumping at the level of 33mln cubic meters per day if there were no technical malfunctions.
Business confidence slips - Lloyds
A survey published today showed confidence among British businesses has sunk to its lowest since March 2021 as companies worry about fast-rising inflation.
Lloyds Bank said its monthly business barometer fell to 16% in August from 25% in July, with companies more worried about rising prices than the economic slowdown.
"Business confidence declined for a third consecutive month as firms continue to face economic challenges in the period ahead and as inflation concerns intensify," Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said.
Wage and price pressures remained elevated but there were some brighter points as demand for staff held up and firms reported less concern about staffing and the coronavirus pandemic, Ho added.
While 38% of firms expected to increase headcount in the year ahead, the proportion thinking of raising pay by at least 3% fell slightly to 26% from 28% in July.
11.45am: FTSE 100 at session lows
The FTSE 100 tumbled today as inflationary pressures in the UK and Europe showed no signs of abating meaning further aggressive interest would be required.
By 11.45am, the blue chip index was trading 89.49 points lower at 7,272.14 while the broader FTSE 250 slumped 108.47 points to 19,041.18.
A survey by the British Retail Consortium and NielsenIQ showed that food prices in the UK rose 9.3% in August, their fastest rate of growth since 2008.
While Eurozone inflation hit 9.1% in August, above expectations, with the core rate at 4.3%, again above market forecasts.
Support is unlikely to come from the US either with a mixed open expected on Wednesday amid solidifying expectations that interest rates in the world’s biggest economy will continue to climb, crimping economic growth in the process.
Futures for the Dow Jones Industrial Average were down around 0.1% in pre-market trading, while those for the S&P 500 were flat, and contracts for the Nasdaq 100 added 0.4%.
Given the level of volatility in the market, the ADP private sector jobs report due at 8.15am ET today will come in for scrutiny.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank said: “Due today, the ADP report will be one of the key data that investors will be watching in the US.”
“The US economy is expected to have added 200,000 new private jobs in August. A stronger-than-expected figure has the power to boost the Fed hawks - as we saw at yesterday’s session, and increase the bearish pressure on equities,” noted Ozkardeskaya.
11.05am: Eurozone inflation hits 9.1%
Inflation in the Eurozone rose to 9.1% in August, a new high, and a touch above market forecasts for an increase of 9% with analysts warning that the number could hit double digits next month.
Soaring gas and electricity prices continued to have the largest impact on inflation, with energy prices 38.3% higher than a year ago (down from 39.6% in July), but unchanged month-on-month.
Food, alcohol and tobacco inflation rose to 10.6% per year, up from 9.8% in July and the prices of industrial goods jumped by 5.0%, compared with 4.5% in July, while services inflation rose to 3.8%, from 3.7% in July.
Core inflation climbed to 4.3% from 4% in July, again above consensus expectations for a 4.1% increase.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics said: “Inflation pressures in the euro area are no longer accelerating, much, but they remained intense midway through the third quarter, and much too strong for the ECB’s comfort.”
“We see zero relief in the details for the central bank ahead of next week’s meeting, where we expect a 50bp hike in the deposit and refinancing rate, respectively.”
Looking ahead, Vistesen “thinks core inflation will remain elevated in September and October, before easing somewhat towards the end of the year.”
Pantheon said it “now thinks think the central bank will raise its deposit and refinancing rates by 50bp in October and December, respectively” with a distinct risk that headline inflation will hit 10% in September.
10.10am:ONS rules Government support to households will not cut inflation
The Office for National Statistics (ONS) has ruled that UK government payments to reduce household energy bills from October won’t reduce inflation.
The call cleared up one source of uncertainty with respect to the UK’s near-term inflation outlook with the ONS ruling that forthcoming payments from the government to households under the Energy Bills Support Scheme (EBSS) (whereby domestic energy customers in Great Britain will receive a £400 discount on their bills from October) should be treated statistically as current transfers to households and not lower energy prices.
As such, the payments will have no impact on inflation.
Had the ONS ruled the other way, the impact could have reduced inflation by 2 percentage points or more, with huge consequences not least for UK government debt interest payments on index-linked gilts.
Daiwa Europe said in the absence of far more aggressive government interventions in the energy market, UK consumer price inflation is thus now bound to accelerate markedly in October in response to the 80% hike in the regulator’s household energy price cap from that month, while a share of the increased energy costs for businesses will also be passed on to consumers of non-energy items.
9.50am: Profits warning sends shares in Cake Box down sharply
Cake Box Holdings PLC (AIM:CBOX) saw its value nearly halve today after warning that full year profits would be significantly below current market forecasts.
Shares fell 45% after the fresh cream cake retailer said inflationary cost pressures and weaker than anticipated sales at the franchise level during July and August has resulted in franchisee like-for-like sales declining 2.8% in the first half so far.
The group said the summer performance had been exacerbated by the recent heatwave which has impacted store footfall.
Broker Liberum slashed its full year 2023 earnings per share forecast by around 33% noting the inflationary pressures will take time to mitigate.
Liberum also cut its price target to 250p from 470p but recommended buying the stock on weakness.
On the plus side the broker said the balance sheet remains in rude health and there was no change to group’s “underlying cash-generative growth story underpinned by franchisee demand for new stores and new channels like online and kiosks in supermarkets.”
9.20am: Shoes remain in demand
Shares in Shoe Zone PLC (AIM:SHOE) advanced 12.07% today as the shoe retailer pleased the market with a positive update on trading.
In a short but sweet statement the group said that since its last update on July 26th, 2022, trading has continued to exceed expectations due to continued strong demand for summer and back to school products throughout August.
The company also continues to benefit from the margin improvements as outlined in recent trading updates, it added.
Shoe Zone said it now expects adjusted profit before tax for the financial year ending 2 October 2022 to be not less than £10.5mln.
8.50am: ECO Animal Health shares tumble
Shares in Eco Animal Health Group PLC (AIM:EAH) slipped by 10.70% today as the group reported a sharp fall in sales and cautioned that the Chinese market would remain subdued for a while.
The company announced a 22% fall in sales to £82.2mln and a decrease in EBITDA to £6.4mln from £21.3mln in 2021.
Sales in China and Japan declined significantly to £28.4mln (2021: £58.9mln) although sales in the rest of the world improved to £53.8mln from £46.7mln.
David Hallas, chief executive officer also warned that he expects “that China will remain subdued for another quarter or two but the recent improvement in pork to feed price ratio provides the foundation for a stronger end to the financial year.”
Analysts at Peel Hunt lowered their price target to 270p from 350p and cut its full year 2023 pre-tax profit forecast by 40% to £5.6mln from £9.4mln.
It remained positive on the group, reiterating a buy rating adding “The recent increase in pricing and lower sow herd should ensure a materially better market, but this will take time to flow through to demand.”
8.30am: Further volatility expected in equity markets
Commenting on this morning’s opening in London Richard Hunter, head of markets at interactive investor said the “Market malaise rumbled on as investors grappled with the likelihood of higher interest rates for longer than had been hoped.”
He also cautioned that the volatility was likely to continue in equity markets.
“This traditionally quiet time of the year is resulting in lower trading volumes, which in turn tends to exacerbate market moves in either direction” he said adding “as such, the high volatility and economic uncertainty which has brought any summer recovery to a halt as investors ponder the alternatives could well continue.”
Hunter said “Asian markets made a valiant attempt to shake off the prevailing pessimism but were for the most part mixed as trading wore on.”
“In China, factory activity fell less than expected in August, but the outlook remains challenging amid an embattled property sector, ongoing lockdowns and power issues continue to threaten any thoughts of an economic recovery for the time being.”
“Against this global backdrop, the FTSE100 managed to open higher in early trade, potentially taking some solace from the improving if embattled reading from China.”
“The oil price also settled after its overnight stumble, giving some stability to the index, while sterling’s current weakness also plays into the hands of the majority of the index constituents, as overseas earnings become more valuable in translation.”
8.05am: FTSE 100 opens slightly higher
FTSE 100 opened slightly higher on Wednesday despite further falls in the US overnight and mixed showings by Asian markets.
At 8.05am the FTSE 100 was up 14.02 points at 7,375.65 while the broader FTSE 250 firmed 27.18 points to 19,174.23.
US markets fell following better than expected economic data with improvements in consumer confidence and as the JOLTS data showed that the job market remained strong.
Michael Hewson chief market analyst at CMC Markets UK said: “Yesterday’s improvement in US economic data appears to have reinforced the expectation that the resilience of the US economy is likely to mean that the Fed will be a lot less cautious, when it comes to further tightening monetary policy when it meets next on 21st September, when it could well go for its third successive 75bps rate hike, as it looks to drive inflation back down again.”
In Europe, EU consumer price inflation figures are due which are expected to rise to a new record high of 9% and Hewson said “another record high for EU CPI will merely serve to embolden the hawks on the governing council who have become more vocal in recent weeks.”
On a quiet day for corporate news, Cake Box PLC, warned that full year profits would be significantly below current market forecasts.
The specialist retailer of fresh cream cakes said inflationary cost pressures and weaker than anticipated sales at the franchise level during July and August has resulted in franchisee like for like sales declining 2.8% in the first half to date.
The group said the summer performance had been exacerbated by the recent heatwave which has impacted store footfall.
7.30am: Food price inflation up 9.3% in August
Food prices increased at their fastest pace since 2008 in August rising by 9.3% after a 7% increase last month.
The data from the British Retail Consortium (BRC) and NielsenIQ index said the increases were due to the war in Ukraine and its effect on the price of animal feed, fertiliser, wheat, and vegetable oils.
Fresh food prices were up 10.5% compared to last year, up from the 8% annual increase recorded in July, with products such as milk and margarine seeing the biggest rises.
Shop price annual inflation also increased to 5.1% in August, up from 4.4% in July, and is now the highest since 2005 when the BRC index started.
BRC chief executive Helen Dickinson said the outlook was "bleak for both consumers and retailers", but that businesses would support people through "discounts to vulnerable groups, expanding value ranges, fixing prices of essentials, and raising staff pay".
But she said mounting costs meant "there is only so much they can shoulder".
"The new prime minister will have an opportunity to relieve some of the cost burden bearing down on retailers, like the upcoming increase in business rates, in order to help retailers do more to help their customers," added Ms Dickinson.
6.55am: FTSE 100 seen higher at the open
The FTSE 100 is expected to open slightly higher this morning despite a third day of falls in the US on Tuesday.
Spread betting companies are calling the lead index up by around 25 points.
In the US, the Dow Jones Industrials Average closed Tuesday down 308 points, or 1.0%, at 31,791, the Nasdaq Composite lost 135 points, or 1.1%, to 11,883 and the S&P 500 dipped 44 points, or 1.1%, to 3,986.
The benchmarks saw red for the third day in a row as investors continued to react to a Federal Reserve that seems increasingly likely to continue hiking interest rates.
In London results are due from Chesnara LC and Uniphar PLC (AIM:UPR) amongst others while BRC shop price Index data and the Nationwide House Price Index figures are also due.