- FTSE 100 closes firmly lower on Thursday
- US stocks see red
- ISM better than expected
4.45pm: FTSE closes firmly lower
FTSE 100 closed deep in the red on Thursday as the first day of a new month brought no respite from the stock selling.
Britain's premier share index finished around 135 points lower, or 1.8%, at 7,148.
"The runaway train of losses has rattled further down the track today, as the gloom among investors deepens," said Chris Beauchamp, chief market analyst at online trading group IG, in a note.
"September has a mixed track record at best in the past 20 years, but this could be one of the worst months of the year so far if today is any guide.
"Investor pessimism has returned with a vengeance over the past week, and fears of a recession across the globe, and not just in Europe means that a return to, and drop below, the June lows now seems likely for a host of markets," he added.
In the foreign exchange markets, sterling continued to tank against the US dollar, falling below US$1.15 (down 0.8%) for the first time since March, 2020.
4pm: FTSE nursing losses
The FTSE 100 was still nursing losses of over 120 points as it headed to the close although it was off its worst levels for the day as the ISM Manufacturing index came in better than expected in the US.
At 3.55pm, the lead index was down 126.94 points at 7,157.21.
The ISM manufacturing index was unchanged at 52.8, above the consensus expectations of 51.9 which Ian Shepherdson, chief economist at Pantheon Macroeconomics, said was a pleasant surprise, showing yet again that the regional Fed and PMI surveys are not always a reliable guide to the national picture.
New orders rose 3.3 points to 51.3, a three-month high, and employment jumped 4.3 points to 54.2, a five-month high.
Shepherdson said he expects a modest rebound in the headline index over the next few months, given the uptick in China’s Caixin PMI, which tends to lead the ISM by about three months.
Prices paid fell to the 52.5 from 60.0, hitting the lowest level since June 2020 with further declines are likely over the next few months, he said.
3.30pm Oil price falls for a third day
The oil price has dropped for for the third day running, to its lowest in over a week.
Brent crude has fallen to $94 per barrel, down 1.5% today, while US crude is below $88 per barrel.
Both have dropped around $10 per barrel since their highest points on Tuesday, on anxiety that rising interest rates, to curb inflation, will hit demand.
Both Footsie oil heavyweights, BP PLC and Shell PC slipped back on concerns that weak global growth will dampen demand.
2.45pm: Footsie close to session lows
The FTSE 100 held near session lows today mid afternoon as US stocks opened lower heading for a fifth day of losses.
At 2.40pm the blue chip index was down 116 points at 7,167.50, while the FTSE 250 slumped 2.4% to 18,608.13.
US stocks opened lower as investors eye the release of the August jobs report on Friday amid continued inflation fears.
Just after the open, the Dow Jones Industrial Average had slipped 118 points or 0.4% at 31,393 points, the S&P 500 was down 21 points or 0.5% at 3,934 points, and the Nasdaq Composite had shed 115 points or 1% at 11,701 points.
NVIDIA Corporation (NASDAQ:NVDA) fell about 5% as new US rules limit the sale of artificial intelligence chips to China, representing a potential loss of about $400 million in sales, the company said.
Bed Bath & Beyond Inc stock continued to fall, down another 3%, after the company announced store closures, layoffs, and a share sale earlier this week.
As investors await the release of August’s non-farm payroll report on Friday, initial jobless claims for the week ended August 27 decreased by 5,000 to 232,000, far below the consensus analyst expectation of 248,000.
Pantheon Macroeconomics chief economist Ian Shepherdson said “so much for the ‘layoffs are taking off’ story.”
He noted that this was the third straight decline, pushing the four-week average to 241,500, the lowest in seven weeks.
“The narrative that claims are rising strongly took root in July and continues to defy the evidence,” he said.
“Claims remain extremely low by historical standards, which makes perfect sense given that job openings remain near record levels. If you’re still determined to find a US recession, you’re going to have to look somewhere else.”
2.10pm: No signs of US jobs market slowing down
US weekly jobless claims fell by 5,000 to 232,000 last week below expectations for a rise to 248,000 as the US jobs market continues to show no signs of being affected by rising interest rates and an economic slowdown.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted "This is the third straight decline, pushing the four-week average to 241.5K, the lowest in seven weeks" adding "so much for the layoffs are taking off story.."
He said " The next few weeks likely will bring further volatility due to the Labor Day holiday next Monday, but the trend likely is going nowhere.".
Shepherdson concluded "If you’re still determined to find a US recession, you’re going to have to look somewhere else."
1.40pm: Business confidence falling - Bank of England
The latest Bank of England snapshot shows uncertainty reigns for UK businesses as inflation and labour shortages bite with firms becoming even less confident about the future.
The survey of chief financial officers showed 63% of companies reported business uncertainty was ‘high’ or ‘very high’ in August
Recruitment difficulties remain widespread - 86% of firms reported they were finding it harder to recruit new employees compared to normal, while Inflation is a continuing headache with in the 12 months to August unit costs increased by 9.8%
Susannah Streeter, senior investment and markets analyst, at Hargreaves Lansdown said:
‘’Given the highly unpredictable landscape, with more scorching energy hikes on the horizon, it is little surprise that firms have become less confident about the future.”
“With a recession looming for the UK and expectations that millions of people will be pushed into absolute poverty, mainly due to frighteningly high heating bills, its little wonder businesses are nervous about the months ahead.”“The shortage of labour continues to be a major headache, with almost 9 out of 10 firms reporting that they are finding it more difficult to recruit new employees than they would normally.”
12.50pm: University staff set for strike action
More industrial action in the UK is to take place with thousands of British university staff voting to strike in a dispute over pay, joining the swelling ranks of workers taking industrial action.
The trade union Unison says university staff including cleaners, administrators, library, catering and security workers will walk out after rejecting a 3% pay offer from the University and Colleges Employers Association.
Instituions in London, Manchester, Liverpool, Leeds, Bath, Belfast, Edinburgh and Glasgow will be affected, Unison says.
Unison’s head of education Mike Short explained that staff are being pushed ‘to breaking point’ by the cost of living pressures..
12.00pm: Sterling on the slide
Sterling has recorded its steepest monthly decline against the dollar since the Brexit referendum against a backdrop of intensifying economic and political uncertainty.
The pound fell 4.5% in August to $1.16 in the biggest monthly drop since October 2016, with sterling also down by almost 3% against the euro.
Falls have continued in September, with the pound down a further 0.3% against the greenback today, although it was roughly flat against the common currency.
The currency’s August tumble reflects the deteriorating outlook for Britain’s economy as the energy crisis deals a powerful blow to businesses and consumers. The new prime minister, set to be named next week, could bring further uncertainty as they set new fiscal priorities.
Liz Truss, frontrunner to win the Tory leadership contest, has vowed to offer £30bn in tax cuts as part of a plan to buttress the UK economy against the worsening cost of living crisis.
Economists say a loosening of fiscal policy could alleviate the recession that is forecast by the Bank of England and many City economists to begin later this year.
However, some analysts have said a stimulus of this nature could make it more difficult for the BoE to battle the worst bout of inflation in more than 40 years.
Philip Shaw, chief economist at Investec in London, was quoted in the FT saying sterling’s rapid fall was “very worrying” as it underlined concerns that if Truss were named prime minister, her government’s policies would diverge from the BoE.
The pound was also pulled lower by a broad rise in the US dollar last month as traders bet that the Fed will pursue a strategy of aggressive rate increases in the coming months. But the pound’s fall in August was still more severe than any of the G10 currencies besides Sweden’s krona.
One economist has forecast sterling will fall to a record low next year.
11.50am: Footsie nursing hefty losses
The FTSE 100 index remained sharply lower approaching midday with US stocks expected to open lower on the first session of September as investors ponder how far the Federal Reserve will go in its fight against inflation ahead of the August jobs report expected on Friday.
Futures for the Dow Jones Industrial Average were trading 0.6% lower pre-market on Thursday, while those for the broader S&P 500 index were down 0.7%, and futures for the tech-laden Nasdaq-100 lost 1.1%.
On Wednesday, the ADP private sector jobs report for August showed payrolls grew by just 132,000, lower than the 268,000 jobs added in July and below the 300,000 increase that analysts were expecting for the month.
Swissquote Bank senior analyst Ipek Ozkardeskaya said investors were not pleased with Wednesday’s softer-than-expected private jobs data, and showed their displeasure by sending all three major indices lower on the last trading day of August.
“Good news is bad news, as good economic data supports the idea that the US economy could withstand an aggressive monetary policy tightening … but bad news is also bad news, as the Federal Reserve is so determined to bring inflation down, it is ready to accept a certain slowdown in the economy, and the jobs market,” she added.
Growth in the US jobs market has remained strong despite the series of rate hikes by the Fed this year, but if Friday’s more closely-watched non-farm payroll data show a similar slowdown in the US jobs market, Ozkardeskaya said that would be more in line with the actual tightening macroeconomic conditions.
“This is something that the Fed ultimately wants to achieve because a cooler jobs market should also lead to cooler inflation,” she added.
Analysts are expecting the Bureau of Labor Statistics to report an increase of 318,000 jobs for August on Friday, after employers added 528,000 jobs in July. Ahead of that, the latest weekly US initial jobless claims numbers will draw some attention today.
Meanwhile, the Federal Open Market Committee will meet later this month, when it is expected to raise interest rates by 75 basis points, matching the moves it made in June and July, to bring down a US inflation rate running at 40-year highs.
Around 11.45am, the FTSE 100 index was down 107.03 or 1.5% at 7,177.12.
11.10am: Pearson boosted by broker comment
Pearson PLC was one of a handful of risers in the FTSE 100 today supported by positive comments from JPMorgan Cazenove (JPM).
Shares rose 1.6% and bucked the trend against the wider market as the broker reinstated coverage of the company with an overweight rating and a 1,010p price target.
JPM said it believes that Pearson is “walking the walk” and is making good progress on delivering on its strategy.
“It’s defensive qualities, low risk, good quality and strong earnings momentum suggest that it has the attributes for further outperformance” JPM said.
10.35am: Gloomy mood prevails
FTSE 100 extended its losses mid-morning tumbling below 7,200 with investors struggling to see where the next piece of positive news will come from.
By 10.35am the blue chip index was trading 110 points lower (1.53%) at 7,174.10 with the broader FTSE 250 down 337.34 points (1.77%) to 18,76.41.
“The start of September has not brought about any change to the current gloomy mood pervading markets,” said AJ Bell investment director Russ Mould.
“Further weakness in the US and Asia, with the rally of early August an increasingly distant memory, set the stage for selling in Europe. Reports of the US banning the sale of micro-chips by NVIDIA to China and Russia helps move geo-political risks up another notch on the dial."
“Commodities also fell on signs China is yet to shake off its problems with Covid, providing yet another section of a wall of worry that markets now have to climb."
“Not even further weakness in the pound, as the Resolution Foundation warns of a ‘frankly terrifying’ outlook for living standards, can spare the FTSE 100 from the pain.”
“The US CPI reading for July gave cause for comfort but, at present, it is hard to see where the next piece of positive data which could offer some relief to investors is coming from.."
“It’s still a couple of weeks before we get the CPI reading from across the Atlantic for August. Perhaps if that showed the softening of inflationary pressures to be more of a pronounced trend it might boost sentiment and see the Federal Reserve ease up on its hawkish rhetoric.
“For now, the swift reversal in fortunes for stocks will add grist to the mill for those arguing their recovery a few weeks ago represented nothing more than a ‘bear market rally’.”
9.50am: UK manufacturing PMI hits 27 month low
The S&P Global/CIPS UK manufacturing PMI for August hit a 27 month low of 47.3, down from 52.1 in July, but above the initial estimate of 46.0.
August saw manufacturing production suffer its steepest contraction since May 2020, the report said, adding companies experienced a sharp reversal in new orders, with demand from domestic and overseas clients contracting sharply.
This led to a of jobs growth grinding to a standstill and a drop in business optimism.
The report showed intakes of new work contracted at the quickest pace for 27 months while foreign demand suffered its steepest falls since May 2020.
August saw business optimism slump to a 28-month low, amid rising concerns about a possible UK recession, strong inflationary pressure and the potential impact of the cost of living crisis on consumer demand.
One positive note was that 46% of manufacturers still expect output to rise over the coming year.
9.25am: Households spending power to decline sharply - Resolution Foundation
Households in the UK will see their spending power reduced by an average £3,000 by the end of next year unless the new government acts to counter the biggest drop in living standards in at least a century, according to research published today.
The Resolution Foundation thinktank said soaring energy bills would cut household incomes by 10% and push an extra 3mln people into poverty.
The thinktank said the outlook for living standards was “shocking” and “terrifying”, noting that without increased support from the state, the drop in the typical household’s income would be twice as severe as that in the global financial crisis of the late 2000s and worse than the 8% drop that followed the oil price shock of the mid-1970s.
Lalitha Try, a Resolution Foundation researcher, said: “No responsible government could accept such an outlook, so radical policy action is required to address it. We are going to need an energy support package worth tens of billions of pounds, coupled with increasing benefits next year by October’s inflation rate.”
9.00am: House price growth slows - Nationwide
Annual house price growth in the UK slowed in August but was still higher than expected according to the Nationwide.
Price growth slowed to 10% in August from 11% in July, but was ahead of expectations for an increase of 8.9%.
On the month, house prices rose 0.8% in August following a 0.2% increase the month before, and versus expectations for growth of 0.1% .
Nationwide chief economist Robert Gardner said: "There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels.”
“However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm.”
"We expect the market to slow further as pressure on household budgets intensifies in the coming quarters, with inflation set to remain in double digits into next year.”
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said “The latest data from Nationwide suggests that buyer demand is weathering the significant jump in mortgage rates.”
However, she said she struggled “to see a scenario in which house prices do not fall outright in the second half of the year; the rise in mortgage rates has just been too severe at a time when real incomes are falling.”
“With consumer confidence on the floor and real incomes being squeezed by surging energy costs, households likely will be unwilling or unable to devote a large enough share of their budgets to housing” Dickens commented.
8.45am: FTSE 100 heads towards 7,200
The FTSE 100 extended its recent losses and headed towards 7,200 in early trading, down around 80 points, with the FTSE 250 more than 200 points lower.
Richard Hunter, head of markets at interactive investor, commented “Markets remain unable to snap their recent losing streak, with investors still positioning for tougher times ahead.”
“Central to current concerns are recessionary fears in the US and a beleaguered China.”
“With the world’s two largest economies – and growth engines – under pressure, the immediate outlook is poor, with markets yet to find an equilibrium, suggesting that further declines could follow in the absence of more positive developments.”
“With the possibility of a global slowdown alongside tense investor sentiment, the UK market unsurprisingly took both barrels in early exchanges.”
“The weakness of sterling and a strong oil price have provided some support at different times over the course of this year, but the premier index is not immune from the current global outlook, with the FTSE100 now having shed 2% in the year to date.”
“Even so, this remains a relatively decent performance in comparison with many other developed markets and in terms of total return, the picture is marginally positive when factoring in the FTSE100’s current average dividend yield of 3.9%.”
“Nonetheless, the final month of the third quarter is likely to be riddled with more questions than answers as the impacts of a tightening environment begin to wash through.”
8.25am: Shares in Reckitt Benckiser fall as CEO steps down
Shares in Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) fell sharply in early trading following news that its chief executive officer, Laxman Narasimhan will step down at the end of September for personal and family reasons.
The company said Laxman will be replaced by Nicandro Durante, current senior independent director, who will step into the role of CEO, as the board evaluates and selects the future leadership.
Victoria Scholar, head of investment, interactive investor noted “Narasimhan has been at the helm for three years, joining from PepsiCo (NASDAQ:PEP) back in 2019 and spearheaded the company through the challenges of the pandemic.”
“Despite significant share price moves in both directions, the stock is little changed since the start of his time as CEO” she said but added “Having said that, the consumer goods giant has successfully navigated the post-covid challenging inflationary environment by raising prices for shoppers to successfully offset price pressures without denting consumer demand.”
Shares were trading 5.4% lower in early trading at 6,290p.
8.05am: FTSE 100 extends recent falls
FTSE 100 opened lower this morning following further falls in the US on Wednesday and in Asia overnight as the market continues to reassess equity valuations given the likelihood that central banks will keep interest rates higher for longer.
At 8.05am the lead index was trading 40.24 points lower at 7,243.91 with the broader FTSE 250 opened 131.74 points lower at 18,932.01.
On the corporate front Kainos Group PLC (LSE:KNOS) said trading had remained very strong in an update today.
The IT provider said its two specialist business areas, Digital Services and its Workday Practice, have both performed well as new and existing clients maintained high levels of investment in digital solutions.
As a result, Kainos said it expects full year results to be in line with current consensus forecasts and believes it is well-positioned for further growth and remain confident in our strategy.
Communications and advertising heavyweight, WPP PLC, said it will acquire European ecommerce consultancy Newcraft for an undisclosed sum.
WPP said the addition of Newcraft, based in the Netherlands, will unlock business opportunities for its global clients by combining transformation strategy with operational commerce expertise to deliver "growth and tangible business results".
The UK S&P Global/CIPS manufacturing PMI for August is due this morning.
Rio Tinto has taken full ownership of Turquoise Hill Resources in a $3.3bn deal valuing each share at C$43 per share.
The global mining group is buying the 49% of Turquoise Hill that it is does not currently own and has the unanimous backing of Turquoise Hill's Board.
The deal will require the approval of two thirds of Turquoise Hill shareholders with approval hoped for early in the fourth quarter.
Rio Tinto is also providing Turquoise Hill with funds to address near term liquidity increasing the early advance facility agreed in May to S$650mln from S$400mln.
Rio Tinto chief executive Jakob Stausholm said: "Rio Tinto is committed to moving Oyu Tolgoi forward in direct partnership with the Government of Mongolia to realise its full potential for all stakeholders."
"This agreement represents another significant step following the recent commencement of the underground operations, and will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project."
7.20am: Weak start to September expected in London
With shares in London set to start September in negative fashion Michael Hewson said he sees no signs that central banks will relent on their rate rising plans.
spread betting companies are calling the lead index down by around 52 points.
Hewson chief market analyst at CMC Markets UK commented “As we start a new month and meteorological autumn, the question now being asked is where we go next for equity markets, after Powell’s comments at the end of last week, and subsequently hawkish comments from more Fed officials this week.”
“When you have the likes of a typical Fed dove like Minneapolis Fed President Neel Kashkari talk about the unlikely prospect of rate cuts in 2023, it’s hard to envisage a scenario of anything other than a 75bps rate hike later this month, as the Fed continues to insist that their priority is to keep going on rates until the job is done.”
“As if to re-emphasize this message Cleveland Fed President Loretta Mester also went on the record saying that she doesn’t expect rate cuts in 2023, and for rates to be somewhat above 4% by early next year.”
“Today’s economic data isn’t expected to slow the determination of central banks to push rates higher, even as the data continues to deteriorate, with the latest numbers out of China signalling further weakness.”
“The latest Caixin manufacturing survey slipped back into contraction at 49.5, while it was being reported that Chengdu was being locked down to contain Covid.”
PMI reports are due across Europe, Hewson said that “we already know that the latest August manufacturing PMIs from Germany and France are expected to contract at 49.8 and 49 respectively, however we’ll also get the picture from Spain and Italy which are expected to be equally as weak, with Spain set to slip to 48.5 and Italy to 48.1. The UK is expected to be confirmed at 46.”
6.55am: FTSE 100 set for further falls at the open
The FTSE 100 is expected to open sharply lower following further heavy falls in US and Asian markets overnight.
Spread betting companies are calling the lead index down by around 50 points.
Ex-dividends will also weigh on the Footsie reducing it by 9.99 points with Glencore, InterContinental Hotels, Admiral Group, Antofagasta, Endeavour Mining amongst the companies going ex-dividend.
In the US, the Dow closed Wednesday down 280 points, 0.9%, at 31,511, the Nasdaq Composite lost 67 points, 0.6%, to 11,816 and the S&P 500 dropped 31 points, 0.8%, to 3,955.
The benchmarks spent time on both sides of the flatline but trended lower as the session went on and ultimately lost ground for the fourth consecutive day. For the month of August, the three major indices all fell more than 4%.
It's a familiar refrain, but investors are still grappling with a Federal Reserve likely to continue aggressively raising interest rates.
“Markets were counting on limited rate increases and quick rate cuts,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, according to CNBC. “The speech was clear, however, that the increases will be larger, and the cuts more delayed, than anyone expected.”
In London PMI manufacturing data is due for release.