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FTSE 100 loses ground at the close on Chinese protest worries

Last updated: 16:45 28 Nov 2022 GMT, First published: 07:02 28 Nov 2022 GMT

markets
  • FTSE 100 closes 13 points lower
  • BAE Systems higher after positive Citi comment
  • BT falls despite striking pay deal

4.45pm: FTSE on back foot at the close

By 4.30pm, the FTSE 100 had slid back into negative territory to finish 0.2% lower at 7,474 points.

Global markets suffered as Chinese protests heightened existing Covid concerns, says Joshua Mahony, senior market analyst at online trading platform IG.

“European and US markets have followed their Asian counterparts lower today, with weekend unrest in China building on the Covid-fuelled uncertainty that had been growing over recent weeks," Mahoney wrote.

"From a market perspective, the outcome from these protests remain uncertain, with optimists hoping that it will push Xi Jinping to ease restrictions earlier. However, for now we see major uncertainty that has been reflected by market weakness, with concerns growing over a drawn-out period of restrictions thanks to growing Covid cases.”

3.57pm: FTSE 100 rebounds in late trading

FTSE 100 has moved higher in late trading as commodity prices recovered some of their early losses.

At 3.52pm the lead index was up 8 points at 7,495 although the FTSE 250 stayed lower, down 188 points, to 19,357.

BAE Systems PLC (LSE:BA.) gained after positive comments from Citi, but Persimmon PLC (LSE:PSN) led housebuilders lower hurt by a downgrade from UBS and a downbeat survey of the housing market by Zoopla.

BT Group PLC (LSE:BT.A) fell 2.1% as investors weighed up the cost of a pay settlement which has been recommended for approval by union bosses.

2.55pm: BT strikes pay deal

BT Group PLC (LSE:BT.A) said on Monday it would give all but its highest paid staff in Britain a special pay rise reflecting the rising cost of living, a move that has been backed by two unions and could lead to an end to strike action at the telecoms group.

BT said in a statement that all colleagues who earn £50,000 or less would get a £1,500 pay rise from 1 January - a consolidated salary increase and not a one-off payment.

It said the Communication Workers Union (CWU) and Prospect unions would recommend that members vote in favour of the offer and in the case of the larger CWU union, this would bring an end to industrial action if members agree.

2.48pm: Barclays' boss to have cancer treatment

Barclays' chief executive will undergo cancer treatment, the FTSE 100 listed lender said today.

CS Venkatakrishnan, who will be treated for non-hodgkin lymphoma, said in a letter to colleagues that "doctors have advised that my prognosis is excellent, and my condition is curable with their prescribed regimen."

The bank will "run normally" and he "will continue to be actively engaged in managing it" a statement from the bank said. 

Venkatakrishnan will have to work from home for some periods and will not be able to travel.

His treatment is likely to last 12 to 16 weeks and will take place at New York's Memorial Sloan Kettering Cancer Center.

2.41pm: US markets head south

US stocks tumbled at the open on Monday as concerns around protests and rising COVID-19 cases in China dominated market sentiment.

Just after the market opened, the Dow Jones Industrial Average had slipped 82 points or 0.2%, the S&P 500 gave up 21 points or 0.5% at 4,005 points, and the Nasdaq Composite had shed 51 points or 0.5% at 11,175 points.

Forex.com market analyst Fawad Razaqzada said the implementation of strict mobility curbs in China over the weekend was going to keep economic activity subdued in the country and beyond.

“The civil unrest is adding another layer of uncertainty over the economic situation there,” he said. “It is certainly hurting investor sentiment across the financial markets.”

He added that the worry was that the world’s second-largest economy may tighten its COVID cubs even further.

“Although China relaxed some restrictions, its zero covid policy means the threat of more growth-choking lockdowns is there,” Razaqzada said.

“This is going to hold back the yuan and Chinese stocks, and potentially risk assets outside of China – not least crude oil, as we have seen.”

Meanwhile, back in London the FTSE 100 is now down 30 points.

2.07pm: Global trade is slowing - WTO

Global trade growth is slowing, as export orders weaken and demand for container shipments and air freight drops, according to the World Trade Organisation (WTO).

The goods barometer calculated by the WTO has sunk below its trend levels, down to 96.2 from 100.0, reflecting cooling demand for traded goods.

The WTO feared that trade growth is likely to slow in the closing months of 2022 and into 2023, “as the global economy continues to be buffeted by strong headwinds.”

“World merchandise trade volume growth continued to slow in the second quarter of 2022, with a 4.7% year‐on‐year increase similar to the 4.8% rise in the first quarter.”

According to the WTO’s latest forecast, world trade is expected to decelerate further in the second half of 2022 and remain subdued in 2023 due to several related shocks, including the war in Ukraine, high energy prices, inflation, and monetary tightening in major economies.

1.58pm:  Double dose of news supports Rolls-Royce

A double dose of news on Rolls-Royce PLC has helped pushed the engineering giant into positive territory with shares rising against a weaker market.

Firstly, there was news that it had successfully tested a hydrogen-fuelled jet engine in partnership with easyJet plc which it hailed as a “new aviation milestone.”

Having proven that hydrogen can “safely and efficiently” power civil aero engines, the group said in a press release that a second round of tests is already being planned, “with a longer-term ambition to carry out test flights” being the ultimate goal.

There were also reports that Ineos, the chemicals company owned by the billionaire Sir Jim Ratcliffe, has held exploratory talks with the company on nuclear technology that could eventually lead to it being chosen to provide zero-carbon energy to the Grangemouth refinery in Scotland.

1.00pm: BAE Systems – What’s not to like says Citi

BAE Systems PLC (LSE:BA.) bucked the weaker market and rose 0.8% as analysts at Citi sang its praises.

They suggested the FSE 100 company is moving into a stronger cash flow generation phase (as evidenced by the share buy-back) and has eliminated its pension underfunding which it estimated is worth about 50p per share.

“We had been somewhat sceptical of the UK government’s ability to move defence spending to 3% of GDP, but post-Jeremy Hunt’s autumn statement, we believe expectations have been reset with the potential for increases to come through in the medium term” they commented.

The broker has increased its forecasts by 7% due to forex movements and increased its DCF derived target price to 1,038p - mainly reflecting increased profits and the pension underfunding elimination

Citi reiterated its buy rating.

12.30pm: National Grid could activate emergency plan tomorrow

UK households might be paid to help Britain’s grid operator avoid a potential blackout on Tuesday evening, partly due to problems in the French energy grid and a drop in wind power.

National Grid’s electricity systems operator division said it is considering whether to activate a live run of its demand flexibility service for the first time on Tuesday.

The scheme, which launched at the start of this month, has already been tested twice in the last two weeks but has not yet been run for a live event.

National Grid said it would decide by around 2.30pm today whether to issue the notice to suppliers and households.

Electricity demand is rising as European temperatures fall, while weak wind speeds are hitting renewable energy supplies.

Households which have signed up to the programme in advance will get a message asking them to turn off appliances at a certain time in exchange for £3 per kilowatt-hour saved.  If the £3 is fully passed on by the suppliers to customers, that implies payments of up to £20 for each day when requested by National Grid.

12.00pm: US markets seen lower

US stocks are expected to open lower on Monday with investors eyeing developments in China where anti-government demonstrations are growing.
Futures for the Dow Jones Industrial Average were down 0.5% in pre-market trading, while those for the S&P 500 were 0.7% lower, and contracts for the Nasdaq-100 shed 0.8%.

“Falling oil prices and concerns over the impact of mounting unrest in China are taking a toll on markets as the new trading week gets underway,” said James Hughes, chief market analyst at scopemarkets.com.

The world’s attention has been drawn to China, often regarded as the growth engine of the world, where people are demonstrating against the government’s tough COVID-19 restrictions which they believe are excessive. News of the protests in the country’s major cities is leading to worries that activity in the world’s most populous country will start to slow.

Still, losses seen early in the European session appear to be limited so this could help lift US futures a little before the opening bell, said Hughes.

“Once again it’s a light day in terms of economic and corporate data, but there is the first of a slew of speeches by Fed board members due later. Given the absence of other data points, this could well come with an outsized reaction for the market,” he noted.

Today’s speaking engagements include St Louis Fed President James Bullard’s interview by MarketWatch and NewYork Fed President John Williams’ speech at the Economic Club of New York.

"As the week progresses, smaller retailers will offer some valuable insight as to how the consumer economy is holding up, whilst there’s also the non-farm payrolls and earnings growth data due for release on Friday. For now, however, it’s looking like a rather uninspiring start," added Hughes.

Last week, US stocks ended higher despite the holiday for Thanksgiving and investors are holding out hope that the Black Friday sales season will bring some cheer to retailers.

11.31am: Retail sales fall in November - CBI

British retail sales slid in November and stores are braced for a difficult December as the cost-of-living crisis grinds away at consumers, a survey showed on Monday.

The Confederation of British Industry's (CBI) monthly retail sales balance fell this month to -19 from +18 in October.

Sales volumes were seen as average for the time of year (+3% from +20% in October) and are expected to remain broadly in line with seasonal norms in December (-1%).

Online retail sales contracted in the year to November (-5% from -23% in October). Internet sales have now been flat or falling for 13 months, and an accelerated contraction (-26%) is expected next month.

Retailers expect to reduce investment in the next 12 months compared to the previous 12 (-38% from -31% in August), to the greatest extent since May 2020.

“It’s not surprising that retailers are feeling the chill as the UK continues to be buffeted by economic headwinds," Martin Sartorius, principal economist at the CBI, said.

11.10am: BT looking at merging Global Services and Enterprise units

BT PLC is gearing up to merge two of its struggling divisions as the telecom giant continues its big squeeze.

The Telegraph reported that the FTSE 100 telco is set to combine its Global Services division, which provides security and cloud computing services, with its Enterprise unit, which serves business and government customers in the UK.

It comes after chief executive Philip Jansen upped the company’s cost savings target by £500mln to £3bn, paving the way for job cuts and simplification of the business.

10.30am: UBS downgrades hit Persimmon and Smith & Nephew

Persimmon PLC (LSE:PSN) was top of the FTSE 100 fallers hit by another poor survey of the housing market by Zoopla and a rating downgrade by UBS.

Zoopla forecast house prices will fall by about 5% next year while the average price achieved in recent weeks has been 3% below a seller’s asking price.

The company took another hit from a downgrade from broker UBS which cut the housebuilder to sell from neutral with a reduced price target of 1,230p (down from 1,290p).

“We downgrade to Sell from Neutral on risks of further mean reversion in returns, which would erode the valuation premium to the sector further” it said.

Shares fell 3.9% with other housebuilders also lower. Barratt Developments PLC (LSE:BDEV) fell 1.9%, Taylor Wimpey PLC (LSE:TW.) slipped 1.6% and Berkeley Group Holdings PLC (LSE:BKG) declined 1.4%.

Smith & Nephew was another faller, down 1.7% as the same broker cut its price target to 970p from 1,116p and put the stock on its sell list.

“Inflation driven margin misses in the near-term and structural price/mix pressure long-term drive downgrade to Sell” it said.

9.57am: BA could double Gatwick operations

British Airways PLC could double its operations at Gatwick Airport, rather than expand at Heathrow Airport Ltd, according to a report in the Sunday Telegraph.

The UK flag carrier intends to potentially double the number of aircraft based at the Sussex airport, going to between 24 and 28 planes from 14 currently, the paper said.

The move comes after Heathrow was forced to limit passenger numbers this summer due to a shortage of baggage handlers and other support staff.

Alongside staffing issues, airline bosses have clashed with Heathrow’s management over landing fees.

The airport would like to raise them to £42 from £30 per passenger.

As things stand, the levy -- which falls on travellers, not carriers -- may fall to £26 next year under a plan by the UK’s Civil Aviation Authority. 

The paper quoted Heathrow CEO John Holland-Kaye as saying the airport needed the additional revenue to invest in upgrades and maintenance.

Luis Gallego, CEO of BA’s parent company, International Consolidated Airlines Group SA, said however, that the airport was using its market dominance to enrich shareholders.

9.30am: Apple to be hit by Chinese disruption

Apple is likely to make 6mln fewer iPhone Pro units than planned this year as a result of turmoil at its key factory in Zhengzhou in China.

Much will depend on how quickly Foxconn Technology Group, the Taiwanese company that operates the facility, can get people back to assembly lines after violent protests against Covid restrictions. 

If lockdowns continue in the weeks ahead, production could be set further back, sources told Bloomberg. 

The Zhengzhou campus has been wracked by lockdowns and worker unrest for weeks after Covid infections left Foxconn and the local government struggling to contain the outbreak. 

9.00am: Just Group gets boost from Jefferies

FTSE 100 still down but has recovered some ground, now down 34 points. 

The anti-Covid protests in China have dashed "hopes of an easing of restrictions, given that  Xi JinPing will not want to look like he’s backing down in the face of protests" according to Susannah Streeter, senior investment and markets analyst. Hargreaves Lansdown.

Together with the falls in oil and mining companies Streeter highlighted that luxury goods maker Burberry, which is highly reliant on the Chinese consumer to even out its own recovery from the pandemic, has also been hit by some volatility.

But one bright spot is Just Group PLC (LSE:JUST), up 4.7%, as Jefferies initiated coverage of the company with a buy rating and 115p price target.

"Just has implemented a successful turnaround programme since 2019, which the market has given minimal credit for" it said.

"At a 195% Solvency II ratio for 2022F, capital is stronger than ever and capital generation is improving at a rapid pace."

"With Just poised to benefit from the busiest bulk annuity market ever, we initiate with a Buy" analysts at Jefferies wrote.

8.35am: C4X Discovery soars after AstraZeneca link

One share on the up is C4X Discovery Holdings UK. 

Shares soared 29% after it signed a licence deal worth up $402mln to develop an oral therapy for the treatment of inflammatory and respiratory diseases using its NRF2 Activator programme with Astra Zeneca PLC.

The British drug discovery company said it would receive pre-clinical milestone payments worth up to $16mln  ahead of the first clinical trial, including $2mln upfront.

In addition, C4XD said it would receive a further potential $385.8mln in clinical development and commercial milestones and tiered mid-single digit royalties upon commercialisation of any treatment. 

8.15am: FTSE 100 opens lower, oil prices tumbles

FTSE 100 nursed heavy falls at the open hit by falls in Asian markets sparked by increased protests in China against Covid lock-downs.

Just after the open the FTSE 100 was down 54 points at 7,432 and the mid-cap FTSE 250 was 129 points lower at 19,417.

Dissent spread over the weekend in China as citizens in major cities including Beijing and Shanghai took to the streets to express their anger on the nation’s Covid controls. 

The uncertainty sparked sharp falls in commodities with the oil price seeing heavy falls.

Brent crude was down 2.9% to $81.50/barrel while WTI crude was 2.73% lower at $74.23.

In London, the fall in the oil price hit shares in BP PLC (LSE:BP.) (down 1.9%) and Shell PLC (LSE:SHEL, NYSE:SHEL) (down 2.2%), while falling metals prices hit Anglo American (down 1.8%) and Rio Tinto plc (down 1.8%).

 

8.00am: Sterling still strong against US dollar, despite slight weekend dip

Cable pushed slightly higher this morning after losing 30 pips during the Sunday session, while UK 10-year gilt yields fell in unison by a quarter of a percent to 3.11%.

Though Sterling is lower against last week’s highs, the GBP/USD pair is still sitting strong at 1.207, supported by a weaker greenback as the market considers a slower pace of rate hikes from the US Federal Reserve following November’s softer-than-expected CPI print.

GBP/USD going strong, despite small Weekend dip – Source: dailyfx.com

GBP/USD going strong, despite small Weekend dip – Source: dailyfx.com

The US Dollar Index (DXY) pared back 0.2% in this morning’s Asia trading session, continuing a bearish trend following the release of the Federal Open Market Committee’s minutes last Wednesday.

A majority of Fed officials judged that a slowing in the pace of the fed funds rate increase would soon be the right course of action, prompting cautious sentiment towards the greenback.

EUR/USD is changing hands at 1.037, an incremental gain against the day. The pair remains buoyant due to a persistently hawkish attitude from the European Central Bank.

The euro has been trapped in a two-week losing streak against the pound, with further losses this morning bringing the EUR/GBP pair down to 85.93p.

A quiet economic calendar is scheduled for this Monday, apart from ECB President Christine Lagarde’s speech before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament in Brussels.

7.35am: Demand for houses down 44% since mini-budget

People selling their homes have typically had to settle for below the asking price in recent weeks, according to Zoopla, which is predicting house prices will fall by about 5% next year.

The average price achieved in recent weeks has been 3% below a seller’s asking price, when for much of 2021 and the first half of this year it matched the asking price, the property website said. Zoopla said it expects discounts to increase further in 2023.

Since the start of September, one in nine homes have had their original asking price reduced by 5% or more, Zoopla said, and a quarter have had the price cut to some degree, according to the index covering the month of October.

Annual house price growth slowed to 7.8% last month, down from 8.1% in September and the lowest since November 2021, according to Zoopla data. Demand has fallen 44% since September’s disastrous mini-budget, which drove mortgage rates sharply higher and led to hundreds of deals being pulled from the market.

7.22am: Superdry confirms financing talks continue

Superdry PLC (LSE:SDRY) has confirmed it is in negotiations with Bantry Bay Capital Limited (LSE:CAPD), a specialist lending provider, to replace its existing up to £70mln asset-backed lending facility.

The retailer was responding to a report in The Sunday Times which said the refinancing plans were close to being finalised.

Talks continue with other lenders as a well and “a further announcement will be made as and when appropriate” it said.

The fashion group, best known for sweatshirts, hoodies, jackets and coats, said last month that the facility is due to expire at the end of January 2023.

Superdry operates 740 branded stores across 61 countries and employs more than 2,500 people in the UK and Ireland.

7.00am: FTSE 100 seen lower after Chinese protests

FTSE 100 expected to post opening falls on Monday unsettled by anti-lockdown protests across several major cities in China which helped send Asian markets lower.

Spread betting companies are calling the lead index down by around 34 points.

On Sunday several major Chinese cities saw people taking to the streets calling for an end to lockdowns and greater political freedoms, in a wave of nationwide protests not seen since pro-democracy rallies in 1989 were crushed.

Asian markets weakened as a result. In China, the Shanghai Composite was down 0.9%, while the Hang Seng index in Hong Kong was down 1.8%.

Michael Hewson, chief market analyst at CMC Markets said this has “prompted further weakness in commodity markets this morning” and “looks set to translate into a lower European open, over concerns that the unrest could prompt a stricter crackdown by Chinese authorities in response.”

In London, half-year results from real estate investment trust Home REIT and building materials firm Brickability are expected.

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