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FTSE 100 ahead but off its best amid more signs UK is heading for recession, as Glencore leads the way

Stock Markets Nov 23, 2022 11:10
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© Reuters FTSE 100 ahead but off its best amid more signs UK is heading for recession, as Glencore leads the way
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Proactive Investors -

  • FTSE 100 climbs 29 points
  • Glencore (LON:GLEN) boosted by sale and broker buy
  • Halfords goes into reverse

10.53am: Brokers boost for market

Leading shares are off their best but still in positive territory following a mixed picture from the UK purchasing managers indices (better than expected but still pointing to recession).

The FTSE 100 is currently up 29.48 points or 0.4% at 7482.32, having been as high as 7498.

This remains its best level since 13 September, when it reached an intra-day peak of 7514.

Glencore PLC is still the biggest riser, up 3.88% after a sale and broker buy note.

A host of analyst recommendations are providing support.

Intermediate Capital Group (LON:ICP) has added 2.85% to 1190p as Credit Suisse (SIX:CSGN) issued an outperform rating and raised its target price from 1320p to 1470p.

Whitbread PLC (LON:WTB) has been lifted 2.4% by a JP Morgan note, while Compass Group PLC (LON:CPG) has climbed 1.74% on the back of comments from Kepler Cheuvreux and Goldman Sachs (NYSE:GS).

Severn Trent PLC (LON:SVT) is 1.94% better as Bank of America (NYSE:BAC) moved its rating from underperform to neutral, while peer United Utilities Group PLC has reversed an early fall following its results and is now up 1.06%.

10.25am: Depth of UK contraction is stark - analyst

Despite some positive signs in the UK PMI data, the overall picture is pretty bleak, according to Simon Harvey, head of FX Analysis at Monex Europe.

He said: "Signs of a faster slowdown in UK economic conditions ahead were littered across the overall report. For example, volumes of new work decreased for the fourth month in a row and the rate of decline accelerated to its fastest since January 2021....

"Overall, today’s PMIs reinforce that the UK economy is already in recession. This has also been confirmed by the OBR and Bank of England.

"However, the depth of the contraction as suggested by the PMIs for November is stark; data thus far suggests that the contraction in the fourth quarter is the steepest since the height of the financial crisis when excluding pandemic months.

"Additionally, forward-looking indicators suggest that the pace of the contraction is only set to accelerate in the early quarters of 2023. Today’s PMIs thus paint a fairly bleak investment outlook for UK assets. Since the BoE’s recession warnings in September, however, this has largely been accounted for in FX markets, which look to be trading on the improved global risk conditions over the past 36 hours and the slight beat in the PMI data relative to expectations."

Indeed the pound is up 0.16% against the dollar at US$1.1912, little affected by news Scotland cannot hold another referendum without permission from Westminister, as ruled by the Supreme Court.

9.40am: UK PMIs better than expected but still in contraction

The UK economy continues to head for recession even though it did better than expected in November, according to the latest snapshot of the manufacturing and service sectors.

The S&P Global composite PMI - which comprises both sectors - is still in contraction territory at 48.3, albeit not as bad as the forecast 47.5..

And new orders showed their sharpest fall since January 2021 as cost of living pressures continued to hit the economy.

S&P said UK private sector firms signalled another reduction in business activity during November, which stretched the current period of decline to four months

New orders decreased at the fastest pace for almost two years as squeezed client budgets continued to hit demand in both the manufacturing and service sectors, it said.

On a more positive note, business expectations for the year ahead rebounded from the 30-month low seen in October.

Recession worries and increasingly challenging economic conditions continue, but the recent change in prime minister and cabinet meant there were fewer comments citing domestic political uncertainty.

S&P's Chris Williamson said: “A further steep fall in business activity in November adds to growing signs that the UK is in recession, with GDP likely to fall for a second consecutive quarter in the closing months of 2022.

"If pandemic lockdown months are excluded, the PMI for the fourth quarter so far is signalling the steepest economic contraction since the height of the global financial crisis in the first quarter of 2009, consistent with the economy contracting at a quarterly rate of 0.4%.

"Forward-looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.

“While the recent change of government has resulted in improved business confidence, the business mood remains among the gloomiest seen over the past quarter century amid the numerous headwinds, which include the cost of living crisis, the Ukraine war, steepening export losses (often linked to Brexit), higher borrowing costs, fiscal tightening and heightened political uncertainty

“Price pressures meanwhile remain elevated but show further signs of cooling, often linked to weakened demand, which – combined with the growing recession signals – suggest that the Bank of England may start to make less aggressive interest rate hikes in the coming months.”

9.07am: Better news from Eurozone

The Eurozone economy is performing more strongly than expected so far in November, but it is still in contraction territory

The latest S&P Global composite PMI has come in at 47.8, up from 47.3, with the service sector showing a stronger performance than manufacturing.

S&P said that although the rate of decline remained the second strongest since 2013, excluding COVID-19 lockdown months, the intensity of the downturn moderated in response to a reduced rate of loss of new business, fewer supply constraints and a pick-up in business confidence about the year ahead.

Business sentiment nevertheless remained gloomy by historical standards, it added, and demand continued to fall at a steep rate, leading to a pull-back in employment growth during the month.

Chris Williamson, chief business economist at S&P Global Market Intelligence said: “A further fall in business activity in November adds to the chances of the eurozone economy slipping into recession. So far, the data for the fourth quarter are consistent with GDP contracting at a quarterly rate of just over 0.2%.

“However, the November PMI data also bring some tentative good news. In particular, the overall rate of decline has eased compared to October. Most encouragingly, supply constraints are showing signs of easing, with supplier performance even improving in the region’s manufacturing heartland of Germany. Warm weather has also allayed some of the fears over energy shortages in the winter months.

“Price pressures, the recent surge of which has prompted further policy tightening from the ECB, are also now showing signs of cooling, most noticeably in the manufacturing sector. Not only should this help contain the cost of living crisis to some extent, but the brighter inflation outlook should take some pressure off the need for further aggressive policy tightening."

Earlier came the individual surveys from Germany and France which showed a mixed performance:

8.45am: Mid-cap index underperforms on domestic UK concerns

The FTSE continues on its positive way but the FTSE 250 is not so fortunate.

The mid-cap index is more focused on the domestic UK economy, and as the OECD suggested yesterday, the outlook does not look too promising.

Analysts are expecting a second quarter of negative growth for the last three months of the year, meaning recession, with the PMI figures later expected to add fuel to that narrative by showing continuing contraction in November.

So while the Footsie is up 30.05 points or 0.4% at 7482.89, the FTSE 250 is off 0.2% at 19,383.12.

Richard Hunter, head of markets at interactive investor, said: " A marginally positive opening leaves the [FTSE 100] index ahead by 1.2% in the year to date, with its diverse constituents still ticking some boxes for investors with an international view

" Aside from an exposure to the commodity sector and oil in particular, the index has a number of defensive shares with pricing power, resulting in a partly inflation insensitive play. At the same time, there are also blue chips towards the top end of the consumer range, which could provide some defence in the event of recession. Capped with an average dividend yield of 3.7% for the index, there are rather more angles of attack for investors than in some other major markets.

"The same cannot be said for the FTSE 250 index, however, whose fortunes are more closely linked to UK economic prospects. Quite apart from rampant inflation and a rising interest rate environment, it is becoming increasingly difficult to see where strong growth may come from as the country attempts to balance its books. The index has now lost 17% so far this year, with darkening economic clouds continuing to overshadow sentiment.”

8.33am: Glencore leads the way as commodity companies gain ground

Commodity companies are helping to support the market, recovering further from their losses earlier in the week and helped by some positive broker comments.

Glencore PLC has climbed 3.11% to 530.9p after it agreed to sell its Cobar copper mine in New South Wales, Australia for US$1.1bn and an ongoing 1.5% smelter royalty to Metals Acquisition Corp, a New York-listed special purpose acquisition company.

It has also been lifted by a buy recommendation from Deutsche Bank (ETR:DBKGn), which lifted its price target from 500p to 560p.

Antofagasta PLC (LON:ANTO) has added 1.72% to 1360p, while Anglo American PLC (LON:AAL) is up 1.42% to 3183p as Deutsche moved from 3400p to 3500p.

Oil companies are also heading higher as Brent crude added 0.86% to US$89.12 a barrel and West Texas Intermediate rose 0.84% to US$81.63.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV), said: "Oil prices have nudged higher, as OPEC+ member countries indicate that ongoing production restrictions are set to continue.

"Investors are also weighing up the supply side impact of a G7 plan to cap the price of Russian oil especially given that Russia has indicated it won’t sell crude to nations which support a price limit, adding to worries that fresh shortages could hit the global markets."

There was also a bigger than forecast drop in US crude inventories last week, showing increasing demand.

So BP PLC (LON:BP.) is 1.54% better and Shell PLC has added 1.4%.

8.12am: Postive start for market but Halfords goes sharply into reverse

Leading shares have opened in the green ahead of the latest snapshot of the economic performance of major economies including the UK and US in November and the Federal Reserve minutes.

The FTSE 100 is up 25.74 or 0.35% at 7478.58.

Investors appear to be shrugging off news of further pandemic restrictions in China where, amongst other developments, Shanghai said that new arrivals would not be allowed to enter public venues for the first five days, and would also be required to take three PCR tests within three days of their arrival.

There are also continuing concerns about the supply of gas to Europe.

Jim Reid at Deutsche Bank said: "Not only did the COVID-19 situation in China take a fresh turn for the worse yesterday, but we also had a fresh round of threats about a cut-off in the remaining flow of Russian gas to Europe.

"Both of these could have significant ramifications for the global economy more broadly, since China plays a critical role in supply chains that could have ramifications for global inflation in the event of further lockdowns, whilst Europe is already facing a critical energy situation this winter."

Among the movers, United Utilities Group PLC has lost 2.66% following its figures but Halfords Group PLC (LON:HFD) is a much bigger loser, down 12% as it warned profits would be at the low end of expectations.

7.04am: Footsie set for positive start

The FTSE 100 is expected to open higher, building on yesterday’s advance, following gains in US and Asian markets and ahead of the release of the Federal Reserve minutes.

Spread betting companies are calling the lead index up by around 16 points ahead of the first snapshots of how the major economies are performing in November.

Michael Hewson chief market analyst at CMC Markets UK said: “As we look ahead to today’s price action and a holiday shortened US trading week, the main focus is set to be on today’s Fed minutes, as well as the latest November flash PMIs.”

The UK S&P Global/CIPS manufacturing PMI is expected to show a further contraction in the sector in November, at a reading of 45.8 points from 46.2 in October.

In the US markets staged a strong rally on Tuesday as a rebound in the oil price and an upbeat sales forecast from Best Buy provided support.

At the close the Dow Jones Industrial Average was up 398 points, or 1.18%, to 34,098, the S&P 500 advanced 54 points, or 1.36%, to 4,004 and the Nasdaq Composite jumped 150 points, or 1.36%, to 11,174.

In London results are due from Halfords PLC, Johnson Matthey PLC (LON:JMAT), Pets at Home Group PLC (LON:PETSP) and United Utilities amongst others.

Meanwhile the Reserve Bank of New Zealand caught the market on the hop with a 75 basis point interest rate rise to 4.25%, its biggest hike on record as it struggles to contain rising inflation.

Read more on Proactive Investors UK


FTSE 100 ahead but off its best amid more signs UK is heading for recession, as Glencore leads the way

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