- FTSE 100 heads 28 points lower
- Hit by cocktail of fears around inflation, recession and rising energy prices
- UK flash PMI hits 18-month low
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.
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:LON: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.
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