- FTSE 100 closes 64 points higher
- US stocks also advance led by Nasdaq
- UK house prices hit record levels
4.50pm: Never mind the heat
The FTSE 100 index closed higher on Monday, extending recent advances into a new week, helped by early gains on Wall Street as investor concerns about inflation and interest rate rises ease off for now.
At the close, the UK blue-chip index was 64.23 points, or 0.9% higher at 7,223.24, below the session peak of 7,268.88 but well above the opening low of 7,159.01.
In New York, around London’s close, the Dow Jones Industrial Average was 173 points, or 0.6% higher at 31,461, while the broader S&P 500 index added 0.8% and the tech-laden Nasdaq Composite gained 1.3%.
Craig Erlam, senior market analyst, UK & EMEA, OANDA commented: “Maybe the heat is getting to everyone - getting closer to 40C here in London and my fan just isn't cutting it - or perhaps the doom and gloom has become a bit tiresome but the two-day rally we've seen on the back of so little looks a little hopeful to me.
“As ever, I'll caveat this with the fact that stock markets are severely discounted compared to earlier this year and not everyone is sold on the inevitability of a recession, or a particularly deep one, but what we saw on Friday just doesn't reflect anything worth getting overly excited about.”
He added: “The Fed probably won't hike by a full percentage point next week but they probably will by 1.5-1.75% over the next two meetings and that 25 basis points just isn't the deal breaker for the economy.
“And if we can discount consumer sentiment and inflation expectations when they're not good, we can't hang our hats on them when they surprise to the upside. The retail sales data on the other hand is encouraging and households continuing to dip into savings as incomes are severely squeezed could make all the difference.”
“Better than expected earnings from Goldman Sachs (NYSE:NYSE:GS) and Bank of America (NYSE:BAC) may be helping the positive mood at the start of the week, although I think it's way too early to be looking at earnings season as a tailwind for equities. I guess that will depend on just how pessimistic investors have become in the run-up to it,” Erlam concluded.
3.45pm: Picking up
Michael Hewson, chief market analyst at CMC Markets reflects on the week's open.
"European markets have picked up where they left off on Friday with another strong performance, after Fed officials dialled back expectations of a 100bps rate rise next week."
"While sentiment today seems a lot more buoyant, one needs to be careful before drawing too many conclusions from two consecutive strong sessions. Last week the DAX dropped to its lowest levels in 18 months before bouncing back, and is still quite close to that, so today’s gains may well be no more than another bear market rebound."
"The FTSE100 has also seen a strong session driven predominantly by energy and basic resource stocks as metals price and crude oil rallies on the back of a weaker US dollar. Amongst the gainers we’ve seen decent gains for the likes of Harbour Energy, BP (LON:BP) and Shell (LON:RDSa)."
3.14pm: US stocks open higher
US stocks opened higher, following the lead set by the FTSE 100.
The Dow Jones was up 0.48%, while the S&P 500 climbed 0.58%.
The tech-laden Nasdaq gained 1.03% in early trading on Monday.
2.57pm: Crude climbs
Brent Crude has pushed past US$105.50 per barrel, meaning it is up around 4.6% today.
2.47pm: IEA issues warning
The International Energy Agency has warned that Europe must slash its gas consumption ahead of winter to make up for cuts to Russian energy supplies.
Executive director Fatih Birol said in a report that the current gas crisis has put Europe in a precarious situation.
“The situation is especially perilous in Europe, which is at the epicentre of the energy market turmoil. I’m particularly concerned about the months ahead.”
He added some progress had been made in diversifying gas supplies but warned that not enough had been done.
2.08pm: Prices at the pump should go down
The AA said the cost of filling up a tank should be £10 cheaper within the fortnight.
Petrol and diesel had been spiralling out of control since Russia’s invasion of Ukraine.
According to AA, the price has already fallen by 2.8p from record highs per litre, knocking £1.50 of the tank of fuel.
Wholesale petrol had peaked above £1 a litre on June 1.
“Wholesale petrol’s trajectory, if sustained, would lead to savings from the record highs- providing the fuel trade is prepared to pass them on,” said AA spokesperson Luke Bosdet.
“So far this morning, even with oil rebounding, wholesale petrol remains below 80.5p a litre.”
“The problem is that, in many places, the price cuts are quite simply not happening despite more than six weeks of falling costs.”
1.50pm: Insurers hit with downgrade
Jefferies hit insurers Admiral, Direct Line and Sabre with downgrades following the latter two issuing profit warnings in the last two weeks.
Consequentially, Admiral tumbled 6% on London’s blue-chip index, making it the second largest faller after GSK.
Analysts warned that margins are expected to deteriorate significantly as rising costs continue to bite.
Jefferies also said that raising insurance costs will do little to prevent worsening margins in the coming months.
Admiral, which is on the FTSE 100, is now rated underperform with a slash in target price to 1,525p from 2,300p.
1.10pm: Gazprom (MCX:GAZP) issues force majeure
Gazprom’s export arm has send a notice to a least one customer in Europe declaring force majeure on gas deliveries.
The export arm was linked to the gas situation in Germany last week which saw Nord Stream 1 close for maintenance work.
Russia's Gazprom Export Arm Sends Notice To At Least One Customer In Europe Declaring Force Majeure On Gas Deliveries - Letter Cited By RTRS- Gazprom FM Linked To Situation With Gas Deliveries To Germany Via Nord Stream 1 - Trading Source Cited By RTRS
— LiveSquawk (@LiveSquawk) July 18, 2022
12.34pm: US preview
US stocks were expected to open higher on Monday as the corporate earnings season enters a second week, with Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)), Bank of America, and IBM (NYSE:IBM) among the companies scheduled to make announcements on today, followed by Tesla and Twitter (NYSE:TWTR) later in the week.
Futures for the Dow Jones Industrial Average were trading 0.8% higher pre-market, while those for the broader S&P 500 index were up 0.9% and futures for the tech-laden Nasdaq-100 added 1.2%.
The earnings deluge comes amid concerns over how aggressive the Federal Reserve will need to be to tame inflation. which is at 40-year highs, without throwing the economy into recession.
Traders will therefore be keeping an eye on economic data points, with June US housing starts and building permits expected to be announced on Tuesday, followed by existing home sales on Wednesday.
Swissquote Bank senior analyst Ipek Ozkardeskaya said the market is poised to begin the week on a positive note after rebounding strongly last Friday on the back of upbeat economic data that showed consumers continuing to spend in June.
“The good news is that the week starts with improved odds of seeing a 75bp hike at the next FOMC meeting, rather than a 100bp hike,” Ozkardeskaya said.
“The probability of a 75bp hike is back to 70%, up from around 20% following the scary inflation report that was released last week in the US,” she noted, referring the 9.1% annual inflation reading for June released last Wednesday.
However, investors will remain focused on earnings this week to determine which companies are in a better position than others to weather the challenging macroeconomic environment, as well as rising interest rates, she said.
In energy markets, traders who are betting that oil prices will remain elevated are providing support, taking advantage of the sell-off last week to send WTI crude oil futures 1.9% higher at $99.45 a barrel, and Brent crude futures 2.1 % firmer at $103.31.
“Crude oil prices continue to remain unfazed by (US President Joe) Biden’s visit to Saudi Arabia,” said AvaTrade chief market analyst Naeem Aslam. “Traders got one clear message from Biden’s recent visit to Saudi Arabia … the message is that it is OPEC+ that makes the oil supply decision, and the cartel isn’t remotely interested in what Biden is trying to achieve.
“OPEC+ will continue to control oil supply, and one country alone cannot determine the oil supply - at least that is the message that traders have taken from Biden’s visit to Saudi Arabia,” Aslam added.
12.04pm: Sunak fav for hotseat again
Rishi Sunak is the bookies favourite once again to become the next Conservative party leader.
Tony Kenny, a spokesperson for William Hill said, “Rishi Sunak appears to have impressed punters in the most recent Conservative Leader debate, with the former Chancellor well-backed in the past 24 hours.”
Sunak is currently 6/5, with Penny Mordaunt second favourite at 9/4 and Liz Truss 11/4.
11.47am: GSK spin-off lists in London
GSK’s spin-off Haleon, which started trading in London today in what is one of Europe’s largest listings in a decade is currently down slightly, trading 1.9% lower at 320.6p.
New shares were not issued as part of the flotation. Rather, existing investors in GSK received one share in the new company for each current one they own.
This will mean GSK shareholders will own around 54.5% of the company on Monday, with the UK drugs giant hanging onto a stake of around 13.5% and Pfizer (NYSE:PFE), which was part owner of Haleon pre-float, holding the remaining 32%.
Its revenues are divided between oral health, including toothpaste brands such as Sensodyne; digestive health and pain relief, where brands include Panadol, Advil, Volatol/Voltaren and Tums; and other sectors such as respiratory health.
Last year, it generated sales of £9.5bn. On that basis, it will be the second-largest consumer health company in the world and the only listed pure-play in the space of meaningful scale (until Johnson & Johnson (NYSE:JNJ) (Johnson & Johnson (NYSE:JNJ)) lists its consumer health arm, which has been slated for 2023).
It is anticipated to have a debut enterprise valuation of between £40bn to £45bn, including debt, with an equity value of close to £33bn, which will place it safely in the top quarter of the FTSE 100.
11.23am: Union calls for maximum temperature
The GMB Union has called for a maximum workplace temperature in the midst of the UK heatwave, with heat as high as 40 degrees.
The union said workplaces should not be allowed to be hotter than 25 degrees, with staff being allowed to wear more appropriate clothing for the weather and be afforded extra breaks.
Employees should also be given flexible working and travel arrangements in order to avoid the hottest parts of the day, the union added.
"This hot weather is great for being on a sun lounger, but if you're trying to work through it's no joke," said Lynsey Mann, the GMB's health and safety officer.
"Bosses need to do everything possible to keep workplaces cool and, more importantly, safe."
10.53am: Business confidence slumps
Latest data from Accenture (NYSE:NYSE:ACN) and S&P Global found UK business confidence fell to a joint record low in June.
28% of private sector firms expect their activity to increase over the coming year, half of the recorded level in February and the lowest since the survey began in 2009.
Image: Accenture (NYSE:ACN), S&P Global
UK businesses also expect rapidly rising inflation and soaring energy costs to drive down margins.
Despite all this, confidence is still higher than in most of Europe.
“Inflation and a cloud of economic uncertainty have understandably knocked business confidence,” said Matt Prebble, strategy and consulting lead for UK & Ireland at Accenture (NYSE:ACN).
“Whilst some predict lower profits and are cutting back on research and development, it is worth noting that the more confident sectors are continuing to sustainably invest in new products.”
“Over the past few years, UK business leaders have proven resilient in the face of constant change which may explain their optimism compared to other countries.”
“It is this mindset to make transformational change where it is needed most, invest in talent and new technologies that will put them in a strong position to take market share when the current turbulence passes.”
10.23am: Bank of England could raise rates
The Bank of England could raise interest rates to at least 2%, according to exiting policymaker Michael Saunders.
Saunders also says it is "not implausible or unlikely" that the Bank of England will raise rates to at least 2% pic.twitter.com/H0Ka6unBvI— David Milliken (@david_milliken) July 18, 2022
9.47am: House prices hit another record
House prices hit a sixth consecutive record, up 9.3% in the year to a record £369,968, according to Rightmove.
Although buyer demand is down 7% in the year, it is still 26% higher than in 2019.
However, while the number of sellers is up 13%, that figure is 40% down from three years ago, with this imbalance keeping prices higher.
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown (LON:HRGV) said “Asking prices are booming again in July, as the white-hot market convinces sellers they can keep pushing prices skywards. However, that’s only half the story.”
“Asking prices tend to obscure more subtle moves in the market, and we’re seeing a number of small but important changes. With the number of buyers continuing to fall, and the number of sellers starting to rise, the imbalance that has pushed prices higher even as tougher times have hit could be starting to unwind, which would pour cold water on the overheated market.”
“During the white heat of the market, buyers have had to offer well over the asking price in order to secure the property, with many of them drawn into bidding wars. As the market slows slightly, this kind of activity is less likely.”
9.18am: Quick snapshot
Amazon (NASDAQ:AMZN) Fresh has joined the price war underway among the grocery chains to keep customers during the cost of living crisis. The grocery arm of Amazon will match hundreds of prices in line with discounts offered by Tesco (LON:TSCO).
Direct Line fell 14% after becoming the second car insurer to issue a profit warning in the space of a week. Like peer Sabre, Direct Line said claims costs were rising by 10% due to inflation in the prices of used cars, repairs and car parts.
Prices of properties coming to market hit a sixth consecutive record, according to Rightmove. A continuing desire to move and low numbers of supply of homes for sale are driving prices higher it said.
DeepVerge revealed its environmental division, Modern Water, was picked to supply 27 fully integrated Microtox solutions to monitor water toxicity and pollution in Qatar for the 2022 World Cup.
Ondo InsurTech signed an agreement with insurance provider Admiral to provide its LeakBot product to UK customers. It measures air and pipe pressure and detects issues before they are exacerbated.
OnTheMarket announced that that Foxtons (LSE:LON:FOXT) signed a deal for its properties to go on its website. London-based Foxtons (LSE:FOXT) will use OnTheMarket.com for residential sales and lettings.
8.53am: Direct Line takes a hit
Insurer Direct Line tumbled 13% after becoming the second motor insurer to issue a profit warning in a matter of weeks.
The company said that soaring inflation was hitting the prices of used cars and car parts, which in turn was pushing the cost of claims up.
As a result, claims costs were rising 10%, higher than expected and greater than the rate of increase in premiums.
Direct Line’s operating ratio, which measures claims and costs as a proportion of premiums will be between 96% and 98%, worse than the 93% and 95% originally forecasted.
Further to that, it also announced it has cancelled its £100mln share buyback, but that it was confident it will be able to continue to deliver on its dividend.
8.20am: FTSE starts strong
The FTSE 100 made a stronger-than-anticipated start to proceedings, buoyed by the positivity across Asia’s main markets and Wall Street’s performance after hours on Friday.
The blue-chip index opened 65 points higher at 7,224.27, though events in Mainland Europe – including wildfires, gas exports from Russia and political instability in Italy - all have the potential to unsettle.
Leading the risers were the miners, which staged a rebound after the recent sell-off.
Topping the Footsie was Antofagasta (LON:ANTO), up 4.5% on the back of the reviving copper price.
Following in its wake were Anglo American (LON:AAL) (up 3.3%), Glencore (LON:GLEN) (up 3%) and Rio Tinto (LON:RIO) (up 2.8%).
Still, worries over the Chinese economy and the prospect of recession remain.
Scottish Mortgage Investment Trust, one of the UK’s biggest investors in Silicon Valley, was up 3%, mirroring the gains seen in the US tech sector recently.
Shares in GSK fell 18% after it spun out the consumer division Haleon Monday morning. This should be reversed Tuesday when the share consolidation kicks in.
Haleon itself made its debut at 330p a share, valuing the business at £30.4bn – which is around what analysts had been expecting ahead of the demerger.
6.36 am: FTSE 100 set for positive start
The FTSE 100 looks set to make a positive start to the trading week buoyed by the performance of Asia’s main markets and Wall Street’s positive close after hours on Friday.
However, sentiment is likely to teeter on a knife edge with the potential gas rationing in Germany and political turmoil in Italy.
The former first: All eyes will be on Russia’s next move in the escalating economic war that accompanied the Ukraine conflict.
If Moscow gives the go-ahead for the resumption of material gas supplies to Western Europe after maintenance on the Nord Stream 1 pipeline, then a crisis will be averted.
An escalation of hostilities will hit Germany hardest. And as the Financial Times pointed out its options are ‘few, imperfect and unpleasant’.
Fissures in Italy’s coalition may add to the political instability in Europe after Prime Minister Mario Draghi has tendered his resignation.
Although refused by President Sergio Mattarella, it is seen as hastening elections scheduled for next spring.
In summary, the political and market outlook appears a decidedly mixed one.
“Today’s European open looks set to continue this firmer theme, with a slightly weaker US dollar helping to support sentiment, as commodity prices also rebound from recent lows,” said Michael Hewson of CMC Markets.
“Over the last few weeks commodity markets have been falling back sharply, oil prices finishing lower for the fifth week in succession, and hitting their lowest levels since February, while copper prices have performed even more poorly. Since their March peaks, copper prices have fallen over 25%, hardly a sign of a booming economic outlook.
“Add into the cocktail, concerns over political risk in Italy and the collapse of the government there, as well as concern over valuations as US earnings season gets underway in earnest, and the picture so far looks slightly unsettling, especially with inflation still on the up.”
As mentioned, it is a big week for corporate news on both sides of the Atlantic. In the US updates from Tesla and Netflix (NASDAQ:NFLX) are scheduled, while here in the UK Royal Mail (LON:RMG) and Ocado (LON:OCDO) are among the those reporting. We’ll also receive an update on the state of the British economy with data on wages and inflation.
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