- FTSE 100 remains sharply lower
- UK manufacturing PMI hits a 27 month low
- Annual house price growth slows in August - Nationwide
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 (NASDAQ:NVDA) 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: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 (LON: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 (LON:RIO) 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 (LON:GLEN), InterContinental Hotels, Admiral Group (LON:ADML), Antofagasta (LON:ANTO), 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.
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