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FTSE 100 firmer but off best levels, US futures flat ahead of non-farm payrolls data

Published 02/09/2022, 11:45
Updated 02/09/2022, 12:11
© Reuters.  FTSE 100 firmer but off best levels, US futures flat ahead of non-farm payrolls data

© Reuters. FTSE 100 firmer but off best levels, US futures flat ahead of non-farm payrolls data

  • FTSE 100 remains firmer, US futures flat ahead of non-farm payrolls
  • UK housebuilders hit by HSBC (LON:HSBA) downgrades
  • US dollar at 20-year high

Shares in London remained higher, although best levels for the day as investors switched attention across the pond with the US non-farm payrolls figures due out at 1.30pm UK time.

At 11.45am the FTSE 100 was trading 41.00 points higher at 7,189.50 with the broader FTSE 250 up 126.64 at 18,620.38.

Ahead of those numbers US futures were pointing to a subdued open with futures for the Dow Jones Industrial Average trading 0.1% higher pre-market, while those for the broader S&P 500 index were also up 0.1%, with futures for the tech-laden Nasdaq-100 flat.

As things stand, US rate-setters have indicated that they will stick to an aggressive path of interest rate hikes and a strong payroll number will solidify expectations of another 75-basis-point increase at the upcoming rate-setting meeting, a factor that continues to weigh on equities.

“All eyes are on the US jobs data today - the US is expected to have added around 300,000 new nonfarm jobs in August,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank said, noting that “another strong NFP print will guarantee a 75bp hike in FOMC’s September meeting.”

The continued strength of the labor market has been a key factor in the Federal Reserve’s pursuit of higher interest rates as it fights to tackle runaway inflation which is still hovering around 40-year highs. Over recent months, non-farm payrolls have risen rapidly, often surpassing expectations, suggesting that the wider economy can withstand aggressive interest rate hikes although many watchers still fear that the US will slip into a recession.

“Presently, investors are braced for another strong NFP read, and activity on fed funds futures gives around 75% chance for a 75bp hike in September. We could see this probability spike higher in case of strong NFP data - which would mean higher US yields, a further advance in the US dollar, and some more negative pressure on stock valuations,” noted Ozkardeskaya.

“But, if today’s NFP print is in line or ideally softer-than-expected - as the Federal Reserve would like it to be, then we could see a certain relief in the US yields, a rebound in equity markets and hopefully a downside correction in the dollar before the weekly closing bell,” she added.

Some sections of the markets are hoping for a softer reading after Wednesday’s ADP (NASDAQ:ADP) private sector jobs report for August showed payrolls grew by just 132,000, lower than the 268,000 jobs added in July and below the 300,000 increase that analysts were expecting for the month.

Elsewhere, news of COVID-19-related lockdowns in China was also weighing on market sentiment as investors worry about a slowdown in economic activity.

Separately, shares in chipmaker Nvidia Corp are expected to remain under pressure, having dropped around 7% yesterday, after the US said the tech firm may not be able to sell some processors to China without special licenses.

The latest US economic data helped push the US dollar index to a 20-year high with commentators pointing out that the resilient numbers give the Federal Reserve more room to aggressively increase interest rates in their battle to stem inflation.

The US dollar index, which measures the greenback against a basket of six currencies, rose 0.9% to 109.68, its highest since June 2002.

The US currency firmed after a government report showed that the number of Americans filing new claims for unemployment benefits declined further last week, consistent with strong demand for workers and tight labour market conditions.

Further indications as to the strength of the US jobs market will come later today with non-farm payrolls figures due out.

Data from the Institute for Supply Management showed US manufacturing grew steadily in August as employment and new orders rebounded, while a further easing in price pressures strengthened expectations that inflation has likely peaked.

10.10am: Passenger numbers taking off at Ryanair (LON:RYA).

Ryanair reported a 52% annual increase in passenger numbers in August 2022 to 16.9mln from 11.1mln in August 2021 today.

The load factor also jumped to 96% from 82% a year before and the group said it operated over 92,800 flights in August.

Victoria Scholar, head of investment, interactive investor said “Ryanair enjoyed its fourth consecutive month of record passenger numbers in August” with “around 3,000 flights per day last week versus 1,600 flights for rival easyJet (LON:EZJ).”

“It has been a difficult year for the airline industry with the war in Ukraine, the surge in oil prices, the cost-of-living crisis, the disruption at airports and months of staff strikes.”

“However for Ryanair, the post-pandemic release of pent-up demand for summer holidays has outweighed the headwinds with the Irish airline manage to score stellar passenger figures and a near maximum load factor.”

9.35am: Shell (LON:RDSa) CEO to step down - Reuters

Following yesterday’s surprise departure of Reckitt Benckiser chief executive Laxman Narasimhan, it looks as if another FTSE 100 company is poised for a change at the top as Shell’s Ben van Beurden is reportedly preparing to step down.

Reuters reported that Shell PLC has shortlisted four candidates to succeed van Beurden who it says is preparing to step down next year after nearly a decade at the helm of the energy giant.

AJ Bell investment director Russ Mould said ““A key feature of his near decade at the helm has been a focus on natural gas, including the big acquisition of BG Group in 2016.”

“Arguably this strategy has been vindicated by recent events which have revealed the importance of gas for energy security and as a way of transitioning from more polluting fuels to renewables.”

“While there has been considerable volatility in the interim, ultimately since van Beurden took over at the beginning of 2014 he has delivered a total return to shareholders of 45.1%.”

"Given this period encompassed an oil price crash very early in his tenure and a global pandemic, this is not too shabby” Mould commented.

“His successor faces a tough task though, with regulatory pressure likely to be a key theme. Internal appointments are rumoured to be in the running, befitting an organisation which has often looked inwards when planning a succession process.”

“Whoever prevails will have to balance the demands of the environmental lobby, governments and investors” Mould said, adding “at least van Beurden spared them the decision of cutting the dividend, a step taken for the first time since the Second World War in 2020.”

8.55am: Housebuilders under pressure rom HSBC downgrades

The FTSE 100 advanced in early trading although gains were limited by a broad markdown in housebuilders following negative comments by HSBC today.

At 8.55am the blue chip index was trading 33.52 points higher at 7,182.02 and the FTSE 250 was 87.92 points higher at 18,581.66.

Oil stocks, and index heavyweights, BP (LON:BP) PLC and Shell PLC, provided some support following a bounce in the oil price but housebuilders were a weak feature following downgrades in the sector by HSBC which has cut ratings on Barratt Developments (LON:BDEV), Bellway (LON:BWY), Persimmon (LON:PSN), and Berkeley amongst others.

Victoria Scholar, head of investment, interactive investor says, “The UK housebuilders like Berkeley Group, Barratt Developments, Persimmon and Taylor Wimpey (LON:TW) are languishing at the bottom of the FTSE 100 after HSBC issued a pessimistic update on the sector.”

“The analyst team downgraded Berkeley Group to a sell from the hold, slashing its price target from 4280p to 3220p, sending shares down by more than 5%.”

“Meanwhile it downgraded other stocks in the sector from a buy to a hold, also sending shares lower” she noted.

“The prospect of a looming recession, tentative signs that the housing market is starting to cool, rising interest rates for the Bank of England and build cost inflation have created a hostile environment for investors, who are eschewing the sector, despite the imbalance between supply and demand in the market.”

“It has been a tough year for the sector with Berkeley Group down by around 30% from the highs in 2021 as the buy case becomes less and less compelling from the analysts.”

8.35am: Oil price bounces after recent weakness

The oil price rose slightly today, following recent falls, with the market likely to remain sensitive ahead of next Monday’s OPEC meeting, according to analysts..

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said:

Brent crude has risen to $93 per barrel, but this is still a sharp contraction of recent pricing – and 30% off this year’s high.”

“The value of the black stuff is slipping away because of tighter monetary policy and new Covid lockdowns in China, which has changed the demand profile.”

“This comes at the same time as work being done on the Iran nuclear deal, which reduces concerns around supply.”

“The market is likely to remain highly sensitive to next Monday’s OPEC+ deal, which will decide on production policy.”

“An about-turn in existing agreements is unlikely to be triggered, but it’s something to monitor nonetheless, with supply and demand concerns both rearing their heads, exactly where the market will settle is tough to predict. At least for consumers, the trajectory is currently a downwards one.”

Shares in BP PLC and Shell PLC both rose today reflecting the oil price increase.

8.10am: Footsie opens high on Friday

FTSE 100 opened higher on Friday after a torrid week with late gains in the US providing support.

At 8.05am the blue chip index was trading up 21.44 points at 7,171.83 with the FTSE 250 up 79.81 at 18,573.55.

Shares in Alliance Pharma (LON:ALAPH) PLC (AIM:APH) fell 10% in early trading after it said that the Competition and Markets Authority intends to disqualify seven directors from four companies, including Alliance Pharma, chief executive, Peter Butterfield.

Alliance said it “fundamentally disagrees with the CMA's actions, both in relation to the findings against the Company and in applying for a CDO against Mr. Butterfield.”

Asset manager Ashmore Group PLC said on Friday that assets under management and earnings slipped in the twelve months to June as Russia's invasion of Ukraine and inflationary concerns led to widespread risk aversion.

Assets under management declined by 32% year-on-year to $64.0bn, with the majority of the movement attributable to a negative investment performance of $16.6bn and net outflows of $13.5bn.

The FTSE 250-listed group also said reported EBITDA had fallen from £195.7mln in 2020-21 to £122.3m twelve months later, while reported operating profits dropped from £192.9mln to £119.2mln.

Ryanair reported a 52% annual increase in passenger numbers in August 2022 to 16.9mln from 11.1mln in August 2021 today.

The load factor also jumped to 96% from 82% a year before and the group said it operated over 92,800 flights in August.

The British Chambers of Commerce (BCC) said it expects the UK economy to head into recession before the end of 2022, with inflation spiking to 14% and lingering weakness in growth expected to continue into 2024.

It has reduced its expectations for UK GDP growth for 2022 to 3.3% (from 3.5% in quarter two) against a deteriorating economic outlook.

The BCC said it now expects negative economic growth from quarter two of this year through to quarter four.

It does expect the economy to grow marginally in 2023, by 0.2%, and by 1% in 2024.

“These anaemic predictions for GDP growth are in light of deteriorating economic conditions; rising energy costs, a decline in household spending and real wages; weaker export prospects and a pessimistic global economic outlook; poor investment conditions and weakening business confidence and cashflow” the BCC said.

“Many of these issues were initially caused by the global response to Covid-19 and have been further compounded by the war in Ukraine.”

The BCC said it expects inflation to peak at 14%, fall to 5% in 2023 and finally return to the Bank of England’s target of 2% in 2024.

7.25am: FTSE seen higher, US non-farm payrolls due later

Trading in London is expected to get off to a positive start on Friday after a week of hefty losses in the UK equity market.

Spread betting companies are calling the FTSE 100 up by around 30 points.

Michael Hewson chief market analyst at CMC Markets UK noted “It’s been almost a week since Powell’s comments at Jackson Hole, and it’s been one way traffic ever since” although “last night’s close in the US did see a rebound off the lows of the day with the Dow and S&P500 both managing to eke out a modest gain. This late rebound should translate into a positive European open.”

“Against this backdrop of economic weakness and the determination of central banks to prioritise inflation over growth, it’s a tough backdrop for stock markets” Hewson commented.

“Today’s US payrolls report has the potential to add another layer to the US dollar strength narrative, as well as equity market weakness in the event we get another strong number this afternoon.”

“The resilience of the US labour market has been a notable standout when it comes to US economic data this year.”

“The last three payrolls’ reports have seen the headline numbers beat expectations. Wage growth has also proved to be resilient even as vacancy rates are still close to record levels.”

“Another positive payroll number today would in all probability rubber stamp the possibility of a 75bps rate hike when the US Federal Reserve next meets later this month” Hewson stated.

“Expectations are for 298,000 jobs to be added, however given how much forecasts missed in July, one has to question how reliable these estimates are likely to be.”

6.55am: FTSE set to open higher

FTSE 100 is expected to open higher on Friday following a late rally in the US on Thursday although investors will be cautiously awaiting US non-farm payrolls figures later today.

Another positive payroll number today would in all probability rubber stamp the possibility of a 75bps rate hike when the US Federal Reserve next meets later this month.

Spread betting companies are calling the lead index up by around 30 points.

In the US the Dow closed Thursday up 146 points, 0.5%, at 31,656, while the Nasdaq Composite lost 31 points, 0.3%, to 11,785 and the S&P 500 added 12 points, 0.3%, to 3,967.

The benchmarks all appeared on pace for their fifth-straight day of losses but gradually climbed in afternoon trading.

The question going forward is whether markets in September will get as low as they did in June, according to John Lynch, chief investment officer at Comerica (NYSE:CMA) Wealth Management.

“The June lows are in play in the coming weeks as equity investors finally recognize the intensity of the Fed’s mission,” Lynch said, as reported by CNBC. “Inflation and recession are typically accompanied by lower market multiples and markets need to reassess valuation as interest rates rise.”

Read more on Proactive Investors UK

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