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FTSE 100 heads south as mining and oil stocks weaken

Stock Markets Aug 30, 2022 15:11
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  • FTSE 100 dips into negative territory
  • US markets open higher
  • M&S rises after Neilsen report
The FTSE 100 headed into negative territory as falls in mining and oil stocks saw the lead index concede its strong early gains. US stocks provided some support although their opening advances were not as strong as initially suggested by the futures market.

At 2.40pm the FTSE 100 was trading 16.71 points lower at 7,410.60 although the FTSE 250 index remained in positive territory, up 92.29 points at 19,262.01.

US stocks rallied on Tuesday morning, starting the day in positive territory after a two-day sell-off spurred by monetary tightening fears.

Just after the open, the Dow Jones Industrial Average was up 70 points or 0.2% at 32,169 points, the S&P 500 was up 12 points or 0.3% at 4,042, and the Nasdaq Composite had gained 75 points or 0.6% at 12,089 points.

OANDA senior market analyst Craig Erlam observed today’s rebound following a rocky couple of weeks as investors grew nervous about the economic impact of tightening as “curious.”

“Fed Chair Jerome Powell could not have been more clear on Friday on the central bank's tightening stance and unlike the warnings from his colleagues, the message appeared to have finally gotten through which makes today's move all the more curious,” he said.

“It's not the fact that we're seeing a rebound as equity markets don't move in straight lines, rather it's the strength of it that is interesting.”

He added that, prior to Friday’s speech, investors appeared determined to cast aside warnings in favour of the dovish pivot narrative and today's moves may suggest the same could still be true after a brief pullback.

“With a 75 basis point rate hike now viewed as the more likely outcome from the Fed in a few weeks and ECB officials putting a similar move on the table ahead of its meeting next week, how strong of a recovery can we really expect in equity markets?” Erlam questioned.

1.55pm: Abrdn in line for demotion from FTSE 100

Fund manager Abrdn is expected to be relegated from the FTSE 100 this week for the first time since a 2017 merger brought together two of the country’s biggest names in fund management, according to a report in the Financial Times.

The report pointed out that Abrdn is the seventh-worst performing stock among UK blue-chips this year, with a more than 40% plunge in its share price bringing its market capitalisation below the cut-off for inclusion in the lead index.

Relegation from a major index such as the FTSE 100 can have negative implications for a company’s fortunes

The investment manager is the most prominent casualty of this round of FTSE 100 index rebalancing, which takes place every quarter with the other expected deletion, which will be confirmed on Wednesday based on prices at close of trading the day before, being Hikma Pharmaceuticals (LON:HIK).

The two companies in contention for promotion are medical device company ConvaTec Group and F&C Investment Trust.

1.00pm: Peel Hunt pushes Kier Group (LON:KIE)

Shares in Kier Group PLC (LSE:KIE) advanced today (+2%) supported by an upbeat assessment of the company’s prospects by Peel Hunt.

Analyst Andrew Nussey said he believes that Kier is well positioned to deliver long-term growth and a sustainable dividend.

“Recent momentum provides earnings visibility, a path to delivering the organic growth targets and cash generation” Nussey commented.

He pointed out the de-rating of the share price to 3.6x full year 2023 earnings per share forecasts (a c.45% decline over the past 12 months, despite unchanged estimates) is in sharp contrast to the attractive company and market fundamentals.

“Improved behaviours make this an investible sector in our view, with Kier’s quality of earnings and undervalued free cash flow potential standing out” Nussey concluded.

He has a buy rating and a 200p price target on the company.

12.35pm: M&S rises after positive NeilsenIQ figures

Shares in Marks and Spencer (LON:MKS) rose 2% as data from NielsenIQ showed that it was placed second in the list of food retailers based on sales momentum in the last 12 weeks.

Broker Shore Capital said “with its strong current offer Marks & Spencer recorded the second highest 12 weeks sales momentum from the NielsenIQ figures at 7.3%, maybe eating into Waitrose’s base, followed by the Coop at 6.0% which was ahead of Aldi at 5.0%.”

Lidl remained the fastest growing UK supermarket with a whacking 14.2% annual growth versus the 12 week period in 2021, Shore Capital said.

Waitrose was the laggard with sales down 4.3% year-on-year; suggesting that its relatively higher income customer base is not immune from the competitive and emerging economic environment.

Of the listed supermarkets, Tesco (LON:TSCO) recorded robust 12 weeks sales growth at 3.2% whilst Sainsbury is said by NielsenIQ to have registered 2.8% 12 weeks growth, both major players no doubt benefiting from their convenience estates, according to Shore Capital.

11.40am: US markets expected to open higher

FTSE 100 headed towards midday in positive territory but off earlier highs with US futures pointing to gains in the US later today.

At 11.40am the blue chip index was 21.78 points higher at 7,449.09 while the broader FTSE 250 index was up 154.10 points at 19,323.82.

US stocks were expected to open higher on Tuesday, recovering some of the sharp falls seen over the previous two sessions, as investors look to take in their stride the stark warning from US Federal Reserve chairman Jerome Powell that interest rates will have to continue rising.

Powell signalled on Friday that the fight against inflation has yet to be won and that the Fed rate setters’ main task is to return inflation to its 2% target. As things stand, the headline inflation rate is around 40-year highs above 8%.

Futures for the Dow Jones Industrial Average were up around 0.8% in pre-market trading, while those for the S&P 500 rose 1.0%, and contracts for the Nasdaq 100 added 1.3%.

“The US futures look better this morning, but the market sentiment will likely remain morose after Powell’s clear declaration that the Federal Reserve will have no pity for the markets, and continue tightening its policy until it puts inflation on a sustainable path toward its 2% policy target,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The Dow closed 0.6% lower on Monday after plunging just over 3% on Friday. The S&P 500 and the Nasdaq Composite also registered their sharpest falls since June on Friday and suffered more falls on Monday.

“The S&P500 stepped into the bearish consolidation zone after having cleared a major Fibonacci resistance, the 38.2% retracement on the summer rally. Nasdaq fell another 1% and tested the 50-DMA to the downside, where it found support,” noted Ozkardeskaya.

Some of the heavy selling appears to be easing but the overall downtrend remains intact. Investors are also paying heed to Powell’s words that economic data is holding up well despite the aggressive increase in interest rates and high levels of inflation. The resilience of the wider economy and especially the labor market is strengthening the Fed’s resolve to keep on raising interest rates.

With that in mind, this week’s US non-farm payrolls figure, due on Friday, take on even more importance than usual. Consensus estimates suggest another strong increase of around 300,000 in August, having risen over 500,000 in July.

The market focus today will be on speeches from Richmond Fed President Tom Barkin and New York Fed President John Williams for additional clues as to the path for interest rates in the world’s biggest economy.

11.20am: Consumer spending set to slow down significantly - EY Item Club

The EY ITEM Club said July's money and credit data provided mixed news on the state of UK household finances, with deposits up but lending flows down.

Overall, it pointed out that households saving less and borrowing more are expected to offer some offset to the impact of falling real incomes.

But it warned that consumer spending growth is still on course for a significant slowdown.

Despite a modest increase in mortgage approvals in July, the broader trend is one of a steady decline in housing activity and the EY ITEM Club still thinks a soft landing for property prices is the most likely outcome, although the risk of a more substantial correction for the housing market is increasing.

Martin Beck, chief economic advisor to the EY ITEM Club, said “The EY ITEM Club still thinks a soft landing in house prices is more likely than a sizeable correction.”

“However, the intensifying squeeze on household incomes, deteriorating growth outlook, and prospect of a higher peak for interest rates have increased the risk of a hard landing scenario playing out.”

11.05am: Credit card borrowing rises sharply

Data released by the Bank of England today shows that British credit card borrowing grew at the fastest annual rate since 2005 in the year to July.

Consumers borrowed an additional £1.4bn in consumer credit in July, on net, of which £0.7bn was new lending on credit cards with the balance through other forms of consumer credit (such as car dealership finance and personal loans).

Small and medium sized businesses repaid £0.3bn of loans in July, the 16th consecutive month of net repayments, the Bank of England said.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics said the data showed “that households continue to reduce their monthly savings, in an attempt to maintain their current level of real consumption amid surging inflation.”

10.05am: Weak pound supports FTSE 100

FTSE 100 remained in positive territory mid-morning but off session highs helped by a weaker pound and gains in oil and banking stocks.

AJ Bell investment director, Russ Mould, said "The FTSE 100 started on the front foot after the Bank Holiday, having careered into the long weekend with some substantial losses after Federal Reserve chair Jerome Powell’s hawkish speech at the Jackson Hole summit.”

“It helps that US stocks have stabilised to some extent in the interim. Unsurprising given that many expected Powell to pour a dose of cold water on the idea that a so-called ‘dovish pivot’ was on the way."

“Helping the FTSE 100 is strength in the dollar relative to sterling – will forex traders be eyeing the possibility of parity between the pound and its US counterpart? A similar fate to that which befell the euro recently."

“It would take a big move to get there but as the energy crisis continues to grip the UK it doesn’t feel like a scenario where you could rule anything out."

“Putin’s use of Russian gas supplies as a proxy front in the current conflict with Ukraine continues to add to the supply pressures in the energy market and ramps up the pressure as winter starts to approach."

“A weak pound is typically good news for a FTSE 100 index which is heavily dominated by overseas earners.”

​​​​​​.

9.05am: Pub bosses call for support

Leaders of six of the UK’s biggest pub and brewing companies have signed an open letter to the government urging it to act in order to avoid "real and serious irreversible" damage to the sector.

Energy price increases of more than 300% are in danger of forcing pubs and brewers across the UK out of business in the coming months, industry leaders have said.

Greene King (LSE:LON:GNK), JW Lees, Carlsberg (CSE:CARLa) Marston's, Admiral Taverns, Drake & Morgan and St Austell Brewery want more assistance to help the industry which also faces big increases in wholesale food and drink prices.

8.45am: Footise bounces strongly

Shares in London bounced strongly, after opening lower, to move into positive territory in early trading supported by gains in oil and banking stocks.

At 8.45am the FTSE 100 was trading around 53.44 points higher at 7,480.75 with support also coming from early indications that US markets would open higher today.

Index heavyweights BP PLC (LSE:LON:BP.) and Shell (LON:RDSa) PLC (LSE:SHEL, NYSE:SHEL) both rose reflecting the higher oil price while banking stocks such as Barclays PLC (LSE:LON:BARC), Lloyds Banking Group PLC (LSE:LON:LLOY) and HSBC Holdings PLC (LSE:LON:HSBA) advanced with banking stocks seen as beneficiaries from increasing interest rates.

Richard Hunter, head of markets at interactive investor said: “Despite the general pessimism pervading sentiment, the FTSE 100 managed to eke out a small if unconvincing gain in opening exchanges.”

“Not having had the chance to react to the sharp falls at the end of last week due to yesterday’s Bank Holiday, the index was nonetheless helped by a strengthened oil price, and now stands ahead by a marginal 0.6% in the year to date.”

“Early movers included unsurprising rises for the oil majors as well as the banks, the latter of which would traditionally benefit from the rising interest rate environment which looks likely to stay for the time being.”

“Any number of challenges remain on a global basis, however, and further volatility is likely over the coming weeks” Hunter added.

8.05am: FTSE 100 opens slightly lower

FTSE 100 opens lower, following the extended weekend, as Federal Chairman Jerome Powell's comments continue to resonate.

At 8.05am the lead index was trading 15.12 points lower at 7,411.76 and the FTSE 250 index was 45.94 points lower at 19,123.78.

Dechra Pharmaceuticals (LON:DPH) has bought Med-Pharmax, a leading veterinary pharmaceutical manufacturer based in Pomona, California, for £221.5mln with the deal funded from existing resources.

The global specialist veterinary pharmaceuticals company said the deal would be “immediately accretive to underlying earnings per share” adding Med-Pharmax had been a long-term target.

Ian Page, Chief Executive Officer at Dechra commented: “The US market is highly consolidated, therefore this is a unique opportunity to add several new products to our portfolio, enter the US food producing animal products market and improve the manufacturing footprint for our North American business."

Struggling retailer, Joules Group, hit back against rumours that talks with Next PLC (LSE:NXT) could be breaking down.

Sky News reported at the weekend that Next had not received enough financial information to make a formal proposal for Joules, with questions being raised about whether it would proceed with the deal at no less than 33p a share.

But in a statement released today Joules said today talks continue with Next PLC (LSE:NXT) about both adopting its Total Platform services to support its long-term growth plans and a potential equity investment.

Earlier this month the group issued a profits warning.

7.30am: Powell's comments to weigh on London

Trading in London is expected to make a weak start following the extended weekend and reflecting hefty falls in the US in the past two sessions following Federal Reserve chairman, Jerome Powell’s comments on Friday.

Spread betting companies are calling the FTSE 100 down by around 15 points.

Michael Hewson chief market analyst at CMC Markets UK said: “If the market price action of the last few days is any guide the penny finally appears to have dropped that the Federal Reserve is willing to risk a recession to get inflation under control.”

“Powell’s message from last week’s speech at Jackson Hole on Friday, couldn’t have been any clearer, that the Fed would keep going until the job is done, the pity being it took so long for investors to take notice, as stock markets dropped, and bond yields spiked higher.”

“With the European Central Bank also indicating that it was considering going in for a 75bps rate move next week, markets are slowly realising that their ideal scenario of rate cuts in 2023, was wishful thinking at best, and that higher rates are here to stay for some time to come.”

“As we look at the return of UK markets, we can expect to see the FTSE100 open lower as markets here play catch-up, while we’ll also get an insight into how higher inflation and interest rates is slowing demand for loans and mortgages in July.”

“The effect of higher interest rates as well as the rising cost of living has already started to manifest itself in the most recent lending data. It’s been a trend that has been in place since the start of this year, but appears to be accelerating as we head into the autumn.”

Bunzl PLC (LSE:LON:BNZL) reported 12.4% growth in revenue at the half-year stage to £5,650.8mln and a 7.7% increase in operating profit to £327.5mln in results released today.

It also said it now expects the group operating margin in 2022 to be higher than historical levels and only slightly lower than that achieved in 2021.

The base business saw very strong revenue growth across North America, Continental Europe and UK & Ireland, driven by strong product cost inflation which more than offset the expected decline in Covid-19 related sales, the company said.

7.00am London set for opening losses

FTSE 100 expected to open lower on Tuesday when trading resumes following the extended weekend reflecting further losses in the US on Monday which came on top of Friday’s hefty falls.

Spread betting companies are calling the lead index down by around 15 points.

The Dow closed Monday down 184 points, 0.6%, at 32,099, the Nasdaq Composite slid 124 points, 1%, to 12,018 and the S&P 500 fell 27 points, 0.7%, to 4,031.

The benchmarks struggled again after a massive selloff on Friday, driven by fears that the Federal Reserve will continue to aggressively raise interest rates.

“While the aggressive and unrelenting selling from Friday is abating, there isn’t much genuine buy demand – even the bulls want to get through some of this week’s major macro events (including China’s PMIs and the Eurozone CPI on Wed and the US jobs report on Friday) before stepping back in on the long side,” said Adam Crisafulli of Vital Knowledge, as reported by CNBC.

In London, results are due from Bunzl while mortgage approvals and consumer credit figures are also due. In the US, consumer confidence numbers are out later today.

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FTSE 100 heads south as mining and oil stocks weaken
 

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