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FTSE 100 little changed, US expected to open slightly higher

Published 09/08/2022, 11:50
Updated 09/08/2022, 12:11
© Reuters.  FTSE 100 little changed, US expected to open slightly higher

© Reuters. FTSE 100 little changed, US expected to open slightly higher

FTSE 100 little changed, trading in narrow range

• US stocks expected to open slightly higher

• Asset manager, Abrdn, tumbles after cautious update

It remained a subdued picture in London in late morning with the FTSE 100 trading in a tight range around opening levels.

At 11.46am the blue-chip index was 1.16 points higher at 7,483.53 although the FTSE 250 was nursing losses approaching 0.5%, losing 96.60 points at 20,021.54.

Adding to the lacklustre showing little direction is seen being provided by the US with

stocks expected to edge higher at the open on Tuesday after a mixed performance Monday following last week's above-forecast July US non-farm payrolls reports, with investors now focused on the latest US CPI inflation numbers due out tomorrow.

Futures for the Dow Jones Industrial Average were trading 0.2% higher pre-market, while those for the broader S&P 500 index were also up 0.2%, and contracts for the tech-laden Nasdaq-100 added 0.1%.

In recent weeks, better-than-expected corporate earnings and strong labor market data have dispelled concerns about an imminent US recession, helping stock markets rebound from their lows, but inflation remains the elephant in the room.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank commented: "Investors are confident that inflation in the US may have peaked last month, as the New York Fed's Survey of Consumer Expectations showed steep drops in inflation expectations in July.

"For economists, inflation expectations are more important than the actual data, because it is believed to be self-fulfilling. Plus, Federal Reserve (Fed) chair Jerome Powell mentioned the New York Fed's results as a reason for more aggressive rate increases at the June FOMC meeting.

Therefore, the latest NY Fed survey may have given some relief to the Fed, although, tomorrow’s CPI print will say the last word when it comes to the market sentiment."

She added: "A print in line with expectations, or ideally softer, should calm down the hawkish Fed expectations, whereas a figure above expectations, or God forbid, above last month’s 9.1% would send another shockwave to the market.

"For now, there is reason to be optimistic as the drop in energy and commodity prices should have a cooling effect on inflation, yet, higher labour costs could keep inflation sticky at undesirably high levels."

On the data front on Tuesday, US labour productivity is expected to show a decline for a second straight quarter.

The corporate earnings season is starting to wind down, though some major companies are still set to report figures, with Warner Music Group, TPG and Emerson Electric (NYSE:NYSE:EMR) among the companies set to report ahead of the opening bell, while Roblox and Wynn Resorts (NASDAQ:NASDAQ:WYNN) will release figures after markets close.

Ahead of the opening bell, Novavax stock slumped almost 30% after cutting its sales forecasts due to poor uptake of its COVID-19 vaccine, and Clover Health Investments fell 10% after delivering a mixed earnings report and saying its chief executive was stepping down.

10.40am: FTSE 100 little changed, consolidating yesterday's gains

Trading in London remained uninspiring mid-morning with the lead index consolidating the strong gains made yesterday.

By 10.40am the FTSE 100 was trading 9.82 points higher at 7,492.19 with the broader FTSE 250 down 15.41 points at 20,103.03.

Shares in Abrdn fell 4% to 168p on Tuesday after the asset manager warned that “current market uncertainty means our ambitions for revenue growth and improved cost/income ratio are likely to take longer than originally expected.”

The cautious outlook was accompanied by a drop in pre-tax profits to £99mln from £163mln

Adjusted operating profit dropped 28% to £115mln and fee-based revenues were down 8% to £696m.

Chief executive officer Stephen Bird said: "We are continuing to deliver on our priorities and whilst the external market environment has worsened and it will likely take us longer to deliver our targets, it is the right strategy and we have the team and the capital resources to execute it well.”

"Looking forward into the second half, we will see revenue tailwinds from a full six months' contribution from ii and from performance fees.”

“We are expecting continued positive flows in Adviser and Personal Wealth.”

“Markets have shown some signs of improvement in July and if this trend continues it will provide a further revenue tailwind."

9.40am: Hot weather boosted retail sales in July - BRC

Retail sales rose by 2.3% in July according to the latest figures from the British Retail Consortium (BRC) as the heatwave boosted sales of hot weather essentials.

Helen Dickinson OBE, chief executive of the British Retail Consortium said:

“Summer clothing, picnic treats, and electric fans all benefitted from the record temperatures as consumers made the best of the sunshine.”

“However, with inflation at over 9% many retailers are still contending with falling sales volumes during what remains an incredibly difficult trading period.”

“Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation.”

“The Bank of England now expects inflation to reach over 13% in October when energy bills rise again, further tightening the screws on struggling households.”

“This means that both consumers and retailers are in for a rocky road throughout the rest of 2022.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, commented: “The combination of the increase in the threshold for employees’ national insurance contributions and the payment of £326 cost of living grants to most recipients of working-age benefits in July does not appear to have supported retail sales immediately.”

“After seasonally-adjusting and deflating the BRC’s data, we judge that they are consistent with the official measure of retail sales volumes simply holding steady in July.”

“Given the impending sharp rise in energy bills in Q4, households probably will save a large proportion of the Cost of Living grants for now.”

“We continue to expect, however, the government to beef up its measures to support households’ incomes through the winter, and for households to draw on savings and borrow more.”

“As a result, we think that both retail sales volumes and households’ overall expenditure will hold broadly steady over the next six months, rather than fall in line with real wages.”

Shares in London were little changed on Tuesday as trading got underway reflecting late falls in the US following a profits warning by US chipmaker, Nvidia.

9.00am: FTSE 100 subdued in early trading

At 9.00am the blue-chip index was trading up 1.11 points at 7,483.48 while the FTSE 250 slipped 6.83 points to 20,111.61.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) questioned whether the market could be close to exiting bear territory: “The publication of strong jobs numbers on Friday in the US has helped raise hopes a recession could be avoided.”

“The Dow Jones industrial average, which has been trading since 1896, has been seen edging closer to exiting bear territory.”

“Across at the tech-heavy Nasdaq, which has been in its longest bear market since one that ended back in 2008, came within a whisper of ending the trading day in bull territory too.”

“The wider read across here is that a more spritely market suggests expectations for future earnings are more positive.”

“So while it doesn’t indicate recession has been wholly avoided, it does indicate that the corporate outlook, and therefore consumer resilience, is perhaps looking better than it was.”

Shares in Zotefoams surged 10% after strong half-year results with revenues up 23% year on year at £59mln and pre-tax profits up 42% to £5.7mln.

Analysts at Peel Hunt noted this reflected solid demand (volumes up 4%), successful pricing initiatives “while FX has provided a useful tailwind.”

The broker said with trading ahead and the outlook supported by positive end markets and helpful mix trends it was upgrading its top of the range full year 2022 adjusted pre-tax forecasts by 6% to £9.3mln.

Peel Hunt kept its buy rating with price target of 400p.

InterContinental Hotels Group fell back after its results and despite the hotelier announcing a $500mln share buyback programme.

Keith Bowman, Investment Analyst at interactive investor said: “The ongoing hit to trading at its China business remains a hinderance, labour shortages are a challenge, while business travel and group meetings and events may not return to their pre-Covid levels given the increased use of technology and video conferencing.”

He added: “On the upside, InterContinental offers both brand and geographical diversity, with options from luxury to essential, or value brands available.”

“New hotels continue to be opened, net debt is down 30% year-over-year, while the interim dividend payment has been restarted at 10% above its pre-Covid 2019 level.”

“On balance, and with trading still recovering, analyst consensus opinion currently points towards a cautious buy.”

8.25am: FTSE makes subdued start to the day

Trading in London got off to a subdued start on Tuesday with the FTSE 100 hovering around opening levels consolidating yesterday’s strong gains.

By 8.15am the blue-chip index was down 4.90 at 7,477.47 while the FTSE 250 moved higher, up 10.49 points at 20,128.93.

The lacklustre start reflected late falls in the US overnight after a profits warning from US chipmaker Nvidia and mixed performances in Asia.

Richard Hunter, head of markets at interactive investor, commented “Markets remained flat in the US, with investors unable to break away from the current impasse between economic strength and high inflation.”

“Asian markets were generally positive including China, which saw modest gains despite the recent escalation of tensions following the visit of Nancy Pelosi to Taiwan and the ongoing outbreaks of Covid-10 capping any immediate economic recovery.”

“The generally lethargic seasonal mood fed through to the FTSE100 in early exchanges, with the index largely flat but remaining ahead by 1.3% in the year to date.”

Legal & General Group PLC (LSE:LGEN) rose slightly in early trading (up 0.22%) after posting an increase of 8% in operating profits, comfortably beating expectations, while growing cash and capital generation by 22% and 14% respectively.

Hunter noted: “The measure of capital strength for the company, the Solvency II Coverage Ratio, increased to 212% from 182% and enabled a further increase to the dividend, leaving the shares on a projected yield of 6.9%.”

“With its undoubted capital strength and the virtuous circle which its four operating units create, all in growing markets, the market consensus of the shares as a buy remains firmly intact.” Hunter concluded.

Intercontinental Hotels Group PLC (LSE:LON:IHG) was little moved after launching a $500mln share buyback on Tuesday and reintroducing its dividend at a level 10% higher than when last paid as it reported half year results.

The group reported 53% growth in underlying revenue to $840mln and a 91% increase in operating profit to $377mln at half-year.

Keith Barr, Chief Executive Officer said: “Whilst the economic outlook faces uncertainties as central banks and governments take action to manage inflation, we remain confident in our business model and the attractive industry fundamentals that will drive long-term sustainable growth.”

7.30am: FTSE 100 seen slightly lower at the open

Shares in London are expected to give up some of yesterday’s strong gains following a weak finish in the US overnight after a profits warning from US chipmaker Nvidia and mixed performances in Asia.

Spread betting companies are calling the blue-chip index down by around 14 points at the start of trading.

In the US the Dow closed Monday up 29 points, less than 0.1%, at 32,833, the Nasdaq Composite slipped 13 points, 0.1%, to 12,644 and the S&P 500 ticked down 5 points, 0.1%, to 4,140.

Michael Hewson Chief Market Analyst at CMC Markets UK: “Having finished the end of last week lower after a strong US payrolls report, European markets managed to start the week strongly, after a better-than-expected performance in Chinese exports for July which prompted optimism over a pickup in global economic activity.”

“US markets took their cues from the same early optimism from European markets, as the S&P500 hit a three-month high.”

“This optimism quickly evaporated after US chipmaker Nvidia issued a profits warning in respect of its Q2 numbers which are due on August 24th.”

“This acted as a drag on the tech sector and ultimately resulted in the Nasdaq and S&P500 pulling back from their intraday highs and finishing slightly lower.”

“The main focus this week is very much on tomorrow’s US CPI report in the wake of Friday’s bumper payrolls report, which saw US 10-year yields push up to their highest levels in two weeks.”

“Consensus opinion appears to be leaning towards the current strength in equity markets, being a bear market rally with limited upside, while on the other side there are those who think we’ve managed to carve out a base.”

“While it’s tempting to buy into the narrative that we’ve seen the lows of the year, none of the price action thus far serves to support that conclusion.”

“Equity markets on both sides of the Atlantic are still very much in the downtrend from their January peaks, and Nvidia’s profit warning merely serves to underline the challenges facing, not only the tech sector, but the wider global economy.”

“That’s not to say we aren’t seeing companies beat expectations, we are, but it’s generally in areas where companies are able to pass on some price increases or are benefitting from seasonal trends.”

Life insurance group, Legal & General, reported strong growth in the six months to June with an 8% rise in operating profit to £1,160mln, and a similar 8% increase in earnings per share to 19.28p.

Profit after tax of £1,153mln compared to £1,065mln in the first half of 2021 and return on equity was 21.3% against 22.0% in the same period in 2021.

The group also raised the interim dividend by 5% to 5.44p.

Sir Nigel Wilson, Group Chief Executive said: “Our balance sheet is strong and highly resilient, with a solvency ratio of 212% and with 100% of cash flows received from our Direct Investments.”

“We are committed to providing financial security for our customers and colleagues in a tough economic climate and remain confident in our ability to grow profits sustainably and at attractive returns over the long-term."

7.00am: FTSE 100 expected to open after weak US finish

FTSE 100 set to make a weak start to trading on Tuesday giving up some of yesterday’s gains after US stocks fell back in late trading.

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

Asian markets were mixed with the Nikkei 225 down 0.87% but the Hang Seng rose nearly 1%.

In the US the Dow closed Monday up 29 points, less than 0.1%, at 32,833, the Nasdaq Composite slipped 13 points, 0.1%, to 12,644 and the S&P 500 ticked down 5 points, 0.1%, to 4,140.

The benchmarks endured rocky trading after quickly giving up their opening gains.

“The question is if the rally is running out of breadth,” said Angelo Kourkafas, investment strategist at Edward Jones, as reported by CNBC. “There are certainly things that have improved after the past month that would justify, in our view, a move higher, which we have certainly seen. ... However, a lot has to go right to be able to say that the coast is clear.”

Read more on Proactive Investors UK

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