Proactive Investors -
- FTSE 100 down 44 points at 7,266
- UK retail sales hit by the wet weather
- Pound falls after weak retail sales figures
9.47am: RS knocked by UBS downgrade
As entioned earlier, it's not been a great morning for shares in RS Group (LON:RS1R) PLC (LSE:RS1) which sits top of the FTSE 100 fallers, down 4.5% at 689.29p.
Investment bank UBS has slashed forecasts, cuts its price target and downgraded the stock to neutral from buy.
“With recent data suggesting weakening markets and reversing share gains, we now expect a bigger profit 'unwind' for RS Group,” the Swiss bank said.
The broker foresees a period of sustained negative organic growth and margin pressure ahead and has cut estimates “significantly,” placing it around 14-19% below consensus.
While much of the risk is now reflected in the share price which is 35% lower than mid-2022 highs, UBS sees limited re-rating potential for now given the negative earnings outlook.
The bank has set a new price target of 800p, down from 1,250p, still well above the current share price.
Earnings per share forecasts have been slashed by 13-22% for the next three financial years, driven by lowered organic growth and gross margin forecasts.
9.26am: Cocktail of woes keeps FTSE lower; retailers drop
“Whether it’s the brewing crisis in the Chinese property market, the surge in US bond yields on fears rates will stay higher for longer or the big drop in UK retail sales, things are starting to look a bit ugly out there,” AJ Bell's Russ Mould thinks.
“News China real estate giant Evergrande has filed for bankruptcy protection in the US would have prompted some alarm in isolation but when you combine it with its peer Country Garden’s decision to suspend payments on some of its bonds and the words ‘dominos’ and ‘falling’ start to come to mind.
“China-exposed stocks on the FTSE 100 like Prudential (LON:PRU) and the miners are taking heat on Friday morning, helping to put the index on course for yet another down day."
And in comments that many a parent might echo he noted: "The FTSE is currently demonstrating all the pep and get up and go of a teenager at 8am on a school day."
Certainly, no up and go being showed by the FTSE, nore down and out, as it slips over 50 points to 7,259.
Miners are prominent in the fallers, with Antofagasta PLC (LSE:LON:ANTO), Anglo American PLC (LSE:LON:AAL) and Fresnillo PLC (LSE:LON:FRES)all heading down while a downgrade by UBS has knocked RS Group PLC (LSE:RS1) down by 3.7% - we'll have more on this shortly.
Retailers are still suffering with JD Sports Fashion PLC (LSE:LON:JD.), Frasers Group PLC (LSE:FRAS), Burberry Group PLC (LSE:LON:BRBY), B&M European Value Retail SA (LSE:BME) and Next PLC (LSE:LON:NXT) all languishing.
9:02am: JSW to rival Glencore (LON:GLEN)'s interest in Teck's coal arm
One to keep an eye on. Bloomberg reported that Glencore PLC has a new rival in its bid to acquire Teck Resources Ltd (TSX:TECK.B)'s coal division, with Mumbai-based JSW Steel Ltd scoping out parties to form a consortium.
Citing people with knowledge of the matter, Bloomberg reported that JSW is on the hunt for partners for an offer to acquire 75% of Teck's coal arm. A deal will value the unit at more than $8 billion.
Any JSW consortium could yet face competition for the coal asset from Glencore, which in June proposed buying the business for about $8 billion as an alternative to a full takeover of Vancouver-based Teck.
8:39am: Sterling and bond yields ease after weak retail sales
The weak retail sales figures have pricked the sterling baloon while bond yields have fallen back this morning too.
The pound is down 0.2% at $1.2722 while the yield on the UK’s 10-year gilt eased to 4.65% after topping 4.7%.
Meanwhile, the FTSE 100 has extended its losses, now down 52 points, at 7,258, with little respite in sight.
Sophie Lund-Yates at Hargreaves Lansdown (LON:HRGV) noted "concerns over interest rates continue to lead the narrative, which is currently saying that equities aren’t flavour of the month."
"At the same time, there are growing concerns over China’s property crisis and a weakening economy, as struggling property giant Evergrande filed for protection from creditors with the US bankruptcy court in Manhattan yesterday," she added.
"All-in-all, the atmosphere isn’t an inviting one for equity markets as we round off the week."
8:15am: Evergrande adds to FTSE's woes
The FTSE 100’s losing streak continued on Friday with equities in the red and on course for the longest losing streak since late-June.
Richard Hunter, at interactive investor, commented “Markets continued on a languid path as the list of concerns showed little signs of abating."
At 8.15am, London’s lead index was down 32.51 points, 0.45, at 7,277.70 while the FTSE 250 dipped 73.91 points, 0.4%, at 18,282.16.
Dampening the mood was news that UK retail sales fell by more-than-expected in July as the wind and the rain kept shoppers away from the high street.
Figures from the Office for National Statistics showed retail sales fell by 1.2% in July following a rise of 0.6% in June (revised from an increase of 0.7%).
This was a much larger drop than the 0.5% contraction forecast by economists.
But Samuel Tombs at Pantheon Macroeconomics thinks "July’s decline in retail sales likely is no more than a weather-related dip."
"We think households’ real expenditure will be up around 1.5% year-over-year in Q4, with retail sales following a similar trend," he said.
Nonetheless, leading retailers such as Frasers, JD Sports and Marks & Spencer were under pressure in early deals.
Sentiment was depressed further by news that Chinese property group Evergrande has filed for bankruptcy protection in the US as the crisis spreading through China’s property sector worsens.
Hunter at interactive investor said it was "another red flag from the property sector."
Asis-focused stocks were marked down. Standard Chartered (LON:STAN) fell 1.2%, HSBC (LON:HSBA) eased 0.8% and Prudential declined 1.2%.
7:56am: Wet weather rains on retail sales
You might have noticed the weather hasn't been great and figures today show that the wind and the rain has sparked a larger than expected fall in UK retail sales as shoppers have stayed away from the high street.
Figures from the Office for National Statistics showed retail sales fell by 1.2% in July following a rise of 0.6% in June (revised from an increase of 0.7%).
This was a much larger drop than the 0.5% contraction forecast by economists.
Retail sales fell 1.2% in July 2023 following a rise of 0.6% in June.➡️ https://t.co/cpnTqP0iN7 pic.twitter.com/EXj7XKVZrw
— Office for National Statistics (ONS) (@ONS) August 18, 2023
Food stores sales volumes fell by 2.6% with supermarkets reporting that the wet weather reduced clothing sales, although food sales also fell back as the increased cost of living and food prices continued to affect sales volumes.
Non-food stores sales volumes fell by 1.7% as poor weather reducing footfall.
The bad weather and promotions boosted online sales with the proportion of total sales online rising to 27..4% from 26.0% in June.
Automotive fuel stores sales volumes rose by 0.7% in July 2023, following a fall of 0.6% in June 2023.
7:40am: Rise in bond yields reflects fears of higher rates
Yields on long-term US government debt neared their highest level since 2007 as investors bet that the Federal Reserve would successfully avoid a recession although higher interest rates may be required to tackle stubborn inflation.
The sell-off in bonds, was mirrored in European markets, where UK 10-year gilt yields hit their highest level since 2008 and Germany’s equivalent hit levels not seen since 2011.
Central banks on both sides of the Atlantic have maintained a hawkish stance with higher interest rates even as inflation pressures have eased, leading investors to worry that interest rates will stay inflated for some time to come.
On Wednesday, minutes from the Fed’s last meeting showed officials saw “significant upside risks to inflation, which could require further tightening of monetary policy”
Ipek Ozkardeskaya at Swissquote Bank explained that positive data in the US recently has fuelled “worries that with such a strong growth, the US inflation could only make a U-turn and take a lift.”
“This is why, we continue to see the upside pressure in yields persist, in the US and around the world, though we saw some respite in the US 2-year yield that bounced lower from the 5% mark earlier in the week, and the 10-year yield spiked above 4.30% before falling back to 4.25% this morning,” she noted.
She also pointed out “the upside pressure in sovereign yields is true for other parts of the world as well, because obviously when the US coughs the world catches a cold.”
“More precisely, higher US yields also translate into a stronger US dollar, and a stronger US dollar is inflationary for the rest of the world.“
7:05am: FTSE set to follow global markets lower
The FTSE 100 looks set to start Friday on the back foot as global equities remain out of favour due to worries over interest rates and the health of the Chinese economy.
Spread betting companies are calling London's premier index down by around 35 points after closing down 46.67 points at 7,310.21 on Thursday.
"This week hasn't been a good week for the FTSE100, with 4 days of declines on top of a poor finish to the end of last week, with the index down 4% over the last 5 days, and down at 5-week lows," noted CMC Markets' Michael Hewson.
US stocks closed firmly in the red, with the Dow Jones Industrial Average down 0.8%, the S&P 500 down 0.8% and the Nasdaq Composite down 1.2%.
Asian markets were also in negative territory. The Nikkei 225 in Tokyo fell 0.7%, in China, the Shanghai Composite was down 0.5%, while the Hang Seng index in Hong Kong was down 1.7%.
Back in London, and UK retail sales figures will provide the early focus with the corporate diary looking quiet.