Proactive Investors -
- FTSE 100 hit session low of 7,471.69
- US stocks higher as PCE inflation eases
- UK economy sees 0.1% growth in first quarter
3.10pm: Crude bounce
Oil prices were higher on Friday afternoon following US data showing easing inflation, but the benchmarks are still on course for a fourth consecutive quarter of losses amid concerns over slowing demand on global economic concerns.
UK Brent crude was 0.3% higher at $74.43 a barrel, but is on track for a near 7% decline in the three months to the end of June, with prices are at their lowest in 2 years.
US West Texas Intermediate crude (WTI) was up 0.6% at $70.26 a barrel but is down nearly 8% on a quarterly basis, its second consecutive quarterly drop.
Inflationary pressures, rising interest rates, and a slower-than-expected recovery in Chinese manufacturing and consumption have weighed on markets in recent months.
However, Saudi Arabia's plan to cut output by a further 1 million barrels per day in July in addition to a broader OPEC+ deal to limit supply into 2024 offers underlying support for the next quarter.
2.45pm: PCE provides hope
The FTSE 100 index hovered just below session highs midafternoon as US stocks started strongly on Friday after the latest data on US personal consumption expenditures (PCE), the Federal Reserve’s favored gauge for inflation, fell by more than expected.
Around 15 minutes after the New York open, the Dow Jones Industrial Average was 213 points, 0.6% higher at 34,335, while the S&P 500 gained 0.9%, and the Nasdaq Composite jumped 1.2%.
Commenting on the latest US data, Ian Shepherdson, chief economist at Pantheon Macroeconomics noted: “Headline PCE inflation fell to 3.8% from 4.3%, and has a decent chance of dropping to just 3.0% in June, at which point it will have fallen by 2.0pp in just four months. That rate of decline won’t be sustained, but we think the y/y rate will be only 2.5% by December, only half a point above the Fed’s target and with further declines coming in H1 next year. The core rate will be about a point higher but slowing.”
He added: “These data are not enough to stop the Fed hiking in July if the June CPI and payroll numbers are strong. Our base case, though, is that these data will be on the softer side, so we think the chance of a further hike is about 40%. And if they don’t hike in July, they’re probably done.”
2.30pm: House price cliff
UK residential house sales have been tumbling for the past 12 months down 14%, and in the past two months have fallen off the cliff edge, according to leading tax and advisory firm Blick Rothenberg.
Comparing the figures with the same month from a year ago, the number of transactions for May 2023 are down 25% (25,400 less sales) from where they were in May 2022, starker was the position for April 2023 which was even worse with a drop of 32% (31,840 fewer transactions).
Paul Haywood-Schiefer, senior manager at Blick Rothenberg said: “It would be easy to say that this is just a return to the mean with the last couple of years of the market being pretty high on transactions because of the government's Stamp Duty Land Tax (SDLT) holiday. However, the transactions pre Covid for April and May (2019) were still 23% higher in both months than the 2023 figures (87,860 and 97,050 transactions accordingly).
“Therefore, there really isn't a lot in that argument. What we have here is that purchasing a house is not a priority whilst people focus on covering the costs of the essentials, as inflation runs rife and interest rate rises being largely ineffectual to curb it.”
2.15pm: US inflation lift
The FTSE 100 index held near session highs as US futures extended earlier gains after data showing signs of easing inflation offered relief to investors worried about more interest rate hikes from the Federal Reserve.
A Commerce Department report showed the headline Personal Consumption Expenditure index (PCE), the Federal Reserve's preferred inflation gauge, advanced 3.8% compared to a 4.3% rise in April. Excluding the volatile food and energy components, the core PCE price index was 4.6%, against expectations of 4.7%, and gained 0.3% in May after rising 0.4% in the previous month.
Hawkish remarks from Fed Chair Jerome Powell and strong economic data this week have boosted bets that the US central bank will continue to raise interest rates, but stock markets have been buoyant on signs of strength in the US economy.
1.30pm: A glance at some of today’s movers
Risers
Renalytix - up 58% to 118.5p: Shares surged following the US Food and Drug Administration (FDA) granting marketing authorisation for its KidneyIntelX.dkd prognostic test.
Petrofac (LON:PFC) - up 5% to 77p: Shares leapt to a near three-month high after winning a US$700mln contract with the Abu Dhabi National Oil Company, which had previously suspended it from bidding for tenders due to misconduct issues.
Fallers
Caspian Sunrise - down 17.5% to 3.3p: Shares in the Kazakhstan-focused oiler, dropped by almost a third after it said it was cancelling the dividend payment for the foreseeable future.
LoopUp - down 13.6% to 1.7p: Shares fell as the cloud platform for premium hybrid communications revealed an increase in its operating losses for 2022 after an adjustment during the audit finalisation process.
Kropz - down 37.2% to 1.9p: Kropz plunged after the emerging African phosphate producer revealed that its shares will be suspended from trading on AIM as it will not be in a position to publish its annual report and accounts for the year ended 31 December 2022 by today's deadline.
Trackwise - down 51% to 0.2p: Shares tanked on the AIM market in Friday’s opening hours after the printed circuit technology manufacturer failed to provide financial statements for the last financial year.
1.00pm: US stocks seen higher ahead of key PCE figures
US stocks are expected to make a positive start to the final session of the month, the quarter, and the first half of 2023, albeit as investors await the latest data on personal consumption expenditures (PCE), the Federal Reserve’s favored gauge for inflation.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were 0.3% higher, while those for the S&P 500 futures added 0.4%, and contracts for the Nasdaq 100 rose 0.5%.
In Thursday trading, the DJIA jumped nearly 270 points, or 0.8% to close at 34,122, boosted by banking stocks after they all passed Federal Reserve stress tests. The S&P 500 closed 0.5% higher, but the Nasdaq Composite ended the day flat.
After a batch of strong US economic data this week, investor attention on Friday will be on May PCE data, due out at 8.30am ET. The core personal consumption expenditures price index is expected to show a 0.3% increase, after rising 0.4% in April. On an annual basis, the gauge is expected to have increased by 4.7%, unchanged from the prior month.
TickMill Group’s market analyst Patrick Munnelly commented: "In the US, recent data releases, such as the upward revision of Q1 GDP growth and lower-than-expected weekly unemployment claims, indicate that economic activity remains stronger than anticipated.
"The personal spending report for May, set to be released today, is expected to show slower growth compared to April but still indicative of overall growth in Q2. The report will also include the consumer expenditure deflator, the Federal Reserve's preferred inflation measure.
Headline inflation is forecasted to experience a significant decline, while the core inflation rate is expected to remain unchanged at 4.7%, well above the Fed's target of 2%."
Noting the day's other data release, he added: "Based on expectations, the Chicago Purchasing Managers' Index (PMI) for June is anticipated to show an improvement compared to the previous month. However, it is projected to remain below the threshold of 50.0 which would suggest ongoing challenges for the manufacturing sector in the region."
Friday is a pivotal day for investors, marking not just the end of June, but also the conclusion of the second quarter and the first half.
Currently, for June, the S&P 500 has gained 5.18% and is on pace for its best monthly performance since January. The Nasdaq has advanced 5.07%, and both it and the broader market index are heading for a fourth consecutive positive month. The DJIA has climbed 3.69% in June, and it’s on track for its best month since November.
For the year to date and the first half, the S&P 500 has jumped 14.51% higher, and is heading for its best first half since 2018. The Nasdaq has surged nearly 30%, tracking for its best first half since 1983, but the DJIA has a more modest gain of 2.94%.
The three major averages are also on pace for winning weeks, with the S&P 500 and Dow up more than 1% each, and the Nasdaq tracking for a 0.7% increase.
12.42pm: Bunzl (LON:BNZL) higher after investor presentation
Shares in Bunzl climbed 1.2% following an upbeat investor seminar yesterday.
Peel Hunt said seminar was "informative," with the focus was on the North American operations which make up around 55% of the firm's earnings, and specifically the higher growth/margin segments of safety, food producers and agriculture as well as M&A.
The broker said the management's tone was upbeat.
Peel Hunt said its three key takeaways were: confidence in executing a strong M&A pipeline which is capable of supporting higher margins and higher growth, increasing momentum in expanding own label products further driving growth and margin and operational synergies and efficiencies will continue to support margin and competitive advantage.
The broker left its forecasts unchanged and retained its add rating with a 3,200p price target.
12.18pm: CMA to probe Adobe (NASDAQ:ADBE)'s Figma deal
The UK competition regulator has warned that it will open a deeper investigation into Adobe’s US$20bn acquisition of its smaller rival Figma unless the two design software makers offer concessions to address its concerns.
The deal is already facing scrutiny in the US and Europe.
The CMA said an initial inquiry found that the companies’ rivalry, especially in software to design apps and websites, had boosted investment and innovation, which could be lost if they merge.
It plans to refer the deal for a full “phase 2” investigation unless the companies offer “acceptable undertakings” to address its concerns.
11.53am: ONS says more people facing rental and mortgage arrears
Figures from the Office for National Statistics showed the number of people reporting their cost of living had increased had fallen but those facing rental or mortgage arrears haf risen.
Around 6 in 10 (62%) adults reported that their cost of living had increased, compared with a month ago, a fall since early April 2023, when the figure was 76%. Commonly reported reasons were the price of food shopping (96%), gas or electricity bills (62%), the price of fuel (34%), or an increase in their rent or mortgage costs (26%).
But the proportion of adults reporting that their rent or mortgage payments have gone up in the last 6 months was 47%, up from 30% in June 2022.
When asked how easy or difficult it was to afford rent or mortgage payments, 43% reported it was very or somewhat difficult. This has increased from 25% in June 2022.
Around half (47%) of adults reported they found it very or somewhat difficult to afford their energy bills, up from 37% in June 2022.
11.23am: Home sales tumble by a quarter in May
Home sales tumbled by a quarter in May compared with the same month a year earlier, new HM Revenue and Customs (HMRC) figures showed, in another sign that UK housing market is cooling this year.
HMRC reports that there were 74,360 residential transactions in May 2023 is 74,360, 25% lower than May 2022. But, that’s 10% higher more than in April 2023
HMRC say the annual fall “is partly due to higher number of bank holidays in May 2023, but also represents the decline in general market conditions in recent months”.
Sarah Coles at Hargreaves Lansdown (LON:HRGV) noted it "was a barren May for the property market, with sales drying up in the face of scorching inflation."
" It means there’s the risk of a serious sales drought taking hold later in the summer," she reckoned.
11.01am: Inflation fall encouraging but more ECB rate hikes seen
ING Economics thinks while the improving inflation environment will be encouraging for the ECB, the message coming out of Sintra this week has been pretty clear: “there’s more work to be done.”
The ECB thinks it is more costly to do too little in terms of hikes than to do too much, which means that we expect the ECB to continue hiking in July and September.
Eurozone inflation fell dropped from 6.1% in May to 5.5% in June, but core inflation, ticked back up from 5.3% to 5.4%.
“This was mainly due to the effects on services inflation from German government support last year,” ING said.
Headline inflation continues to drive the strong declines though. Food inflation has moderated substantially, although our own seasonal adjustment suggests a monthly uptick between May and June.
ING added the labour market “remains hot, which is a key concern for the ECB.“
“For the ECB, this means that the risk of prolonged high wage growth remains in place, which is an important reason why the ECB is not pausing its hiking cycle just yet,” ING said.
10.34am: UK car production rises for fourth month in a row
UK car production rose for the fourth consecutive month in May, up 26.9% year on year, according to the latest figures published today by the Society of Motor Manufacturers and Traders (SMMT).
the SMMT said 79,046 units left production lines, 16,762 more than in the same month last year, as manufacturers defied the challenging economic backdrop to fulfil customer demand for the latest British-built models, at home and overseas, although the total was still down 31.9% on May 2019.
British car production continues growth in best May since 2019???? production output maintains momentum, growing 26.9%
????Volumes for domestic market surge 45.4% to 16,188
⚡️sector calls for industrial strategy to unlock £106bn EV production prizehttps://t.co/aBXFTDle3W pic.twitter.com/wJjOxjZNr5
— SMMT (@SMMT) June 30, 2023
There was double-digit growth for domestic and overseas orders, with volumes for the UK surging by 45.4% to 16,188 units and exports rising 22.9% to 62,858 units.
Exports accounted for the majority of the production output, at 79.5%, with the EU remaining the biggest global market, taking 35,215 units, up 19.0% and representing 56.0% of all overseas shipments in the month.
Mike Hawes, SMMT chief executive, said: "Another month of growth for UK car production is good news and a sign that, despite challenging economic conditions, the industry’s foundations are strong."
UK commercial vehicle production also grew last month, up 36.9%, the best May performance since 2008.
Growth driven by exports, up 48.1%, while production for UK buyers rises by 13.1%, the Society of Motor Manufacturers and Traders (SMMT) said.
The SMMT reported 10,813 new vans, buses, trucks, coaches and taxis left British factories.
10.18am: Eurozone inflation slows more than forecast
More good news on inflation in the eurozone which has cooled by more than forecast.
Consumer prices across the euro area rose by 5.5% in the year to June, down from 6.1% in May, lower than the 5.6% which economists expected.
Eurostat says that food, alcohol & tobacco is expected to have the highest annual rate in June - at 11.7%, down from 12.5% in May.
Euro area #inflation at 5.5% in June 2023, down from 6.1% in May. Components: food, alcohol & tobacco +11.7%, other goods +5.5%, services +5.4%, energy -5.6% - flash estimate https://t.co/te10Odpafe pic.twitter.com/QLqvJsD3XT— EU_Eurostat (@EU_Eurostat) June 30, 2023
Industrial goods inflation eased to 5.5%, from 5.8%.
But service sector inflation rose to 5.4%, up from 5.0% in May.
Energy prices fell at a faster rate than last month, with energy inflation dropping to -5.6% from -1.8% in May.
The news boosts hopes that the ECB may yet temper its enthusiam for rate rises despite President Christine Lagardere signalling a further increase at its next meeting.
Markets in Europe rose strongly, with the Cac 40 up 0.8% and the Dax up 0.9%. In London, the FTSE 100 is up 0.6%.
9.48am: French inflation falls more than expected
Inflation in France fell to its lowest annual rate for 15 months, as lower energy costs brought consumer price growth down to 5.3% n June from 6% the previous month.
The figure published by the national statistics institute was slightly below the 5.4% predicted by economists, and offers some encouragement ahead of the publication of eurozone price data later on Friday.
In the US, the Fed's preferred inflation gauge, the PCE report is due at 1330 BST.
Investors will be hoping for a further slowing in pricing pressures which complete a week of solid economic news in thr world's largest economy.
In London, equities remain strong with the FTSE 100 up 38 points.
9.32am: Renalytix surges after US FDA clearance
Shares in Renalytix, the kidney health-focused diagnostics company soared after it said the US Food & Drug Administration has granted de novo marketing authorisation to its KidneyIntelX.dkd prognostic test.
"This affirms KidneyIntelX as a first-in-class, artificial intelligence enabled prognostic testing platform to guide care management for adults with type 2 diabetes and early-stage chronic (diabetic) kidney disease," it explained.
The FDA authorisation should lead to increasing test adoption, informing clinical guidelines, an expansion in insurance coverage as well as further regulatory approvals elsewhere, the firm stated.
Shares took off, surging 56% to 117p.
9.19am: Revolution Beauty says trading is strong as it returns fire on boohoo
Grab the popcorn and settle down for the latest barbs between Revolution Beauty and boohoo as the war of words between the two shows no signs of ending.
It was Revolution Beauty’s turn today after the AGM drama earlier this week and boohoo’s criticism of share awards to executives yesterday.
It views boohoo's “hostile” actions as “value-destructive, opportunistic and self-serving, as well as not being in the interests of the company's shareholders as a whole.”
It also took a dig at boohoo’s corporate governance history, describing it as “ironic.”
“As shareholders will be aware, boohoo has a long and well documented track record of substandard corporate governance and legal, reputational, supply chain and shareholder engagement issues,” it said.
It said share awards amounts “pale in comparison to the extremely management-friendly incentive packages boohoo have awarded in the past, including most recently awarding the executive team significant cash bonuses even after missing certain financial targets.”
“In contrast to the largesse demonstrated on a consistent basis by boohoo, the company's grant of options is entirely fair and reasonable, and well within market practice norms,” Revolution Beauty.
You get the feeling this won’t be the last we hear on from these two firms.
Away from the drama and current trading continues to be strong across the group, it said, and management are confident the positive trading momentum will continue as the year progresses.
"As previously stated, the current expectation for FY24 is high single digit growth in revenue, and constant currency adjusted EBITDA in the high single digit millions," the company stated.
Shares though continue to rise on their return to trading, up a further 9% today. Chief executive, Bob Holt, and chair Derek Zissman showed their faith in the firm by buying shares yesterday.
8.54am: UK swerves recession but warning lights flashing
London’s blue-chips are holding firm with the FTSE 100 up 21 points at 7,493.
Despite swerving a winter recession analysts see plenty of danger ahead for the UK economy.
Danni Hewson at AJ Bell despite the UK “limping through” the first few months of the year “warning signs are already flashing madly.”
She noted household disposable income was being further eroded by the constant pain of price rises while fewer people have the ability to put a bit away for a rainy day or take advantage of the interest rate hikes which are causing such misery for so many.
“With hundreds of thousands of mortgage holders about to be clobbered by increased monthly payments there’s little doubt the service sector is in for a rough ride,” she added.
“Any growth is good but remember this growth still leaves the UK economy struggling to make up the ground it lost during the pandemic, and although we are in the same boat as Germany, the failure to have properly capitalised on the reopening momentum is cause for concern.”
8.40am: Barratt inks property deal with Citra
Barratt Developments (LON:BDEV) has sold 604 homes to Citra Living Properties, a wholly owned subsidiary of Lloyds Banking Group (LON:LLOY), for £168.4mln.
The housebuilder said it would recognise revenue and profit on the legal completion of each home under the future sale agreement.
Of the 604 homes, more than 500 are expected to be transferred to Citra's ownership over the 12 months to 30 June 2024, with the rest in the following financial year.
Chief Executive David Thomas said: "We are delighted to announce a significant step forward in our partnership with Citra."
"Since forming our strategic partnership in 2021, we have agreed the sale of some 502 homes on individual sites to Citra."
Barratt shares are modestly higher in early exchanges while the FTSE 100 is up 15 points at 7,487.
8.13am: FTSE 100 rises, house prices in surprise rise
The FTSE 100 made a bright start to the last day of the quarter as house prices remained resilient despite soaring mortgage rates and figures confirmed the UK avoided a Winter recession.
At 8.13am, London's lead index was up 22.47 points at 7,494.16 while the FTSE 250 was at 18,298.46, a rise of 27.73 points.
Gains in the US also provided support after growth in the world’s largest economy was revised sharply higher. It followed a batch of surprisingly strong data in the US this week.
Deutsche Bank’s Jim Reid said: “All this positive data played into the recent market narrative, which is that strong growth and sticky inflation will see central banks hold rates at restrictive levels for much longer than previously expected.”
UK house prices remained broadly flat in June, but fell 3.5% compared with June 2022, according to latest figures.
The Nationwide house price index said prices rose 0.1% in June after falling by a similar amount in May.
The EY Item Club said: “Given the scale of previous price gains and the headwinds facing the housing market from rising mortgage rates and other financial pressures, house prices continue to display a surprising degree of resilience.”
But it thinks “that resilience will likely fade, at least to a degree.”
Robert Gardner, Nationwide's chief economist, agreed: “The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term.”
In other economic news, figures from the Office for National Statistics confirmed the UK avoided a recession with growth unrevised at 0.1% in the first quarter of 2023.
Samuel Tombs at Pantheon Macroeconomics thinks that the economy will avoid a recession over the coming quarters, with a gradual recovery in households’ real expenditure offsetting emerging weakness in business investment.
“We think the GDP probably held steady in Q2, and then will rise by about 0.4% quarter-on-quarter in Q3 and 0.2% in Q4,” he added.
Centrica (LON:CNA) rose 0.7% after it announced a near doubling in gas storage capacity at its Rough facility while broker upgrades boosted Drax and Aviva (LON:AV).
HSBC (LON:HSBA) has raised Aviva to 'buy' with a price target 480p, helping shares rise 0.9%, while Credit Suisse (SIX:CSGN) has upgraded Drax to 'outperform' from ‘neutral’ with an increased price target of 760p, up from 700p. Shares rose 3.6%.
7.48am: House prices rise 0.1% in June according to Nationwide
UK house prices remained broadly flat in June, but fell 3.5% compared with June 2022, according to latest figures.
The Nationwide house price index said prices rose 0.1% in June after falling by a similar amount in May.
The average UK house price is now £262,239, up from £260,736 in May.
But Robert Gardner, Nationwide's chief economist, said: “The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term.”
Moreover, “house prices remain high relative to earnings, and as a result, deposit requirements are still a significant barrier for those looking to enter the market.”
He pointed out “despite the higher interest rates available to savers, the sharp rise in rents, together with continued high rates of inflation more generally is continuing to make it difficult for many prospective buyers to save for a deposit.”
“Nevertheless, a relatively soft landing is still possible, providing the broader economy performs as we (and most other forecasters) expect.
“Labour market conditions are expected to remain relatively robust,” while income growth is projected to remain solid.
With Bank Rate likely to peak in the quarters ahead, longer term interest rates should also start to fall back, he said.
“Providing the labour market and interest rates perform broadly as expected, we are unlikely to see the waves of forced selling,” he said.
7.28am: Centrica nearly doubles gas storage at Rough
British Gas owner, Centrica has announced it has nearly doubled gas storage capacity at Rough, the UK’s largest gas storage facility.
The facility, 18 miles off the East Yorkshire coast, was re-opened for gas storage in October 2022, and at that time was able to store approximately 30bn cubic feet (bcf) of gas for UK homes and businesses.
But after engineering work and investment, Centrica said Rough will now be able to store up to 54 bcf of gas, an 80% increase.
Centrica said this would boost the UK's energy resilience for the coming winter and provide the equivalent volume of gas to heat 2.4mln homes over winter.
Rough now provides half of the UK's total gas storage.
7.13am: UK economy flatlines in first quarter
The economy eked out growth of 0.1% in the first quarter, according to figures from the Office for National Statistics.
The figure was unrevised and in line with City forecasts.
The services sector grew by 0.1% on the quarter driven by increases in information and communication, and administrative and support service activities; elsewhere, the construction sector grew by a revised 0.4% (previously 0.7%), while the production sector grew by 0.1%, with a revised 0.6% growth in manufacturing (previously 0.5%).
The household saving ratio is 8.7% in the latest quarter down from 9.3% in the fourth quarter of 2022.
Real households' disposable income fell by 0.8% following positive growth of 1.3% in the previous quarter.
Households experienced simultaneous withdrawals from their deposit accounts and negative secured loans for the first time ever.
7.00am: FTSE set to follow the US higher
The FTSE 100 is expected to make a bright start on Friday after US blue-chips advanced after strong economic data raised hopes of a soft landing in the world’s largest economy.
Spread betting companies are calling London’s lead index up by around 22 points. The FTSE 100 closed down 28.80 points, or 0.4%, at 7,471.69 on Thursday.
"The surprising resilience of US economic data this week has made it an absolute certainty that we will see another rate increase in July, but also raised the possibility that we might see another 2 more rate increases after that," said CMC Markets' Michael Hewson.
Both the Dow Jones and S&P 500 posted strong gains but the Nasdaq was little changed as investors feared the resilient figures would mean more interest rate rises.
In Asia, markets were mixed. The Nikkei 225 index in Tokyo was down 0.3%. In China, the Shanghai Composite was up 0.9%, while the Hang Seng index in Hong Kong was up 0.2%.
Activity in China's factory sector contracted for a third straight month in June, but the figure of 49.0 was in line with forecasts and above May’s 48.8 level.
Back in London, and the early focus will be a final GDP reading for quarter one.