Proactive Investors -
- FTSE 100 down 33 points
- Water companies spring a leak
- Ashtead gains ground
10.45am: Precious metal miners under pressure
Leading shares continue to slide in the wake of the falls on Wall Street and the poor UK construction figures.
The FTSE 100 is now down 30.69 points or 0.41% at 7536.85.
Mondi PLC (LON:MNDI) is still leading the fallers, down 5.03% after a downgrade from Credit Suisse (SIX:CSGN).
JP Morgan has caused a drop in water companies United Utilities Group PLC, down 2.93%, and Severn Trent PLC (LON:SVT), 2.25% lower.
Meanwhile Ocado Group PLC (LON:OCDO) is off 2.29% after a dip in its market share according to the latest Kantar figures.
Recent gold price weakness following a stronger dollar has seen Fresnillo PLC (LON:FRES) fall 2.16% and Endeavour Mining PLC lose 2.17%.
10.31am: NatWest (LON:NWG) boss "embarrassed" by mini-budget
Back with the September mini-budget from former chancellor Kwasi Kwarteng which caused such havoc, and the chairman of NatWest has told the bank's staff the statement scarred the UK's reputation.
According to the Guardian, Sir Howard Davies was at the International Monetary Fund meeting in Washington and the mini-budget meant he had "never felt so embarrassed internationally”.
He said: "I was at the IMF conference while all this was going on and Kwarteng was there. It was embarrassing, because he was then summoned back home to be sacked … The perception of the UK was terrible...
"People [were] coming in to say ‘I’m terribly sorry to hear about your economy and your government, I’m sure it’s not so bad’. And you say, ‘well actually, it probably is. Really – it’s about as bad as you think’.
"It was awful, I’ve never felt so embarrassed internationally."
9.40am: Higher borrowing costs and economic concerns hit building sector
The UK construction sector did worse than expected in November, falling sharply from the previous month although it still managed to just about show growth.
The S&P Global/CIPS construction PMI came in at 50.4, down from 53.2. A reading above 50 shows growth rather than contraction but this was the weakest performance since August.
UK S&P Global/CIPS Construction PMI Nov: 50.4 (est 52.0; prev 53.2)— LiveSquawk (@LiveSquawk) December 6, 2022
Higher borrowing costs and worries about the economic outlook curtailed construction activity, particularly in housebuilding as mortgage rates climbed after the disastrous mini-budget.
Business optimism was the lowest since December 2008 during the financial crisis, excluding the downturn caused by the pandemic.
Commercial work was the only segment to register an overall rise in business activity in November. House building activity meanwhile stalled, which ended at three-month period of marginal expansion.
November data pointed to modest increase in total new orders across the construction sector, which contrasted with a slight decline in October. However, the rise in new business intakes was much weaker than seen on average in the first half of 2022.
Average cost burdens increased sharply in November, which was linked to rising energy prices, tight supply conditions and general inflationary pressures. However, the overall rate of input cost inflation eased to its least marked since January 2021, partly due to softer commodity prices.
Tim Moore, economics director at S&P said, “Stalling house building activity contributed to the weakest UK construction sector performance for three months in November. Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales and worries about the economic outlook.
“Construction growth was largely confined to the commercial segment, but even here the speed of expansion slowed considerably since October as client confidence weakened in response to heightened business uncertainty. At the same time, a lack of new work to replace completed projects resulted in another fall in civil engineering activity.
“The number of construction firms anticipating a rise in overall business activity during the year ahead exceeded those forecasting a decline by only a very fine margin during November. Moreover, disregarding a three-month period of negative sentiment at the start of the pandemic, our survey measure of business expectations across the construction sector was the joint-weakest since December 2008.”
9.15am: Sterling dips against the dollar
The strong US data in the last couple of trading days has left analysts again anticipating the Federal Reserve will remain hawkish over interest rate rises.
“We’re very much in looking glass territory again with investors desperate for the Fed to ease up on rate hikes and therefore taking any bit of good news about the economy as bad news because it will delay the longed-for pivot,” said AJ Bell investment director Russ Mould.
“Better-than-expected figures from the US services sector, combined with some profit taking after a strong run, resulted in losses across the Atlantic overnight and the negativity permeated into Asian shares with some of the optimism about a loosening of Chinese restrictions also beginning to fade.
“The next key US releases come on Friday with producer prices data and a reading of consumer sentiment. Next Wednesday is decision day on US rates and the Fed’s actions could help set the tone for the tail end of 2022 and first weeks of 2023."
The likelihood of US interest rates continuing to rise for some time has seen the dollar strengthen. Against the US currency, sterling has dipped 0.02% to US$1.2189.
But Neil Wilson at Markets.com said the pound had seen a remarkable turnaround from the September all-time low to reach US$1.23: "That’s a 20% rally in two months with barely a pause for breath. Several factors are in play, from the return to fiscal discipline and façade of Treasury competence brought about by the Sunak-Hunt coup. The pound was also clearly massively oversold."
8.50am: Analysts send packaging group lower
A couple of broker notes have done some damage to blue chip businesses.
Packaging group Mondi PLC (LON:MNDI) is leading the FTSE 100 fallers, down 4.45% at 1472.5p after Credit Suisse (SIX:CSGN) slashed its rating from outperform to underperform and cut its price target from 1800p to 1600p.
In the water sector, Severn Trent PLC (LON:SVT) is off 2.86% and United Utilities Group PLC has dropped 2.27% as JP Morgan analysts put them on negative catalyst watch.
But equipment rental business Ashtead Group PLC (LON:AHT) is the biggest riser so far. Its shares are up 3.97% after it reported a 35% rise in half year profits and said it expected its annual results to be ahead of its previous guidance.
Victoria Scholar, head of investment at interactive investor said: "The British industrial equipment rental company appears to be handling the challenges of inflation and rising interest rates, given the upgrade to its full-year outlook. This is typically a cyclical business that is subject to the ups and downs of the macroeconomy with the rising risk of recession likely to be a headwind for Ashtead in 2023.
"After a tough first half of the year, since the trough in July, shares have been staging gains. The stock has rallied around 50% off the summer nadir with shares extending gains today.”
Overall the FTSE 100 has come off its worst levels and is now down just 5.88 points at 7561.66.
8.35am: Cost of Christmas dinner up more than 9% this year
More on the cost of Christmas.
According to Kantar, shoppers will have to spend an extra £60 in December to buy the same items as last year.
Kantar's Fraser McKevitt said: "The cost of a traditional Christmas dinner for four has hit £31 in 2022, an example of just how much rising prices are impacting people at the tills and in their daily lives.”
Consumers are also leaving their seasonal purchases later this year as they try to manage budgets in the run up to Christmas Day. McKevitt said: “Sales of mince pies, Christmas puddings and Christmas confectionery are worth 2% more than last year, but this rise can largely be put down to higher prices. If we look at the amount of people buying these items and the overall number of purchases made, then sales are actually down on 2021."
8.22am: Grocery sales expected to hit a record of at least £12bn in December
Some positive signs from the supermarket sector with grocery price inflation dipping in November and sales increasing, while December is expected to be the biggest ever month for take home purchases.
According to the latest report from Kantar, grocery price inflation fell for the first time in nearly two years, albeit down by just 0.1 percentage points to a still hefty 14.6%.
Take home sales rose by 5.9% year on year in the 12 weeks to 27 November 2022, the fastest level of growth since March 2021.
Fraser McKevitt, head of retail and consumer insight at Kantar, said: “As we move into the busiest time of the year for supermarkets, there are signs that the pace of grocery price inflation is easing off slightly as we saw a small dip of 0.1 percentage points this month – the first drop in 21 months. Grocery inflation still has a long way to come down though and based on the current rate, shoppers will have to spend an extra £60 in December to buy the same items as last year."
There has been little impact from the men's World Cup on sales, according to McKevitt. He said: "“We haven’t seen a big World Cup effect – at least not yet. Take-home beer sales nudged up slightly in the last four weeks, covering the first week of the tournament, by 5% to £230 million, but mostly due to increased prices. Many people are taking the chance to enjoy a social pint while watching the games in bars and pubs, whereas last year we were in the middle of a COVID-19 resurgence so consumers were limiting their movements and going out less. We’re likely to be marking the impact of that comparison with higher at-home volumes one year ago. Crisp and snacks have fared better this winter, however, with sales up by 18%.”
Even so, Kantar said a combination of inflation and festive spending means that the coming month is on course to be the biggest ever for take-home grocery sales. McKevitt said: “December looks set to be a record-breaking month with sales going above the £12bn mark for the first time. We’re expecting Friday 23 December to be the busiest day for pre-Christmas shopping.”
As for the individual supermarkets, the strong growth of the discounters continued, not surprisingly in the face of the cost of living crisis.
In the last twelve weeks, Lidl’s year-on-year sales increased by 22.0%, pushing its market share to a record 7.4%. An additional 1.5mln households shopped with Aldi compared with 2021 as it grew sales by 24.4% to claim 9.3% of the market.
Asda’s sales grew ahead of the sector, up by 6.1%, keeping its share steady at 14.0%. Tesco PLC (LON:TSCO) saw its market share hit 27.2% as its sales rose by 3.9%. The second largest retailer, J Sainsbury PLC, pushed up sales by 4.3% this period.
Convenience retailer Co-op increased sales by 3.5% and achieved 6.0% market share. Waitrose’s market share was at 4.5% while Iceland’s sales grew by 6.1%, as its share remained at 2.3%. Ocado’s market share was slightly down at 1.7%, with sales declines concentrated in its traditional south east and London heartland. However, the online specialist continued to expand its reach in northern England.
8.12am: Market edges lower in early trading
Leading shares have opened in the red in the wake of Wall Street's overnight decline, with US markets unsettled by a combination of positive service sector data yesterday and further reaction to the stronger than expected wages figures on Friday.
Taken together, these suggest that the Federal Reserve is unlikely to take a dovish view on interest rate rises when they meet next week, when a 50 basis point increase is forecast with more to follow.
So the FTSE 100 is down 12.58 points or 0.17% at 7554.96 ahead of a handful of UK economic data.
Today sees the latest UK supermarket report from Kantar as well as construction figures for November.
On the latter, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown (LON:HRGV), said: "The UK’s construction sector will be in focus with investors keen to find out if October’s resilience, with activity boosted by a backlog of orders, will have continued.
"There were already some signs of weakness emerging in last month’s PMI update, given that residential work grew at a softer pace, and with mortgage rates shooting up, there will be concerns that this could feed through to future orders. The overall pessimism across the sector was clear and so these numbers will be picked apart to find out if weakness is spreading."
In the US, there will be interest in the last knockings of the Senate elections.
Jim Reid at Deutsche Bank (ETR:DBKGn) said: "Today is an important one in US politics as the Georgia Senate run-off election takes place. This doesn’t have quite the significance it did two years ago, since the Democrats already have 50 seats and will control the Senate regardless of the result thanks to Vice President Harris’ casting vote.
"But it will still have important implications, since a 51-49 margin means the Democrats could still win a Senate vote even if they lost one of their number like Senator Joe Manchin. Furthermore, since Senate seats only come up every 6 years with just a third of the chamber elected each time, a victory for either side would make it easier for them to gain control in the 2024 and 2026 elections as well, since that Georgia seat wouldn’t be up for election again until 2028."
7.44am: Greenback gains against pound and euro, but rally may be short lived
Yesterday's UK services PMI data yielded few surprises- with cost pressures showing little signs of abating and operating expenses rising, output dropped to levels last seen in January 2021.
So it didn’t come as a shock to see a weakening of the pound against the US dollar.
GBP/USD fell 0.8% to 1.219 in Monday’s session, and continued to fall another 10 pips this morning.
GBP/USD contracts, but it could be a short-term price movement – Source: capital.com
But the pair is unlikely to remain in a downward trend. Although the US dollar index (DXY) rose in the last session, in part due to a surprisingly strong services reading, the index is on a bearish course in the long run.
A black Friday boost saw a 4.1% jump in monthly UK retail sales in data released this morning, which has already proved a catalyst for gains against the greenback.
Sterling took less of a hit against the euro. While EUR/GBP rose 0.4% to 86.08p on Monday, the pair has since cut back to 85.97p in today’s Asia trading window.
The pound is also looking strong against the yen, having already jumped 0.6% to 167.47 in the GBP/JPY pair this morning.
Greenback’s solid performance in the past could of days has caused EUR/USD to edge back from its recent five-month high, with the pair dipping 0.45% to 1.049 yesterday and continuing the trend downwards to 1.047 in today’s Asia trading hours.
7.01am: Footsie set for lower start
FTSE 100 expected to lower today reflecting heavy falls in the US following stronger-than-expected ISM services data that prompted fears about the US Federal Reserve's rate hike trajectory again.
Spread betting companies are calling the lead index down by around 12 points.
US markets extended their losses to close sharply lower as a strong ISM services index report added to fears that the Federal Reserve will keep on hiking rates which had been fuelled by Friday’s hot jobs report and average earnings data.
At the close the Dow Jones Industrial Average was down 483 points, or 1.4%, to 33,947, the S&P 500 slipped 73 points, or 1.8%, to 3,999 and the Nasdaq Composite declined 222 points, or 2%, to 11,240.
Mickey Levy at Berenberg noted commentary from ISM Services survey respondents generally pointed to solid demand, sustained input price pressures, and elevated supply and labor shortages.
“Given the Fed’s focus on services inflation as a bellwether for underlying inflationary pressures, sustained overheated demand in service sector industries will likely tip the Fed toward a higher rate path policy” he felt.
Back in London and results are expected from FTSE 100-listed but US-focused Ashtead Group PLC (LON:AHT) and former blue chip Ferguson PLC today.
Retailers will be in focus after the latest British Retail Consortium-KPMG monitor showed an increase in retail sales of 4.2% on year in November, topping the three- and 12-month average growth rate of 2.6%.
The S&P/ASX 200 in Sydney closed down 0.5% as The Reserve Bank of Australia decided to increase its cash rate target by 25 basis points to 3.10%, and signalled more rate hikes are to come.