- FTSE 100 pushes higher as the DJIA advances
- Jerome Powell's speech awaited
- US PCE slightly better than forecast
FTSE 100 pushed higher supported by gains on the Dow Jones in a mixed start in the US today, awaiting Fed chair Jerome Powell’s speech which is set to provide clues about rate setters’ plans for the coming months.
Just after the open, the Dow Jones Industrial Average had added 45 points at 33,337 points, while the S&P 500 and the Nasdaq Composite and were steady at 4,201 points and 12,635 points respectively.
While in London at 2.40pm the lead index was trading 16.21 points higher at 7,495.95.
One of the Fed’s favored inflation indications - personal consumption expenditures (PCE) - rose less than expected in July, coming in at 0.2%, compared to the consensus market expectation of 0.6%.
Real spending rose 0.2%, also coming in below the consensus expectation of 0.4%.
Pantheon Macroeconomics chief economist Ian Shepherdson noted that nominal incomes were on the rise on the back of robust increases in payrolls and wages, but the 0.2% July number was suspiciously low meaning a revision seemed a decent bet.
“But the big story here is that real incomes rebounded by a solid 0.3%, the biggest increase in a year, as a plunge in gas prices and a very small rise in core prices meant that the PCE deflator fell by 0.1%,” he said.
“We expect a further increase in real incomes in August, at least, in sharp contrast to declines across the first two quarters of the year.”
He noted that, while consumers had dipped into their savings accumulated in the pandemic during 1Q and 2Q, they no longer need to do that with the saving rate unchanged in July.
2.05pm: Core PCE figures slightly better than forecast
US consumer spending barely rose in July, but inflation eased considerably, data released today shows which could give the Federal Reserve room to scale back its aggressive interest rate increases.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% last month, the Commerce Department said on Friday while data for June was revised slightly down to show outlays advancing 1.0% instead of 1.1% as previously reported.
Economists had forecast consumer spending would gain 0.4%.
But the price deflator for personal consumption expenditures, the Federal Reserve's preferred price gauge, slipped by 0.1% on the month (consensus: +0.1%) at the headline level while the core PCE measure was up by 0.1% below the consensus forecast of 0.3%.
1.00pm: i3 Energy falls after earnings warning
Shares in i3 Energy plc, slipped 3% after it warned that full year 2022 net operating income would be approximately $200mln versus previous guidance of $241mln, predominantly due to volatile near-term commodity pricing.
On the upside, the oil and gas company reported a 116% increase in average production of approximately 19,502 barrels of oil equivalent per day despite delays to drilling caused by expected seasonal wet weather conditions and maintenance shutdowns at third party facilities.
Majid Shafiq, chief executive officer, commented: "The second quarter was another very busy period for i3. The Company managed to increase base production levels quarter on quarter, without any contribution from our Q2 drilling campaign, despite delays and operational challenges caused by expected seasonal wet weather conditions and maintenance shutdowns at third party facilities,”
12.20pm JP Morgan downgrades IHG
JP Morgan Cazenove has taken a more cautious view of the EU Hotels sector including a rating downgrade for InterContinental Hotels Group PLC.
The broker lowered its rating on IHG to neutral from overweight with a reduced price target of 5,900p from 6,100p with Whitbread (LON:WTB) the only remaining stock in the sector on which JPM has an overweight rating.
"We reassess our convictions within EU hotels, taking a more cautious view on the sector following very supportive post-Covid leisure trends, with Whitbread our only remaining OW now" JPM said.
The broker said whilst their estimates remain ahead of consensus across the board, based on continued strong momentum, there is clear uncertainty around the direction of revenue per available room heading into the winter and growing concerns around the consumer.
But the US broker is more positive on Whitbread PLC (LSE:WTB), keeping its overweight rating, focusing on the structural opportunity in the UK and Germany although it cut its price target to 4,100p from 4,150p., .
Shares in IHG fell 2.24% to 4,854.50p.
11.50am: Footsie back where it started
Shares in London headed back close to parity, conceding early gains, with US stocks expected to open lower on Friday as investors brace for Federal Reserve chairman Jerome Powell’s much-anticipated speech on the outlook for the economy at the Jackson Hole sumposium today.
By 11.50am the FTSE 100 was trading 0.30 points higher at 7,480.04 while the FTSE 250 was 66.44 points higher at 19,324.31.
Investors and traders alike will be watching closely for any sign that rate-setters may be looking to scale back future interest rate increases, hoping that the wider economy may be guided towards a soft landing.
Futures for the Dow Jones Industrial Average were trading 0.3% lower pre-market, while those for the broader S&P 500 index were down 0.4% and contracts for the tech-laden Nasdaq-100 shed 0.6%.
“Time will stop today when Jerome Powell speaks at the opening of the Jackson Hole meeting,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“There are many expectations regarding what Powell could say and how the market could react. Some, like analysts at Goldman Sachs (NYSE:NYSE:GS) think that Powell will lay out a case, as he did in his last press conference, for slowing the size of the Federal Reserve’s rate increases. He could emphasize the risk of over-tightening the monetary policy and causing an unnecessary slowdown in the US economy," she added.
If that does happen, stocks could rebound especially after a dismal performance this week.
Headline inflation levels, however, remain at four-decade highs and while there has been some hope that price levels have already peaked, the hard evidence is still lacking. Wider economic data have also been holding up reasonably well.
“But for now, the US jobs data remains relatively resilient to rate hikes and the latest growth data revealed, yesterday, a slower-than-expected contraction in the US GDP in the second quarter. Even though big companies announce decent layoffs as a result of tightening economic conditions, somehow, we don’t see that in the data, and their profit margins keep rising as they are passing increasing costs on to their customers,” noted Ozkardeskaya.
Ozkardeskaya does not see much reason for Powell to complain about weak economic data but noted that some rate setters have talked about too much tightening in monetary policy.
“But all that sounds a bit too dovish to me. In fact, it’s in Jerome Powell’s interest to stay down to earth, and focused on inflation, as triggering a market rally would have the opposite effect of boosting inflation, and this is not something the Fed wants when inflation hangs around the eye-watering 8.5% level," Ozkardeskaya concluded.
Postal workers kicked off four days of industrial action with around 115,000 Royal Mail (LON:RMG) staff taking action in a dispute over pay.
Letters will not be delivered on strike days and some parcels will be delayed, Royal Mail warned.
The union representing the workers is demanding a pay rise that more closely reflects the current rate of inflation.
Royal Mail apologised to customers and said it had contingency plans to minimise the disruption.
10.20am: FTSE off highs awaiting Powell's speech
Blue chip stocks came off earlier highs but remained in positive territory with the focus switching to Jackson Hole where the Federal Reserve chairman, Jerome Powell is set to speak.
At 10.20am the FTSE 100 was trading 9.43 points to the good at 7,489.17 while the FTSE 250 was 95.50 points higher at 19,353.37.
AJ Bell investment director, Russ Mould said, ““The energy crisis continues to escalate in the UK as the latest price cap is announced but for the markets all the focus is on Jackson Hole where, this afternoon UK time, Federal Reserve chair Jerome Powell is set to outline his position on interest rates.”
“Gains on Wall Street overnight have helped to steady nerves a touch ahead of Powell’s address. Expectations have been successfully managed, so if he is even a beat away from full hawkish mode there is a chance the market might rally.”
“There is a divergence between the inflation picture on either side of the Atlantic. In the US, its relative energy independence means it is not being as acutely affected by rising prices. In continental Europe and the UK, it’s a very different story.”
“With households in limbo waiting for a rescue package from whoever prevails in the Conservative leadership contest, the harm to consumer sentiment is only likely to fester.”
“The need to find potentially hundreds more a month to light or heat a home is likely to squeeze disposable incomes to such an extent that spending on going out, buying new clothes, furniture or going on holiday will become beyond the means of many people. That spells bad news for already pressured retailers and other consumer-facing firms.
Shares in Alumasc dipped 3.30% after the group said it would have to take an impairment charge of £14.9mln before tax for the year to June 2022 as a result of the disposal of its loss-making unit, Levolux.
The group has sold its solar shading business for £1mln with a potential deferred consideration of £1mln if the business is sold in the future for more than £1.0mln.
The business unit made a loss of £2mln in the year to June 30th.
Alumasc also said it expects to announce full year results in line with expectations adding trading in the core activities of the group remained strong in the second half.
GfK hits a new low in Germany
The headline advance GfK consumer confidence index in Germany dropped to -36.5 in September, from a downwardly-revised -30.9 in August, well below the consensus of -31.8.
Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said “the fall in the headline took it to a record low, the third in a row, and we see little in the way of a rebound anytime soon as the squeeze consumers’ real incomes from the energy supply shocks continues to intensify.”
“Households are afraid energy bills will continue to rise sharply and are putting money aside just in case, foregoing other spending.”
The details, reported for August, showed that the willingness-to-buy index slid to -15.7 from -14.5 in July and despite the fact that less respondents see their financial position deteriorating over the coming months—the income expectations index rose to -45.3 from -45.7.
9.00am: FTSE pushes higher
Trading in London got off to a positive start on Friday reflecting gains in the US on Thursday and Asia overnight shrugging off Ofgem’s increase in the energy price cap with investors looking ahead to Federal Reserve chair Jerome Powell’s Jackson Hole speech on Friday.
Mining stocks provided support with Anglo American (LON:AAL), Antofagasta PLC (LSE:LON:ANTO) and Rio Tinto PLC (LSE:LON:RIO) all higher in early trading.
By 9.00am the FTSE 100 was trading 35.10 points higher at 7,514.84 and the broader FTSE 250 index was 114.05 points to the good at 19,371.92.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said “The FTSE 100 is contemplating the tough consumer backdrop brought on by the new cap, with no corporate news to change the tide, and has settled on reserved optimism by opening up”
“This follows a mildly positive trading session in the US. Investors are waiting for Federal Reserve chair Jerome Powell’s Jackson Hole speech later. Expectations are that Powell will push back against ideas of a policy pivot, and will instead reiterate plans to get inflation back under control.”
“Recession fears in Germany just became more intense, with the consumer sentiment index, the GfK Consumer Climate Indicator, falling to a new record low of -36.5. Germany is concerned about rising energy costs in particular, and is particularly reliant on external energy producers, making the current situation more fraught.”
“A constrained supply outlook means Brent crude is back over $100 a barrel. Potential output cuts by OPEC+ have cancelled out an expected surge in Iranian oil exports, as well as the potential for a demand slowdown in the case of an economic downturn. Saudi Arabia has warned that OPEC+ could cut production to steady markets, and the US is also seeing a continued drawdown in its inventories” Lund-Yates added.
8.30am MicroFocus surges after OpenText bid
OpenText has announced an agreed £5.1bn takeover of Micro Focus International PLC (LSE:LON:MCRO) sending shares in the latter surging 90% to 370.90p.
The FTSE 250 group provides IT services for business IT and the bid equates to 532p per share.
Commenting on the deal, Greg Lock, the chairman of Micro Focus, said: "I am pleased to be recommending OpenText's offer to our shareholders."
"The premium offered demonstrates the significant progress we have made transforming the business."
"OpenText not only shares our values but will offer new opportunities for both our customers and employees”
8.10am: FTSE pushes higher at the open
FTSE 100 makes a bright start on Friday following gains in the US on Thursday and in Asia overnight with investors awaiting Federal Reserve chair Jerome Powell’s Jackson Hole speech on Friday.
By 8.10am the blue chip index was trading 45.54 points higher at 7,523.66 with the FTSE 250 advancing 93.57 points to 19,351.23.
On a quiet day of corporate news Alumasc Group PLC (AIM:ALU) said it expects to announce full year results in line with expectations adding trading in the core activities of the group remained strong in the second half.
The update came as the group announced the sale of its loss-making unit Levolux which made a loss of £2mln in the year to June 30th,
Alumasc said that after a review of the business and its prospects it had decided the business was non-core and has sold it for a nominal consideration of £1m cash.
The group will take a non-cash impairment charge of £14.9mln before tax for the year to June 2022 as a result of the disposal.
JTC said on Friday that it has agreed to buy New York Private Trust Company, a non-deposit trust company headquartered in Delaware in the US, for an undisclosed sum.
JTC said NYPTC is "highly complementary" to its existing private client operations in the US, which have grown organically since 2013 and include well-established offices in Miami, New York and South Dakota.
Chief executive officer Nigel Le Quesne said: "NYPTC is a high quality private client business that will expand our existing US footprint and support our ambitions to create a market-leading US domestic trust business.”
Union Jack Oil PLC (AIM:UJO), a UK focused onshore hydrocarbon production, development and exploration company, announced that material landmark net revenues of US$9mln have been achieved from the Wressle hydrocarbon development, located within licences PEDL180 and PEDL182 in North Lincolnshire on the western margin of the Humber Basin.
The well continues to produce under natural flow with zero water cut, the group said, adding Union Jack continues to be cash flow positive covering all G&A, OPEX and contracted or planned CAPEX costs, including any drilling activities for at least the next 12 months.
Executive Chairman of Union Jack, David Bramhill, commented said: "We look forward to reporting a positive set of Half Yearly Results for the period ending 30 June 2022, recording a maiden profit, in mid-September 2022."
The FTSE 100 is expected to make a muted start to trading with investors awaiting Federal Reserve chair Jerome Powell’s Jackson Hole speech on Friday and reacting to news of another increase in the energy price cap in the UK.
Spread betting companies are calling the lead index down by around 5 points.
Households will see their energy bills soar after Ofgem announced an increase in the price cap to £3,549 a year in October.
The rise follows a 54% hike in April.
Ofgem chief executive Jonathan Brearley said: "We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make.”
"The price of energy has reached record levels driven by an aggressive economic act by the Russian state. They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap” he added.
Looking ahead to Powell’s speech Michael Hewson chief market analyst at CMC Markets UK said, “Sometimes it pays for central bankers to be deliberately ambiguous when it comes to talking about monetary policy, in that it allows the flexibility to argue they’ve been misunderstood.”
“Previous Fed chairmen have employed this to good effect with Alan Greenspan once famously being quoted as saying “I know you think you understand what you thought I said, but I’m not sure if you realise that what you heard is not what I meant.”
“Before Powell is due to speak, the latest personal consumer expenditure (PCE) core deflator data for July is expected to reinforce the weaker inflation narrative, having seen core PCE jump to a record high of 6.8%.”
“This jump higher raises the prospect that inflation is starting to become much more embedded into the US economy and will be something the Fed won’t want to see.”
“Given the current tone amongst Fed policymakers the bias is more likely to lean towards a tendency to overtighten in the short term, and ease off towards year end, than the other way around, especially since personal income and spending data appears to be holding up well. These are both expected to show a rise of 0.6% and 0.4% respectively in July.”
6.55am: Subdued start seen in London
The FTSE 100 is expected to make a subdued start to trading despite gains in the US and Asia overnight with investors awaiting Federal Reserve chair Jerome Powell’s Jackson Hole speech on Friday.
Spread betting companies are calling the lead index down by around 3 points.
At the close, the Dow was up 324 points, or 1%, at 33,292 points.
Meanwhile, The S&P gained 1.4% to close at 4,199 and the Nasdaq advanced 1.7%, finishing at 12,639.
Even so, the major averages are on pace for a losing week. The Dow is down 1.2% so far, the S&P 500 is 0.7% lower and the Nasdaq Composite is down 0.5%.
In the UK, with little corporate news in the diary the focus will be on energy watchdog Ofgem’s announcement regarding the size of the rise in maximum household energy bills coming in October.
The annual price cap is predicted to top £3,500, up from the £1,971 cap that was brought in at the last seasonal review in April and £1,277 in October last year.