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FTSE 100 slips back after weak US open

Stock Markets Aug 01, 2022 15:12
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FTSE 100 retreats after weak US open

• HSBC, Pearson results please, banking sector advances

• UK PMI dips but signs inflationary pressures easing

FTSE 100 retreated from earlier highs following a weak restart on Wall Street.

At 2.40pm the blue chip index was trading up 11.38 points at 7,434.81 while the broader FTSE 250 was 90 points lower at 20,074.

In the US markets fell back, consolidating recent gains, after their three day winning streak last week.

Shortly after the opening bell the DJIA was trading 102.43 points lower at 32,742.70, the S&P 500 was 14.80 points lower at 4,116.74 and the Nasdaq fell 33.50 points to 12,357.19.

Global recessionary worries reared their head once more on Monday following China’s weaker than expected PMI numbers which followed disappointing quarter two GDP numbers in the US last week..

In London, strong results from HSBC and Pearson provided early support offsetting concerns following a further drop in the UK PMI in July.

1.40pm: FTSE 100 holds gains although US seen lower at the open

FTSE 100 held close to session highs in early afternoon trading awaiting the restart on Wall Street today.

At 1.40pm the blue chip index was 36.12 points higher at 7,459.55 although the broader FTSE 250 slipped back into the red trading 41.13 points lower at 20,123.77.

Shares in the US are expected to open lower snapping the three-session winning streak that followed last week's, as-expected, Federal Reserve interest rate hike.

In London, positive results from HSBC Holdings PLC (LSE:LON:HSBA) and Pearson PLC (LSE:LON:PSON) supported the lead index with shares in both up 8% and 10.39% respectively.

Shore Capital analyst Roddy Davidson described Pearson's results as “pleasing.”

“We were pleased to note the positive momentum and growth outlook” from the group adding he “likes Pearson’s growing exposure to and substantial investment in digital products, and its status as a beneficiary of a positive medium-term outlook for global learning spend.”

He rated the shares a buy.

On the downside XP Power Limited saw its shares tank on Monday after warning on full year results which it said would be at the lower end of current analyst expectations.

Shares in the critical power control solutions slumped 8.72% to 2,775p on the warning which came as the group announced first half results.

James Peters, Chair, commented:

“While underlying demand remained strong across all sectors, a combination of external supply chain factors, which restricted our capacity to deliver to customers, and inflationary pressures have produced a challenging backdrop in the first half.”

“The team is working hard to mitigate these industry-wide challenges, with an improvement in performance in quarter two being sustained into the early weeks of the second half.”

11.30am: FTSE near session highs, US seen opening lower

FTSE 100 held near session highs mid morning boosted by a number of positive corporate updates and despite a fall in the UK PMI.

By 11.30am, the lead index was trading 38.65 points higher at 7,463.33 while the broader FTSE 250 was 11.57 points to the good at 20,176.47.

The S&P Global/CIPS UK PMI fell to 52.1 in July from 52.8 in June, the fall would have been greater but for an upward revision to the survey’s jobs index.

But analysts did take some heart from signs that inflationary pressures may be easing.

US stocks were expected to start the new month lower on Monday, snapping the three-session winning streak that followed last week's, as-expected, Federal Reserve interest rate hike.

Investors look to have shifted focus to worries about a global recession after weak data out of China on Monday and last week's poor US GDP numbers, although recent robust corporate earnings could provide underlying support.

Share prices enjoyed a decent run last week despite news of the surprise drop in US second quarter GDP and the widely expected 75-basis point Fed rate increase, ending a see-saw July positively.

On August 1, however, for the Dow Jones Industrial Average were trading 0.2% lower pre-market, while those for the broader S&P 500 index and the tech-laden Nasdaq-100 both fell 0.3%.

Naeem Aslam, chief market analyst at Avatrade.com, commented: "US futures are trading soft today as traders are digesting the economic numbers out of China. The data has largely disappointed investors. The rebound in the Chinese data, which we saw more recently in Chinese numbers, began to stall, and the evidence of this came in the Chinese Manufacturing PMI number today, which dropped into the contraction territory and printed a reading of 49 from its previous reading of 50.2. Investors are blaming the current slowdown in the acidity due to the lockdowns taking place in China."

He added: "If that is the reason, then there is less to worry about as such lockdowns are on the decline, and in the coming weeks, we should see improvement in the economic data. However, if the weakness in the economic numbers isn’t due to the lockdowns but in fact, due to the cautionary tone adopted by corporates in their spending and paying due to the mounting recession fear, then we are looking at a picture that requires a great deal of attention."

"We think that the slowdown is primarily due to the concerns of a potential recession taking place around the globe due to higher inflation and less spending, and it is highly likely that we may well see more evidence on this. Another reason that is also pulling the US futures down today is the hawkish tone adopted by the Fed members. Remember, the Fed increased the interest rate by 75 basis last week, and market players aren’t expecting the Fed to stay that hawkish. However, some comments over the weekend by Fed officials have alarmed investors," Aslam concluded.

Among the corporate earnings due Monday, conglomerate Loews (NYSE:L) Corporation will report before the market opens, while tech firms Pinterest (NYSE:PINS) and Activision Blizzard (NASDAQ:ATVI) will report after the closing bell.

10.50am: UK PMI falls at fastest rate since May 2020

British manufacturing output fell in July at the fastest rate since May 2020, as factories across Europe struggled with rising costs and slowing demand, according to a survey released on Monday.

The S&P Global/CIPS UK PMI fell to 52.1 in July from 52.8 in June, the fall would have been greater but for an upward revision to the survey’s jobs index.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, said:

“The weakness was relatively broad-based across the survey.”

“New orders fell for a second successive month, while the decline in backlogs of work was the steepest since September 2020.”

“The one bright spot was evidence that inflationary pressures are starting to ease.”

“Manufacturers' input costs rose at the slowest pace since January 2021, following a broad-based fall in commodity prices.”

“The combination of weaker input cost pressures and softer demand meant that companies increased their prices at the slowest pace since last May.”

“The MPC should be heartened by the cooling in inflationary pressures."

"But it's unlikely to have any impact on their thinking for this week's meeting, where a rate rise of at least 25bps is certain and an increase of 50bps is a live possibility."

10.00am: FTSE 100 moves to session highs

FTSE 100 held near session highs boosted by some positive earnings updates and a strong showing in the US on Friday.

At 10.00am the blue chip index was 35.85 points higher at 7,457.57 with the broader FTSE 250 index 34.70 points to the good at 20,199.60.

AJ Bell Investment Director Russ Mould commented:

“The FTSE 100 started the week higher following some relatively positive corporate updates, notably from index heavyweight HSBC,”

“Profit came in ahead of expectations, if a little below last year’s total as the company was forced to set aside cash to cover bad debts. Driving efficiencies at a supertanker of a business like HSBC is far from easy but the tight control on costs suggests that CEO Noel Quinn and his team are doing a decent job."

“Education publishing specialist Pearson was among the winners on Monday as it stuck with full year guidance and reported a significant increase in profit following stronger sales."

“The increasingly digital-focused company is less exposed to some of the cost pressures facing other types of businesses and this is helping it in the current environment." Mould added.

AIM Listed Wishbone Gold PLC (AIM:WSBN) saw its shares surge 23% after reporting encouraging results at the company's Red Setter Gold-Copper Project in the Patersons Range area in Western Australia.

9.00am: FTSE 100 in buoyant mood

FTSE 100 made a strong start to the week supported by strong gains in the US on Friday and some upbeat corporate news.

At 9.00am the lead index was trading up 29.51 points at 7,452.94 shrugging aside weaker than expected PMI data from China.

Banking stocks were once again in favour as results from HSBC Holdings PLC (LSE:HSBA) brought the curtain down on the sector’s reporting season.

Richard Hunter, Head of Markets at interactive investor, commented the results were rescued by a stronger than expected second quarter.

“ Net profit in the second quarter rose by 62%, strongly above expectations, while Net Interest Income improved by 13%. The Net Interest Margin also strengthened to 1.35% from 1.2%.”

“ Apart from a rising interest rate environment which is beginning to benefit the banks as a whole.”

“HSBC also retains a tight control on costs as it moves towards digitisation, and second quarter operating expenses declined by 5%.”

Shares rose 6.68% to 548p with other banking stocks higher as well, Barclays (LON:BARC) (+2.5%), Standard Chartered (LON:STAN) (+1.8%) and NatWest (LON:NWG) (+1.9%).

Media group, Pearson, topped the FTSE 100 risers with shares up 6.85% after it raised its margin guidance as it reported first half results today.

The group said it has identified further efficiencies of at least £100mln for 2023 which it added accelerates its improved margin expectation to 2023 from 2025.

Belvoir Group PLC (AIM:BLV) advanced 1% after it said it is performing “well” and in line with management expectations, with revenue boosted by lettings and financial services.

Revenue for the six months to 30 June 2022 grew by 11% compared with the same period last year, despite 2021 being an "exceptionally strong year" for the property sector, the property franchise and financial services group said in a trading update.

Shares in AIM listed Nostra Terra, the international oil & gas exploration and production company, surged 10.75% after announcing that the Fouke #2 well has reached payback (recovery of all drilling and drilling-related costs from net cashflow) less than three months from production start-up.

This is considerably ahead of pre-drill expectations due to a combination of higher realised oil prices and a production rate that is 70% greater than originally forecast, the company said.

8.30am: FTSE 100 opens higher, HSBC and Pearson up after results

FTSE 100 shrugged off concerns of weak Chinese PMI data to make a strong start to trading.

At 8.30am the lead index was trading 27.54 points higher at 7,431.47 supported by strength in the banking sector once more after results from HSBC.

China’s PMI fell unexpectedly to 49.0 in July, from 50.2 in the previous month and below forecasts of 50.4.

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown (LON:HRGV), said:

“There was a very mixed bag hidden within the results, with core trends showing the negative effect of new lockdowns in key cities and general concerns over the global economy, following sharp monetary tightening efforts.”

“ Output, new orders, buying levels and export orders all shrank. This latest data set does very little to offset concerns around darkening global economic output, especially when put together with a further easing of sentiment.”

But this news was offset by positive earnings updates from HSBC and Pearson.

HSBC shares rose 6% on better than expected results and as it gave new guidance on future dividends levels.

Noel Quinn, Group Chief Executive, said:

“ We are confident of achieving a return on tangible equity of at least 12% from 2023 onwards, which would represent our best returns in a decade.”

“As a result, we are providing more specific dividend payout ratio guidance of around 50% for 2023 and 2024. We understand and appreciate the importance of dividends to all of our shareholders. “

“We will aim to restore the dividend to pre-Covid-19 levels as soon as possible. We also intend to revert to quarterly dividends in 2023."

The banking group reported a US$1.7bln fall in first half pre-tax profits to $9.2bln, reflecting a net charge for expected credit losses and other credit impairment charges.

Media group, Pearson, topped the FTSE 100 risers with shares up 6.85% after it raised its margin guidance as it reported first half results today.

Adjusted operating profit rose by £33mln to £160mln in the six months to June driven by an encouraging trading performance, FX benefit and property savings, partially offset by inflation, portfolio investment and the phasing of costs last year.

The group said it has identified further efficiencies of at least £100mln for 2023 which it added accelerates its improved margin expectation to 2023 from 2025.

7.40am: FTSE 100 seen opening slightly lower, results in focus

FTSE 100 seen slightly softer as trading begins with spread betting companies calling the lead index down around 12 points in early trading.

US markets finished strongly on Friday with the DJIA closing up 316 points, 1%, at 32,845, while the Nasdaq Composite added 228 points, 1.9%, to 12,391 and the S&P 500 improved 58 points, 1.4%, to end at 4,130.

Friday marked the third-consecutive positive day for the major benchmarks.

In the UK focus will switch to August’s MPC meeting with an interest rate rise of 25bps-50bps expected.

HSBC gave new dividend guidance as it reported first half results today.

Noel Quinn, Group Chief Executive, said:

“ We are confident of achieving a return on tangible equity of at least 12% from 2023 onwards, which would represent our best returns in a decade.”

“As a result, we are providing more specific dividend payout ratio guidance of around 50% for 2023 and 2024. We understand and appreciate the importance of dividends to all of our shareholders. “

“We will aim to restore the dividend to pre-Covid-19 levels as soon as possible. We also intend to revert to quarterly dividends in 2023."

The banking group reported a US$1.7bln fall in first half pre-tax profits to $9.2bln, reflecting a net charge for expected credit losses and other credit impairment charges.

Reported credit impairment charges were $1.1bln although operating expenses fell by 4% primarily due to foreign exchange translation impacts.

Quinn added: "Our first-half performance reflects the continued impact of our strategy, with gathering revenue momentum and tight cost control.”

“ The progress that we've made growing and transforming HSBC means we are in a strong position as we enter the current rates cycle.”

Media group, Pearson, raised its margin guidance as it reported first half results today.

Adjusted operating profit rose by £33m to £160m in the six months to June driven by an encouraging trading performance, FX benefit and property savings, partially offset by inflation, portfolio investment and the phasing of costs last year.

The group said it has identified further efficiencies of at least £100mln for 2023 which it added accelerates its improved margin expectation to 2023 from 2025.

It reaffirmed revenue and operating guidance for the full year.

Cranswick (LON:CWK) Group provided investors with an update on trading for the first quarter adding the outlook for current financial year remains in line with the Board’s expectations.

Revenue in the 13 weeks to 25 June 2022 was 7.6% ahead of the same period last year with growth in all four UK food product categories.

Far East sales were, as anticipated, lower due to market prices falling.

JD Sports announced the £37.5m disposal of Footasylum Limited to AURELIUS Group.

6.50am: FTSE 100 seen lower

FTSE 100 expected to open slightly lower on Monday, giving up some of the strong gains made on Friday.

Spread betting firms are calling the blue chip index down by around 10 points in early trading.

Results from HSBC and Pearson are due today while August's MPC meeting will also be in focus this week.

Read more on Proactive Investors UK

Disclaimer

FTSE 100 slips back after weak US open
 

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