FTSE 100 index closes higher
Miners wanted after JPM raises price targets and dollar drifts lower
Brexit worries dominate; May clings on
FTSE 100 closed Tuesday up positively as the weaker pound gave a boost to the UK's premier index.
Footsie added nearly 26 points to stand at 7,626, while FTSE 250 also finished higher - up almost 71 points at 20,871.
"Brexit uncertainty, falling average earnings and a very cautious sounding Mark Carney provided a toxic combination that sent the pound sharply lower on Tuesday," said Fiona Cincotta, senior market analyst at City Index.
Sterling is down 0.28% against the Euro at the time of writing, and down a whopping 0.73% against the US dollar as Prime Minister Theresa May continues to hold onto power.
"The conclusion so far being that a no deal Brexit is increasingly likely as Theresa May’s authority diminishes, which could lead to loser monetary policy to support a hard hit struggling post Brexit economy – understandably pound traders are selling out hard," said Cincotta.
4pm: FTSE up 20 with half hour to go
Approaching the last half-hour of trading, the FTSE 100 was up 20 points at 7,620, just three points below its high for the day.
The mid-cap FTSE 250 fared a bit better, up 72 at 20,872.
In the US, the S&P 500 was 3.6 higher at 2,802 while the Dow Jones was barely changed.
3.30pm: FTSE 100 back on the upswing
The FTSE 100 has been up and down like Notts County FC (promoted 13 times, relegated 16 times) today and is currently in an up-phase.
With a little help from mining stocks, the FTSE 100 was up 9 points at 7,610 in mid-afternoon trading.
The miners were lifted by a slew of modest price target upgrades by the broker, JP Morgan Cazenove. Anglo American PLC’s (LON:AAL), Antofagasta PLC (LON:ANTO), BHP Billiton plc (LON:BLT), Randgold Resources PLC (LON:RRS) and Rio Tinto PLC (LON:RIO) each received a leg-up from the broker.
Elsewhere in the resources sector, oiler Mosman Oil & Gas PLC (LON:MSMN) was the day’s top riser, advancing almost two-thirds to 0.775p on an operations update.
the oiler reported sales revenue of US$534,000, a 191% increase on the previous six month period, while net production increased 35% to 4,417 barrels of oil equivalent.
The 600 Group PLC (LON:SIXH), the designer and manufacturer of industrial products, rose 7.6% to 17.75p as it revealed the trustee of its UK defined-benefits pension scheme has agreed to a buyout of the scheme liabilities by Pension Insurance Corporation.
Once the buy out is completed and the scheme is wound up, all surplus funds remaining will be returned to the 600 Group less a statutory 35% tax charge; the total net amount payable to the company is currently estimated to be between £3mln and £4mln – not bad for a company with a market capitalisation of £19mln or so.
1.00pm: FTSE 100 back below 7,600 as investors brace themselves for a soft start on Wall Street
With US shares set to open lower, the FTSE 100 dipped back into the red in the lunchtime trading session.
The Footsie was down 9 at 7,592.
In the US, spread betting quotes suggested the S&P 500 would open around 6 points lower at 2,792.
Investors have been focused on the possibility of a trade war and the upcoming earnings season, with 10 S&P 500 companies reporting today, including Goldman Sachs, noted Craig Erlam at Oanda.
“Another event of interest today will be Federal Reserve Chair Jerome Powell’s appearance in front of the Senate Banking Committee. The testimony on the semi-annual monetary policy report is the first of two appearances in Washington, with the House Financial Services Committee having the chance to grill him tomorrow. Whether we learn as much from the events as we have in the past is debatable as the Fed appears to be on quite a clear and steady course of tightening and so I’m not sure what we could learn that we don’t already know,” he added.
The mid-cap FTSE 250 was doing better than its bigger brother, advancing 22 to 20,823 with TalkTalk leading the way.
The broadband provider was up 8.8% at 119.6p after a trading update that seems to have impressed the market more than the pundits.
Hedge fund Tosca has recently increased its stake to 16.2% and founder Sir Charles Dunstone has recently increased his stake, prompting speculation that the company is being readied for sale.
11.30am: The market was neither shaken nor stirred by this morning's jobs and earnings data
London’s top-shares index continues to trade sideways, with traders finding little to get excited about in the unemployment and earnings data.
The FTSE 100 was up 10 at 7,610 and has traded all morning in a narrow band spanning from 7,589 up to the less than giddy heights of 7,623.
About the only person seemingly enthused by this morning’s release from the Office for National Statistics (ONS) was Matt Hughes, the senior statistician at the ONS.
“We’ve had yet another record employment rate, while the number of job vacancies is also a new record. From this it’s clear that the labour market is still growing strongly. Meanwhile real earnings remain modestly up on the year, both including and excluding bonuses,” Hughes said.
For March to May 2018, there were 32.4 million people working in the UK – that is 388,000 more than for a year earlier. Looking in more detail, there were 324,000 more people working full-time and 64,000 more people working part-time. https://t.co/zIPUczQATR— Richard Clegg (@ONSRichardClegg) July 17, 2018
Miles Eakers, the chief market analyst at Centtrip, was less ebullient.
“Despite Brits’ earnings not rising at as fast a pace as economists forecast, the data is unlikely to shift market expectations of a rate hike in August by the Bank of England (BoE).
“Although the chance of a BoE rate hike is close to 90%, investors been caught off guard before. Back in April, BoE governor Mark Carney surprised market participants when he hinted that a rate hike wasn’t guaranteed and was followed by no action by the central bank in May but this time seems different; Carney had the opportunity earlier this month to repeat this shift in rhetoric but didn’t,” Eakers noted.
“It means that, unless the inflation data tomorrow drops below our forecast of 2.6%, I expect the bank to hike at the August meeting and the pound to rally,” he added.
Howard Archer, the chief economic advisor to the EY ITEM Club, asserted that the BoE’s default position is to hike interest rates at the August meeting of the Monetary Policy Committee (MPC) and while this morning’s data “offers very little evidence of the need for higher rates”, neither does it provide much reason for any MPC member to oppose a hike.
“However, with the data failing to back the MPC’s narrative of labour market tightness driving up wage growth, future rate hikes will be harder to justify and are likely to come at a gradual pace,” Archer predicted.
JPM said it prefers BATs to fellow fags maker IMPs – or Imperial Brands PLC (LON:IMB) as we are expected to call it now – but it cut its BATs target price to 4,400p from 5,185p, citing accounting treatment changes, slower US growth and a restatement of numbers relating to the purchase of Reynolds.
The broker recommends its clients be Overweight in BATs but stay on the sidelines for Imperial, even though it increased its price target to 2,900p from 2,700p.
BATs was trading at 3,812p, down 1.6%, while Imperial was off 1.7% at 2,705p
10.00am: Unemployment rate remains at its lowest level since 1975
The UK unemployment rate remained unchanged in the three months to May at 4.2%. The percentage of people in work rose to a record high of 75.7% after 137,000 jobs were created during the three-month period.
Average weekly earnings were up 2.5% year-on-year, compared to a 2.6% gain in the preceding three-month period. Earnings growth was the weakest it had been since the three months to November, last year.
Year-on-year pay growth excluding bonuses was up 2.7%, in line with expectations.
“While today’s figures may put wage growth above last month’s CPI inflation reading for May, any reason for British households to cheer could be short-lived as there is a possibility that we could see inflation jump back up and overtake wage growth when June’s CPI figure is released tomorrow," suggested Ed Monk, the associate director for personal investing at Fidelity International.
“If inflation does jump back up after this weakening in pay growth, then it adds to the conundrum for the Bank of England’s Monetary Policy Committee who are desperate to deliver a rate hike in August’s MPC meeting. Higher inflation would support that position but an absence of sustained real wage growth, as well as ongoing fears about the impact that Brexit will have on the UK economy, means that we could see the ‘unreliable boyfriend’ make an appearance again if Mark Carney and the central bank is forced to make another U-turn come August,” he added.
“Even if the Bank of England does deliver on a rate hike in August, any further rate hikes are likely to be at a ‘gradual pace and to a limited extent’ so it will be some time before interest rates catch up with inflation. This means the stock market continues to be your best bet of generating a real return in the current environment. With the FTSE 100 yielding just shy of 4%, and many companies in the UK’s blue-chip index yielding more than 5%, it is likely to be a better source of income than cash or safer fixed-income investments for the foreseeable future,” Monk opined.
The FTSE 100 fell back in the wake of the data releases, ebbing to 7,609, up 9 points on the day.
9.30am: Miners push Footsie back above 7,600
The FTSE 100 has been hovering around last night’s closing level like a child clinging to its mother’s apron strings.
Helped by a rebound today in mining stocks, the FTSE 100 was up 19 points at 7,619 having fallen as low as 7,589 at one point.
“While politics will continue to dominate the headlines, today is the first of a busy few days for top-tier data releases from the UK, which will be instrumental in finalising the case for or against an August rate rise. Today’s focus is the labour market, with the latest data likely to reveal that employment growth remained firm in the three months to May, probably above 100k3M/3M; however, that seems unlikely to be sufficient to lower the headline unemployment rate, which is expected to remain at 4.2% for a fourth consecutive month," said Daiwa Capital Markets.
“With regards to wages, the data also seem unlikely to show any material changes from the recent pattern, with total pay set to continue rising by around 2.5%3M/Y in nominal terms and thus barely better than flat in real terms,” it added.
On the companies front, parcels and letters delivery group Royal Mail PLC (LON:RMG) found itself in the relatively unfamiliar top spot on the Footsie leader-board after a well-received update that boosted the shares 3.2% to 496p.
“Guidance is unchanged but management delivered something of a veiled warning about future prospects in letters. While management continues to expect the 4-6% decline per years in letters, it warned that the impact of GDPR and ongoing business uncertainty could see it ‘fall outside the range in a period’. Letter volume declines may be more pronounced but the investment thesis behind Royal Mail does not rest on letters,” commented Neil Wilson, of markets.com.
Russ Mould, the investment director at AJ Bell, said “life rarely moves fast” at Royal Mail and he warned against drawing too many conclusion from a trading update covering only a three-month period.
“The only clear issue is a decline in marketing letters as a result of new data protection laws making companies nervous about sending out junk mail.
“Overall none of the figures should be a surprise: letter volumes are falling, parcel volumes are increasing, and the overseas business (GLS) is seeing the strongest growth. That’s been a similar story for some time.
“The future of Royal Mail is all about dealing with fierce competition on the parcel deliveries side and achieving productivity improvements across the business, such as through increased automation. The latter could help to make the sorting and sequencing parcels more efficient and thus free up workers to spend more time delivering items.
“New chief executive Rico Back may be under pressure from shareholders to find ways to accelerate the pace of change in the business. Fortunately, he’s worked for the business for more than 18 years and so can hit the ground running,” Mould suggested.
Royal Mail up 3% but update and outlook only in line with expectations. Shares have slipped lately so bounce is probably because no new nasties in the statement. Letters down, parcels up as usual.— Rodney Hobson (@RodneyHobson) July 17, 2018
8.40am: Footsie falls
The FTSE 100 nudged 11 points lower to 7,589.62, defying early predictions of a modest bounce back.
Brexit uncertainty coupled with a degree of circumspection ahead of new Federal Reserve chair Jerome Powell’s testimony to Congress meant the index of blue-chip shares failed to follow the lead of Wall Street.
Royal Mail (LON:RMG) delivered what can only be described as a lacklustre first-quarter report.
But, given the low expectations attached to the letter and parcel delivery group, its performance was cheered with a 1% rise in the shares price.
“The year has started at a pedestrian pace for Royal Mail, with the story little changed in an evolving delivery space,” said Richard Hunter, head of markets at Interactive Investor.
Outside the top division, ASOS (LON:ASC), the Daddy of AIM, was on the receiving end of some good news after a dreadful week, prompted by a lukewarm update on trading.
This morning the American bulge bracket bank Goldman Sachs got out its coloured pen and upgraded the online fashion retailer to ‘buy’ from ‘neutral’, boosting the price target by £8 a share to £79.
Proactive news headlines:
ValiRx PLC (LON:VAL) has won US patent protection for its pre-clinical drug VAL301, which is being developed for the treatment of endometriosis. The gynaecological disorder occurs when tissue similar to the lining of the uterus, or endometrium, migrates outside of the womb, generally to the fallopian tubes, ovaries and tissue around the uterus.
Clinigen Group PLC (LON:CLIN) added a new product to its expanding medicine cupboard and said its business was growing in line with market forecasts. In an update, the speciality pharma company told investors it was acquiring the global rights to Proleukin for an undisclosed sum from Novartis.
Networking technologies group BATM Advanced Communications Limited (LON:BVC) is to hook up with FatPipe Networks to provide a hardware/software-agnostic solution offering real-time SD-WAN virtual network function services.
Empresaria Group PLC (LON:EMR) told investors it has made an investment in Peru with a deal to acquire a 60% stake in Grupo Solimano, an outsourcing and temporary staffing business. It is paying £2.1mln for the controlling stake, comprising £1.35mln of initial cash and subsequent deferred payment.
Landore Resources Ltd (LON:LND) has intersected widespread gold mineralisation in the 900-metre gap between the two existing deposits at BAM, part of the Junior Lake property in Ontario. Among the highlights were multiple instances of visible gold.
Pembridge Resources PLC (LON:PERE) is now in the final stages of completing its 10-for-1 share consolidation after the plan was approved at the company's annual general meeting. Pembridge will confirm the date of admission of the new shares in due course, and correspondingly, also the date of the cancellation of the old shares.
NQ Minerals PLC (NEX:NQMI) (OTCQB:NQMLF), an Australia-based exploration and mining company, has announced the appointment of Kevin Puil as a non-executive director with immediate effect. The group noted that Puil currently serves as the founder and Managing Partner of RIVI Capital LLC which is a private equity fund-focused on precious metals and providing investors direct access to physical metal exposure.
6.45am: Modest rally expected
The Footsie is seen edging higher on Tuesday, rallying after Monday’s falls thanks to overnight gains by US blue chips as Trump trade worries and Brexit uncertainties continue to ebb and flow.
Spread betting firm IG expects the FTSE 100 index to open around 10 points firmer at 7,610, having shed around 61 points on Monday.
Overnight on Wall Street, the Dow Jones Industrials closed around 45 points higher at 25,064, although the broader S&P 500 index and the tech-laden Nasdaq Composite were both weaker.
In Asia, markets were also cautious, weighed by yesterday’s drop in crude oil prices and nerves ahead of Congressional testimony later today from Federal Reserve boss Jerome Powell.
On currency markets, sterling was steadier against both the dollar and the euro as traders awaited the first of this week’s big batch of UK data, with the latest unemployment and average earnings numbers due at 9.30am.
The recent set of GDP and production data suggested that the UK economy should show a bounce back from the weak first-quarter and there should be more of this evidence in the jobs data.
Helal Miah, investment research analyst at The Share Centre expects that the unemployment should hold around the lowly rate of 4.2%.
Meanwhile, he said, more interest will be on the rate of wage growth, which has been around 2.5% all year, still slightly lagging CPI inflation which is forecast to increase to 2.6% year-on-year when the June number is released on Wednesday.
Delivery key for Royal Mail
On the corporate front, Royal Mail Group PLC (LON:RMG) will deliver a first-quarter trading update on Tuesday, with shareholders hoping that once again growth in its parcels business will compensate for a decline in letter delivery volumes.
In its full-year results announcement in May, Royal Mail’s management “sounded a clear note of caution on Letters revenue”, according to Liberum Capital.
The City broker predicted: “The recent introduction of tighter rules on customer marketing with the new GDPR [data protection] rules has an uncertain impact on marketing communications activity. At the very least, we expect the uncertainty to dampen activity.”
“Combined with more general business uncertainty, this is expected to push the current year trend in Letters volumes to (or beyond) the worse end of management’s long-term guidance range of annual falls between 4% and 6%,” it added.
Analysts will also likely be keeping an eye out for progress on targeted productivity improvements, which Royal Mail said in May would be towards the upper end of the targeted 2-3% range.
Around the markets:
- Sterling: US$1.3247, up 0.1%
- Gold: US$1,238.10 an ounce, unchanged
- Brent crude: US$68.08 a barrel, up 0.03%
- Marks & Spencer has plans for a new wave of job cuts, with more than 300 posts to go in stores around the country – The Guardian
- AIM-listed cake supplier Finsbury Food suffered revenue fall of 3.4% to £303.6mln due to higher prices of imported goods such as sugar and cocoa after the Brexit-induced pound's slump and by a rise in the national living wage – Daily Mail
- Netflix missed analysts' expectations for subscriber growth by more than one million users, in what it called a "strong but not stellar" quarter, causing 14% slump in its shares in after-hours trading – Daily Telegraph
- Goldman Sachs is set to hire David Solomon as its next chief executive – The Times
- Deutsche Bank has released bumper second-quarter results, with its profits surpassing market expectations despite an unrelenting run of bad news for the lender – Daily Telegraph
- Cerebrus Capital Management is in pole position to take an interest in the Dubai-based private equity group Abraaj's fund platform after liquidators rejected Colony Capital's bid – Financial Times
- Airbnb has been found in breach of EU law and given until the end of the summer to come out clearer on total cost including fees and charges – The Guardian
- Audiences and profits at TalkSport declined in its first 18 months as part of News UK which bought the broadcaster for £220mln as part of the takeover of Wireless Group in 2016 – Daily Telegraph
- The International Monetary Fund has warned that the world’s economic growth spurt is almost at an end after slashing growth forecasts for most of the developed economies – Daily Telegraph
- China has lodged a complaint at the World Trade Organisation after President Trump threatened to impose tariffs on an extra US$200bn of goods – The Times
- One of the influential oil consultancies, Wood Mackenzie, has forecast that global oil demand will peak within 20 years, as the transport sector will steer towards electric cars – Financial Times
- Artificial intelligence is set to create more than seven million new UK jobs in healthcare, science and education by 2037, according to a report from PricewaterhouseCoopers – The Guardian
- Prince Turki bin Abdullah, seventh son of the late King Abdullah of Saudi Arabia and a former governor of Riyadh, who was to buy two Mayfair penthouses for more than £100mln has failed to complete the purchases after being caught up in a corruption purge in his home country – The Times