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London open: Stocks rise on US debt deal hopes, after China data
London stocks rose in early trade on Thursday after the US House of Representatives overwhelmingly passed the debt ceiling bill agreed last weekend, and as investors mulled encouraging Chinese data.
At 0915 BST, the FTSE 100 was up 0.5% at 7,486.19.
The bill still needs to get through the Senate and be signed by President Joe Biden ahead of the 5 June deadline to avert debt default.
Investors were also digesting the latest data out of China, which showed that factory activity unexpectedly jumped to growth in May as demand and production improved.
The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose to 50.9 in May from 49.5 in April, beating consensus expectations of 49.5.
A reading above 50 indicates growth. The print is a sharp contrast to an official PMI released on Wednesday that showed a fall in factory activity, suggesting that China’s recovery was stalling.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “As the US takes another step away from avoiding a disastrous default, risk sentiment has improved on financial markets with European indices up in early trade. The House of Representatives passed the budget legislation, thrashed out over long talks, despite opposition from more hardline Republicans who were pressing for much deeper spending limits.
“China’s better-than-expected manufacturing reading measured by the Caixin purchasing managers index was welcomed, showing supply and demand both picked up after a contraction the previous month. However, it underlines the patchiness of the recovery in the world’s second largest economy. Output may have risen the most in 11 months, as supply chain problems eased, but selling prices dropped sharply and sentiment fell to a 7-month low amid uncertain demand from overseas.”
On home shores, figures from Nationwide showed that house prices fell in May and are set to decline further amid rising mortgage rates.
House prices slumped 3.4% on the year in May, following a 2.7% in April. On the month, prices dipped 0.1% after a 0.4% increase in April, with the average price now standing at £260,736.
Nationwide’s chief economist, Robert Gardner, said headwinds to the housing market look set to strengthen in the near term.
“While consumer price inflation did slow in April, it was a much smaller decline than most analysts had expected. As a result, investors’ expectations for the future path of Bank Rate increased noticeably in late May, suggesting it could peak at circa 5.5%, well above the c4.5% peak that was priced in around late March. Furthermore, rates are also projected to remain higher for longer,” he said.
“If maintained, this is likely to exert renewed upward pressure on mortgage rates, which had been trending down after spiking in the wake of the mini-Budget in September last year.
“Nevertheless, in our view a relatively soft landing remains the most likely outcome since labour market conditions remain solid and household balance sheets appear in relatively good shape.”
In equity markets, bootmaker Dr Martens tumbled as it said it expects lower core margins in 2024 after extra costs caused by errors at its Los Angeles distribution centre and extra investment spending.
Pre-tax profit for the year to March fell 26% to £159.m. Revenue jumped 10% to hit £1bn for the first time.
Pennon was also in the red as it swung to a full-year loss as higher costs and the long hot summer weighed heavily.
Auto Trader lost ground as it posted a dip in full-year pre-tax profits.
National Grid, Severn Trent, Sage, Keller, Marshalls and Great Portland all fell as they traded without entitlement to the dividend.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Fresnillo Plc | +2.16% | +14.00 | 662.00 |
| 2 |  |
Prudential Plc | +2.04% | +21.50 | 1,077.50 |
| 3 |  |
Antofagasta Plc | +1.94% | +26.00 | 1,363.50 |
| 4 |  |
Carnival Plc | +1.71% | +13.40 | 797.00 |
| 5 |  |
Intercontinental Hotels Group Plc | +1.71% | +90.00 | 5,358.00 |
| 6 |  |
Johnson Matthey Plc | +1.59% | +27.50 | 1,757.50 |
| 7 |  |
Anglo American Plc | +1.57% | +35.00 | 2,258.50 |
| 8 |  |
Barclays Plc | +1.52% | +2.30 | 153.64 |
| 9 |  |
Relx Plc | +1.47% | +37.00 | 2,547.00 |
| 10 |  |
Marks And Spencer Group Plc | +1.40% | +2.50 | 181.10 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
National Grid Plc | -4.48% | -49.50 | 1,056.50 |
| 2 |  |
Auto Trader Group Plc | -3.05% | -19.20 | 610.80 |
| 3 |  |
Severn Trent Plc | -3.03% | -84.00 | 2,689.00 |
| 4 |  |
Ocado Group Plc | -1.82% | -6.70 | 362.30 |
| 5 |  |
Sage Group Plc | -0.96% | -8.40 | 862.60 |
| 6 |  |
Sse Plc | -0.74% | -14.00 | 1,867.50 |
| 7 |  |
Admiral Group Plc | -0.56% | -13.00 | 2,312.00 |
| 8 |  |
3i Group Plc | -0.43% | -8.50 | 1,947.00 |
| 9 |  |
Rentokil Initial Plc | -0.38% | -2.40 | 636.20 |
| 10 |  |
United Utilities Group Plc | -0.25% | -2.50 | 1,010.00 |
US close: Stocks slip, Dow ends May in the red
Wall Street’s major indices closed lower on Wednesday, with investors holding their collective breath for a crucial vote on the federal debt ceiling deal set to take place in the House of Representatives later in the evening.
At the close, the Dow Jones Industrial Average was down 0.41% at 32,908.27, while the S&P 500 fell 0.61% to settle at 4,179.83.
The tech-heavy Nasdaq Composite declined 0.63% to finish the session at 12,935.29.
Wednesday also marked the last trading day of May, with the Dow logging a monthly loss of 3.5%, while both the S&P 500 and the Nasdaq Composite ended it in the green.
On the currency front, the dollar was last 0.04% stronger on sterling to trade at 80.41p, as it advanced 0.03% against the common currency to 93.58 euro cents.
It dipped marginally against the yen, however, last falling 0.01% to change hands at JPY 139.32.
“Markets have not been able to find their footing this afternoon, and as well as the US debt ceiling, are also grappling with renewed signs of a slowdown in China,” said IG chief market analyst Chris Beauchamp.
“The boost from the reopening of China’s economy seems to have faded altogether, and this has meant that recession fears are front and centre once more.
“The debt ceiling now seems to be mostly a procedural problem, but until it is resolved markets seem determined to remain on edge.”
Sentiment hit by poor data out of Chicago, China
On the data front, the economic vigour of the Chicago area saw a marked decline in May, with the MNI Chicago business barometer shifting downwards to 40.4, from 48.6 in April.
The drop was notably sharper than consensus estimates, which had anticipated a milder decline to 47.0.
“The Chicago PMI broadly tracks the lagged trend in civilian aircraft orders – Boeing is headquartered in Chicago – which jumped in the second half of last year, but aircraft orders have dipped more recently as the post-Covid rebound in air travel has petered out,” said Kieran Clancy at Pantheon Macroeconomics.
“The full suite of regional manufacturing surveys points to a one-point drop in the national ISM manufacturing index, due tomorrow; remember that the regional surveys are much more volatile than the national ISM index due to their small samples.
“Either way, the big picture here is that the manufacturing sector remains firmly in recession, as the ongoing deterioration in domestic demand – due to higher rates and dwindling capital availability – is offsetting any boost from the re-opening of China’s economy.”
On the international front, Wednesday also brought concerning news on the economic recovery in China, as factory activity diminished at a faster pace than anticipated amid softening demand.
According to the National Bureau of Statistics, the official manufacturing purchasing managers’ index (PMI) fell to a five-month trough of 48.8 in May.
The decline, down from 49.2 in April, fell short of the expected rise to 49.4, and was below the 50-point level that separates contraction from expansion.
In addition, the non-manufacturing PMI, which measures the performance of the services sector, descended to 54.5 from 56.4.
There was also a downward trend in the new orders sub-index and the new export orders sub-index, which respectively dropped to 48.3 and 47.2 in May, down from 48.8 and 47.6 in April.
American Airlines ascends, Advance Auto Parts plunges on earnings
In equities, American Airlines Group ascended 1.09% after the legacy carrier upgraded its profit outlook for the second quarter.
Software company Twilio jumped 11.09% on the back of reports that an activist investor was advocating for a reorganisation of the firm’s board, and potentially streamlining operations.
On the downside, Ambarella slid 11.76% after the semiconductor maker projected second-quarter revenue short of analysts’ expectations.
Advance Auto Parts plunged 35.04% after the car parts retailer reported first-quarter earnings that missed expectations, and announced it was cutting its quarterly dividend and reducing its annual earnings guidance.
Thursday newspaper round-up: Diesel prices, Amazon, Whitbread
Supermarkets have cut more than 7p a litre from the price of diesel since the UK’s competition watchdog warned it would question retail bosses about unnecessarily high forecourt prices, according to the RAC. The motoring group found that the average price of diesel fell by 7.44p a litre, from 151.02p two weeks ago to 143.58p this week, after the Competition and Markets Authority (CMA) raised concerns that retailers were making “sustained higher margins” from sales of diesel. – Guardian
Amazon’s main UK division has paid no corporation tax for the second year in a row after benefiting from tax credits on a chunk of its £1.6bn of investment in infrastructure, including robotic equipment at its warehouses. Amazon UK Services, which employs more than half of the group’s UK workers, received a tax credit of £7.7m in the year to the end of December, according to accounts filed at Companies House, advance details of which were shared by Amazon with the Guardian. – Guardian
The owner of Premier Inn plans to swap mains gas for heat pumps and solar panels at more than 800 of its hotels as it pushes for net zero. The hotel chain, which is owned by Whitbread, one of the UK’s largest hospitality businesses, wants to remove mains gas connections wherever possible by 2040 to boost its green credentials. – Telegraph
The City regulator has launched a criminal investigation into the racehorse-owning boss of WealthTek around a potential £81 million gap in the collapsed fund management company’s finances. Officials at the Financial Conduct Authority confirmed that John Dance was being investigated over possible fraud and money-laundering offences, as well as potential regulatory breaches. – The Times
Sean Combs, the American rapper, actor, record producer who also has been known as Puff Daddy, P Diddy and Diddy, has accused Diageo of breaking the terms of their business partnership and of neglecting the tequila brand they had bought together, saying the company had done so because he is black. The lawsuit comes after years of partnership between the spirits company that owns Johnnie Walker, Guinness and Tanqueray and Combs, 53, with their joint DeLeón tequila brand. – The Times
