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London open: Stocks flat as rate-hike fears dampen risk appetite
UK stocks were struggling for direction on Wednesday after data showed that core inflation remains stubbornly high, raising fears that the Bank of England may step in to tighten monetary policy even further.
After an hour of trade, the FTSE 100 was more or less flat at 7,396. The index dropped 1.6% on Tuesday to 7,389.64, its third day in the red and the lowest close since 11 July, as record-high wage growth in the UK reignited expectations of a further interest-rate hike by the Bank of England.
In Wednesday’s data, the annual rate of UK consumer price inflation slowed again from 7.9% to 6.8% in July, in line with economists’ forecasts. However, the slowdown was largely a result of falling food and energy prices. Core inflation, which strips out these volatile items, remained unchanged at 6.9%.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the flatlining core rate might “indicate that the headline rate might not budge much more immediately and there are some signs it could even edge back upwards.”
“The pound has edged higher against the dollar with the big bets on the Bank of England pushing up interest rates again in September by another 25 basis points to 5.5%, and the high cost of borrowing set to linger.”
Producer prices, fell 0.4% month-on-month in July after a 1.3% decline in June (consensus: -0.1%), while the year-on-year rate sunk to -3.3% from -2.7% (consensus: -2.9%).
Overnight, Asian stocks slumped due to fresh concerns over the Chinese economy after retail sales, industrial output and fixed assets investment data all disappointed. The Nikkei 225 and Hang Seng Index both declined 1.5%.
Meanwhile, Wall Street indices also dropped after stronger-than-expected retail sales figures raised concerns that the Federal Reserve may step in once again to fight inflationary pressures. Looking ahead, US housing starts and US industrial production data for July will be released before the opening bell, along with crude oil inventories not long after.
Admiral and Aviva jump
Shares in Admiral rose 7% after the insurer reported that pre-tax profit rose 4% to £234m in the six months to June 30 as it hiked prices in response to claims inflation.
Sector peer Aviva also impressed the market with its interim results, with operating profit rising 8% year-on-year to £715m. Looking ahead, Aviva said it remained confident over its future performance, underpinned by the strong first half.
B&M European Value Retail extended its recent gains, after being linked to takeover rumours surrounding struggling rival retailer Wilko. The latter, which fell into administration last week, gave potential buyers until today to launch a formal offer.
Mining stocks were providing a drag as risk appetite waned, with Antofagasta, Endeavour and Rio Tinto trading lower.
Manufacturer Essentra rose after reporting a 54% surge in first-half results despite a fall in sales, as operating margins jumped.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Direct Line Insurance Group Plc | +6.09% | +9.20 | 160.35 |
| 2 |  |
Admiral Group Plc | +5.05% | +111.00 | 2,310.00 |
| 3 |  |
Marks And Spencer Group Plc | +4.15% | +9.20 | 230.80 |
| 4 |  |
Aviva Plc | +2.87% | +10.90 | 390.80 |
| 5 |  |
3i Group Plc | +2.04% | +39.00 | 1,950.50 |
| 6 |  |
Centrica Plc | +1.51% | +2.15 | 144.15 |
| 7 |  |
Spirax-sarco Engineering Plc | +1.23% | +125.00 | 10,285.00 |
| 8 |  |
Associated British Foods Plc | +1.22% | +24.00 | 1,991.50 |
| 9 |  |
Melrose Industries Plc | +1.20% | +6.20 | 524.60 |
| 10 |  |
Crh Plc | +1.15% | +52.00 | 4,582.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Bhp Group Limited | -1.85% | -41.50 | 2,201.00 |
| 2 |  |
Fresnillo Plc | -1.71% | -9.00 | 517.00 |
| 3 |  |
Rightmove Plc | -1.46% | -8.40 | 565.60 |
| 4 |  |
Antofagasta Plc | -1.45% | -21.00 | 1,431.50 |
| 5 |  |
Flutter Entertainment Plc | -1.39% | -195.00 | 13,825.00 |
| 6 |  |
Standard Chartered Plc | -1.16% | -8.60 | 730.20 |
| 7 |  |
Relx Plc | -0.86% | -22.00 | 2,528.00 |
| 8 |  |
Shell Plc | -0.78% | -18.50 | 2,349.50 |
| 9 |  |
Barratt Developments Plc | -0.69% | -3.10 | 445.10 |
| 10 |  |
Astrazeneca Plc | -0.64% | -70.00 | 10,806.00 |
US close: Stocks finish weaker on growing China concerns
Wall Street’s main equity indices closed lower on Tuesday, despite a robust showing in US retail sales figures, as apprehensions over China’s economic health took centre stage.
The Dow Jones Industrial Average concluded the day’s trading 1.02% lower at 34,946.39.
Similarly, the S&P 500 shed 1.16% to settle at 43,437.86, while the tech-heavy Nasdaq Composite ended at 13,631.05, reflecting a decline of 1.14%.
In currency markets, the dollar was last up 0.03% on sterling at 78.73p, while it remained unchanged against the common currency at 91.7 euro cents.
The greenback meanwhile edged up just 0.01% on the yen, changing hands at JPY 145.58.
“US markets have taken their cues from today’s weakness in European markets, even as retail sales for July came in at 0.7%, beating expectations of a rise of 0.4%,” said CMC Markets chief market analyst Michael Hewson earlier.
“The control group measure which goes into GDP rose by 1%, comfortably beating forecasts of 0.5%, and feeding into the narrative of a US economy that is still resilient, despite higher rates.”
Mixed fortunes for US, global economies in latest data
On the economic front, US retail figures presented a buoyant picture for July, with sales rising consecutively for the fourth month.
The primary catalyst was Amazon’s Prime Day, a shopping event that gave retail numbers a significant push.
Data from the Commerce Department indicated a 0.7% seasonally adjusted rise in July, exceeding the previously revised 0.3% in June and outpacing the predicted 0.4% growth by economists.
When taking out auto sales from the equation, the growth surged to 1%, a notable rise from June’s 0.2% and surpassing forecasts of a 0.4% uptick.
“Consumers’ spending appears to have made a strong start to the third quarter, and we cannot dismiss the conclusion that the trend in real consumers’ spending growth is reaccelerating,” said Kieran Clancy, senior US economist at Pantheon Macroeconomics.
On the global front, the People’s Bank of China (PBOC) took unexpected measures to rejuvenate economic demand, cutting the interest rate on CNY 401bn of one-year medium-term lending facility (MLF) loans.
The loans, provided to selected financial institutions, saw a rate drop of 15 basis points, now standing at 2.5% from the previous 2.65%.
According to the central bank’s official statement, the measure was instigated to offset various pressures, including tax payments, aiming to maintain a balanced liquidity in the banking system.
However, China’s economic turbulence seemed far from over, with fresh data indicating that July’s retail sales growth was a meagre 2.5% annually – a sharp contrast to the anticipated 4.5% surge.
Concurrently, industrial output saw a 3.7% rise, falling short of the predicted 4.4%.
The first seven months of the year also recorded a subdued 3.4% increase in fixed asset investments, lagging behind the 3.8% expected growth.
Adding to the concerns, the country’s statistics bureau has halted the release of youth unemployment figures, sparking debates and speculation.
Contrastingly, Japan showcased a robust economic performance, with its economy now having expanded for three successive quarters.
Preliminary data released on Tuesday highlighted a 6% annual growth in the second quarter, a figure that doubled the forecasted 3.1% for the April-June period.
A depreciating yen played a pivotal role in this economic uptick, offering exporters a competitive edge as Japanese products became more affordable to global consumers.
Furthermore, Japan’s GDP saw a 1.5% growth in comparison to the previous quarter, surpassing economists’ 0.8% projections.
Banking stocks dip, Home Depot and DR Horton surge
In equity markets, banking stocks were a focal point as both Bank of America and JPMorgan Chase experienced significant drops, with declines of 3.2% and 2.55% respectively.
The root of the downward pressure was a statement from ratings agency Fitch, hinting at a potential downgrade of the entire banking industry.
Fitch signalled the possibility of revising its industry assessment from AA- to A+, a move that would place major banking establishments on the precipice of a ratings cut.
Elsewhere, credit card company Discover Financial Services declined 9.44% on the back of the announcement that its long-tenured chief executive and president, Roger Hochschild, would be stepping down.
On the upside, Home Depot ticked up by 0.66% in the wake of second-quarter results which exceeded both revenue and profit expectations, as well as the announcement of a $15bn share buyback programme.
The retailer did note a 2% dip in year-on-year sales to $42.92bn, however.
Home Depot reiterated its full-year revenue guidance, forecasting a decline ranging between 2% to 5%.
DR Horton jumped 2.89% on the news that Berkshire Hathaway, Warren Buffett’s investment conglomerate, had taken a significant position in the housebuilder by investing $700m.
Wednesday newspaper round-up: UK inflation, retail, Issa brothers, Russia, investors
UK inflation has fallen to its weakest level since before Russia’s invasion of Ukraine, pushed down by energy bills falling after the lower price cap took effect in July. Figures out this morning from the Office for National Statistics reveal the rate of price growth fell to 6.8 percent last month, the lowest reading since February 2022 and down from 7.9 per cent in the previous month. – The Times
Oxford Street’s decline risks becoming the blueprint for Britain’s high streets if ministers fail to support regeneration efforts, retail chiefs have warned. A report authored by the Retail Sector Council, whose members include the chief executives of Sainsbury’s, Boots and Primark, urged ministers to support the industry by reforming competition law and levelling the playing field between online retailers and bricks-and-mortar stores. – Telegraph
Profits at Harrods rose almost 10-fold last year as big-spending tourists returned to London after the pandemic. The Knightsbridge department store, which is owned by the investment arm of Qatar’s sovereign wealth fund, saw profits hit £171.6m and sales increased 52% to £994m in the year to January 2023, according to accounts filed at Companies House. – Guardian
Top investors are increasingly abandoning the safe haven of cash and returning to the markets as fears start to ease that the global economy will slide into recession, according to a closely watched survey of big global fund managers. Bank of America said its monthly poll of investors had found that the mood in the international markets was the least bearish since February last year with optimism about the health of the economy starting to increase. – The Times
The billionaire owners of Asda and petrol station giant EG Group are selling off a swathe of convenience stores in the US as they race to pay down billions of pounds of debt. Mohsin and Zuber Issa have offloaded 63 EG Group-owned shops in Kentucky and Tennessee to the American chain Casey’s General Stores for an undisclosed sum. – Telegraph
Russia’s central bank has hiked interest rates by 3.5 percentage points in an emergency move aimed at halting the rouble’s recent slide, after it fell to its weakest point in almost 17 months. The decision to raise the key rate from 8.5% to 12% was announced after an extraordinary meeting of the bank’s board of directors, called after the rouble plunged past the psychologically key level of 100 to the dollar on Monday morning. – Guardian
