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London open: U.S. government debt downgrade catches traders on the hop
London stocks dropped at the start of the session after a downgrade of the U.S. government’s long-term credit rating caught traders on the hop.
Fitch lowered the credit rating from AAA to AA+, saying that: “the repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
The move drew an immediate response from the Biden administration with U.S. Treasury Secretary, Janet Yellen, who said that “Treasury securities remain the world’s preeminent safe and liquid asset, and that the American economy is fundamentally strong.”
As of 0844 BST, the FTSE 100 was down by 0.94% to 7,594.77, alongside a 0.69% swoon on the second-tier index to 18,935.35.
Cable was little changed, edging up by 0.13% to 1.2793.
Asian stocks were caught in a downdraft with the Nikkei-225 closing 2.3% lower at 32,707.69. while Hong Kong’s Hang Seng gave back 2.39% to 19,533.25.
The U.S. dollar spot index meanwhile dipped 0.16% to 102.14.
Commenting on the news, Lee Hardman, senior currency analyst at MUFG said: “When S&P downgraded the US credit rating in August 2011 it triggered a sharp sell-off in risk assets and boosted safe haven demand for US Treasuries.
“The US dollar reaction was more muted. On this occasion we are expecting the immediate market reaction to be relatively more modest.”
Still ahead for later in the session, at 1315 BST consultancy ADP was scheduled to publish its private sector payrolls report for July.
Painkiller maker Haleon and BAE Systems raise guidance
Haleon, the maker of Advil painkillers, sounded a confident note on the outlook after delivering a big rise in revenues and free cash flow. The company added that 55% of its business had gained or maintained market share year-to-date. On an adjusted basis, free cash flow moved into the green to the tune of £369m, after an outflow of -£184m during the year earlier period. Looking ahead, the company guided towards full-year organic revenue growth of 7-8% and of 9-11% for adjusted operating profits at constant currencies.
UK defence manufacturer BAE Systems on Wednesday lifted full-year guidance as the war in Ukraine led to increased demand for weapons, leaving the company with a record order book. Sales guidance was increased by 200 basis points to 5 – 7%, reflecting the accelerated spend profile on the Dreadnought submarine programme and good demand and operational performance across all sectors, while underlying earnings before interest and tax (EBIT) was lifted by the same amount to 6 – 8%.
Taylor Wimpey said that revenues shrank by 21.2% to reach £1.64bn, alongside a drop of nearly 29% in its profit before tax to £237.7m, for earnings per share of 5.0p. Management highlighted what it termed as the company’s “resilience” and said its focus in the back half of the year remained on optimising all areas of its operations, calling attention to its “robust” balance sheet and “excellent” landbank. Net cash at period en stood at £654.9m, up from £642.4m in the year earlier period. Its interim dividend was bumped up from 4.62p per share to 4.79p.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Bae Systems Plc | +4.93% | +46.00 | 979.40 |
| 2 |  |
Taylor Wimpey Plc | +3.20% | +3.65 | 117.75 |
| 3 |  |
Marks And Spencer Group Plc | +0.53% | +1.10 | 208.30 |
| 4 |  |
Bp Plc | +0.28% | +1.35 | 483.10 |
| 5 |  |
Morrison (wm) Supermarkets Plc | +0.00% | +0.00 | 286.40 |
| 6 |  |
Evraz Plc | +0.00% | +0.00 | 82.68 |
| 7 |  |
Rsa Insurance Group Ld | +0.00% | +0.00 | 684.20 |
| 8 |  |
Standard Life Aberdeen Plc | +0.00% | +0.00 | 274.10 |
| 9 |  |
London Stock Exchange Group Plc | +0.00% | +0.00 | 8,620.00 |
| 10 |  |
Micro Focus International Plc | +0.00% | +0.00 | 532.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ocado Group Plc | -5.40% | -50.60 | 887.00 |
| 2 |  |
Scottish Mortgage Investment Trust Plc | -3.56% | -26.00 | 703.60 |
| 3 |  |
Carnival Plc | -3.33% | -42.00 | 1,220.50 |
| 4 |  |
Tui Ag | -3.23% | -20.00 | 599.00 |
| 5 |  |
Prudential Plc | -3.16% | -33.50 | 1,026.00 |
| 6 |  |
International Consolidated Airlines Group S.a. | -3.00% | -5.10 | 165.10 |
| 7 |  |
Hsbc Holdings Plc | -2.79% | -18.30 | 636.60 |
| 8 |  |
Anglo American Plc | -2.77% | -65.00 | 2,277.50 |
| 9 |  |
Smith & Nephew Plc | -2.63% | -31.00 | 1,145.50 |
| 10 |  |
Antofagasta Plc | -2.57% | -42.50 | 1,609.00 |
US close: Stocks end mixed after Treasury raises Q3 borrowing estimate
Wall Street’s main market gauges finished on a mixed note om the first trading session of the third quarter, against a backdrop of rising government bond yields.
Nevertheless, all of the main indices had finished higher for a fifth consecutive month the day before.
The Dow Jones Industrial Average added 0.20% to 35,630.68, alongside a 0.27% dip for the S&P 500 to 4,576.73.
The Nasdaq Composite meanwhile slipped 0.43% to 14,283.91.
In parallel, the yield on the benchmark 10-year U.S. Treasury note was pushing farther above the 4.0% level, adding seven basis points to 4.03%.
Yields on the policy sensitive two year note were also on the up, adding three basis points to 4.89%.
Overnight, the U.S. Treasury had boosted its estimate for federal government borrowing in the third quarter from $733bn to $1trn.
Caterpillar paced gains on the Dow Jones Industrials after beating analysts’ estimates by a wide margin.
Uber Technologies was a top gainer after the company clocked in with its first quarterly operational profit.
And its finance director said that it would evaluate returning excess capital to shareholders as its cash flows ramped.
Pfizer slipped after missing estimates for its second quarter revenues, which declined by 54% to $12.73bn.
The Institute for Supply Management’s factory sector Purchasing Managers Index edged up from 46.0 for June to 46.4 in July (consensus: 46.8).
Job openings on the other hand were little changed in June, the Department of Labor reported, slipping by just 0.3% month-on-month to 9.582m, but the prior month’s tally was revised lower and the so-called quits rate fell from 2.6% to 2.4%.
Wednesday newspaper round-up: Bank of England, US credit rating, Shoplifters
The Bank of England should carry out an interest rate rise of a quarter of a percentage point tomorrow to keep control of stubbornly high inflation, The Times shadow monetary policy committee has argued. An overwhelming majority of the shadow MPC voted by 8-1 in favour of a 25-basis-point increase to the base rate this month, a step down from the rise of half a percentage point that the Bank was forced to carry out in June, when wage growth accelerated more than expected. The Bank rate is 5 per cent at present, the highest level since 2007. – Sunday Times
Rating agency Fitch downgraded the US government’s top credit rating on Tuesday, a move that drew an angry response from the White House and surprised investors. Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills. It is the second major rating agency after Standard & Poor’s to strip the US of its triple-A rating. – Guardian
Shoplifters are overrunning retailers and avoiding public rebuke because politicians have accused supermarkets of profiteering, the chief executive of Co-op Food has said. Matt Hood said there has been a surge in crime at his stores and that he was “disappointed” people were defending looters after MPs criticised rip-off prices. Co-op, which runs 2,500 outlets, recently released figures showing police were not responding to more than 70pc of call-outs over serious crimes in its stores. – Guardian
The TUC has urged the Bank of England to call a halt to interest rate increases after warning that widespread job losses in recent months have left the UK “teetering on the brink of recession”. Employment had fallen in more than half of Britain’s 20 industrial sectors in the three months to June, the union body said as it predicted a fresh increase in the cost of borrowing would put tens of thousands more livelihoods at risk. – Guardian
