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London open: Banks, miners lead the rebound early on
Mining and banking stocks led the UK’s benchmark equity index higher on Wednesday morning, rebounding after losses the previous session, despite economic data from China continuing to paint a dreary picture for the world’s second-largest economy.
The FTSE 100 was up 0.7% at 7,577.74 by 0854 BST.
The UK benchmark index declined 0.4% on Tuesday after weaker-than-expected trade data from China dented share prices in the mining sector, while banking stocks fell on the back of concerns about a windfall tax levied against their Italian counterparts.
“A disappointing set of China trade numbers for July saw European and US markets sell off sharply yesterday, reinforcing concerns that the Chinese economy is struggling, undermining hopes that the slowdown in Q2, was simply a one-off,” said Michael Hewson, chief market analyst at CMC Markets UK.
Overnight, official government figures revealed that China fell into deflation in July, with consumer prices falling 0.3% year-on-year (after a 0.2% gain in June) on the back of a sharp drop in food inflation from +2.3% to -1.7%,.
“Consensus expected this outcome, but it is still a striking development,” said analysts at Danske Bank. “It is rare that consumer prices decline in China. It happened [during] global crises in 2020 and 2009. It also comes at a time when many other large countries are still battling high inflation.”
Coca-Cola HBC pops as guidance lifted
As for corporate announcements, Coca-Cola Hellenic Bottling Company was trading 3% higher after lifting its full-year forecasts. The company said it was on track for organic growth of 6-7% for the year, up from previous guidance of 5-6%.
Mining stocks were clawing back losses after a poor showing on Tuesday. Glencore, which disappointed the market yesterday with its first-half results, was among the best performers early on. Anglo American, Fresnillo and Antofagasta also made gains.
Banks were also higher, rebounding after the Italian government came out to clarify details of its windfall tax on domestic bank profits. Monday evening’s surprise announcement by the government to slap a 40% tax on banks’ net interest margin sent tremors across the continent, but it has now been clarified that the levy won’t exceed 0.1% of an institution’s assets. Concerns rose yesterday that other nations would join in on introducing windfall taxes on bank profits, like they already have done in Spain and Hungary.
Hewson said the prospect of a UK following suit is lower “given that the banking sector here already pays a higher rate due to the 3% banking levy, on top of the 25% corporation tax rate”. Barclays, Lloyds and HSBC were also making ground this morning.
The market had a negative reaction to gambling giant Flutter Entertainment’s first-half results, despite reporting 38% revenue growth and a swing to profitability, in line with expectations. Profit after tax totalled £128m for the period, compared to a loss of £112m in the first six months of 2022.
On the FTSE 250, TP Icap impressed after beating expectations with its half-year report. The liquidity and data specialist reported an underlying operating profit of £163m, compared with consensus estimates of £158m.
Hill and Smith, the infrastructure and transport group, also surpassed analysts’ estimates with its interim results, while office space firm CLS Holdings disappointed after swinging to a big loss in the first half due to a decline in property valuations.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Intercontinental Hotels Group Plc | +3.52% | +204.00 | 5,994.00 |
| 2 |  |
Bt Group Plc | +2.71% | +3.05 | 115.40 |
| 3 |  |
Bp Plc | +2.41% | +11.55 | 491.55 |
| 4 |  |
Glencore Plc | +2.01% | +8.95 | 453.55 |
| 5 |  |
Barclays Plc | +1.94% | +2.86 | 149.94 |
| 6 |  |
Carnival Plc | +1.92% | +24.00 | 1,271.00 |
| 7 |  |
Antofagasta Plc | +1.83% | +29.00 | 1,611.50 |
| 8 |  |
Prudential Plc | +1.83% | +18.50 | 1,029.00 |
| 9 |  |
Coca-cola Hbc Ag | +1.81% | +41.00 | 2,301.00 |
| 10 |  |
Auto Trader Group Plc | +1.71% | +10.60 | 632.20 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Hiscox Ltd | -5.66% | -63.00 | 1,050.00 |
| 2 |  |
Flutter Entertainment Plc | -5.00% | -745.00 | 14,160.00 |
| 3 |  |
Tui Ag | -0.77% | -4.50 | 577.00 |
| 4 |  |
Severn Trent Plc | -0.73% | -18.00 | 2,457.00 |
| 5 |  |
United Utilities Group Plc | -0.59% | -5.80 | 969.00 |
| 6 |  |
Direct Line Insurance Group Plc | -0.56% | -0.85 | 149.90 |
| 7 |  |
Admiral Group Plc | -0.37% | -8.00 | 2,142.00 |
| 8 |  |
St. James’s Place Plc | -0.09% | -0.80 | 919.20 |
| 9 |  |
Just Eat Plc | -0.00% | -0.00 | 861.00 |
| 10 |  |
Nmc Health Plc | -0.00% | -0.00 | 938.40 |
US close: Stocks stay down after China trade disappointment
Wall Street closed in negative territory on Tuesday, echoing the downward trajectory of Asian and European markets.
The lacklustre performance was primarily driven by subpar export data from China, which stirred concerns regarding the stability of the world’s second-largest economy.
At the close, the Dow Jones Industrial Average was down 0.45% at 35,314.49, as the S&P 500 decreased 0.42%, finishing at 4,499.38.
The tech-heavy Nasdaq Composite experienced the steepest drop of the major indices, falling by 0.79% to 13,884.32.
On the currency front, the dollar was in a mixed state, edging up 0.05% on sterling to trade at 78.48p, and by 0.01% against the common currency to 91.28 euro cents.
Against the Japanese yen, the dollar slipped 0.08%, changing hands at JPY 143.26.
“Last week’s US credit rating downgrade seemed like the perfect beginning of a market selloff, but this morning’s abysmal China trade data is a much more compelling reason for investors to cut back on risk,” said IG chief market analyst Chris Beauchamp earlier.
“The losses started in Europe and have now overtaken the US – the odds of a sizeable correction are now much higher.
“A pullback is certainly overdue, and the recent outbreak of confidence about a soft landing also leaves markets vulnerable in the short-term.”
Business confidence rises, trade deficit narrows
On the economic front, small businesses in the US showed a modest uptick in confidence last month, according to the National Federation of Independent Business (NFIB).
Its optimism index nudged from 91.0 in June to 91.9 in July, surpassing economists’ expectations of a 90.6 reading.
The hiring sub-index also witnessed a notable rise by two points to 17, a figure that has been consistent since April.
Additionally, intent to hire and investment among businesses saw a positive trajectory, even though fewer firms reported increased selling prices.
In trade news, the US saw a contraction in its trade deficit in June.
The Department of Commerce reported a 4.1% month-on-month decrease, bringing the deficit to $65.5bn – slightly above economists’ prediction of a $65bn gap.
That dip was attributed to a 1.0% fall in imports, which totalled $313bn.
Significant declines were recorded in imports of computers of $1.6bn, finished metal shapes of $2.1bn, and crude oil of $1bn.
Exports also experienced a marginal reduction, down by 0.1% from May, reaching $247.5bn.
Bank stocks fall on ratings review; Eli Lilly and Novo Nordisk rise on drug success
In equities, several banking institutions experienced a downward shift after Moody’s downgraded the debt ratings of 10 small to medium-sized US banks late on Monday.
The agency has also put under review the ratings of six larger banks, namely Bank of New York Mellon, State Street, Northern Trust, and US Bancorp among others.
The downgrade was attributed to the second-quarter results of many banks which revealed increasing profitability pressures, impacting their capability to generate internal capital.
Moody’s cited concerns over a potential recession in early 2024, anticipated higher interest rates, and declining asset quality, particularly in commercial real estate.
By the close on Tuesday, Bank of New York Mellon was down 1.32%, State Street Corporation dropped 1.58%, Northern Trust was off 1.56%, and US Bancorp slipped 0.23%.
Elsewhere, logistics and delivery giant United Parcel Service (UPS) was off 0.88%, in the wake of the firm trimming its full-year margin projections after a challenging second quarter.
UPS reported an 11% year-on-year decline in revenues and a stark 27% dip in profits.
On the upside, Eli Lilly surged 14.87%, riding high on positive quarterly earnings.
The company also raised its annual profit outlook, largely fuelled by the robust performance of its new diabetes drug, Mounjaro, which had found extensive off-label use in weight loss.
That upbeat sentiment was further buoyed by news from competitor Novo Nordisk, whose weight-loss drug Wegovy displayed promising results in clinical trials concerning cardiovascular events in adults dealing with obesity.
The news pushed Novo Nordisk’s stock up by 17.23%.
Wednesday newspaper round-up: Stagflation, Amazon, Scottish jobs
The UK economy is suffering from a 1970s-style “British disease” that means inflation will not fall back to the Bank of England’s 2 per cent target until after 2027, a think tank has warned. The National Institute of Economic and Social Research (NIESR) said the economy had suffered from five years of “lost economic growth”, with stubbornly high inflation and semi-permanent government deficits expected in the foreseeable future. Jagjit Chadha, director of the institute, Britain’s oldest independent economics think tank, said the country’s woes had led to the “re-emergence of the British disease” — a reference to the stagflationary trap of the 1970s, when the term was coined. – The Times
Amazon has been accused of pushing small businesses to the edge of collapse after warning it would hold onto thousands of sellers’ cash temporarily. The US tech giant told small firms using its platform in the UK and continental Europe that it will withhold their sale proceeds for over a week, triggering fears businesses will not have the cash to keep going. – Daily Mail
Scotland’s jobs market is struggling and pay growth is falling behind the rest of the UK as its oil industry declines, according to the Institute for Fiscal Studies (IFS). Figures show that Scotland’s employment rate has suffered a “marked deterioration” since 2014, and is now one percentage point below the national average. At the same time, earnings have grown much more slowly than in the rest of the country. – Guardian
Britain’s taxpayer-funded infrastructure bank has invested £24 million in a mining start-up hoping to produce lithium for electric vehicle batteries in Cornwall. Cornish Lithium said the UK Infrastructure Bank had led a £53.6 million funding round that would “significantly accelerate progress toward the creation of a domestic supply of battery-grade lithium compounds”. The first equity investment by UKIB, which is taking a 13 per cent stake in the company, has been matched by a further £24 million from EMG, an American private equity group, and £5.6 million from TechMet, an existing investor. – The Times
