- FTSE 100 closes 3.80 points lower
- Wall Street posts strong gains
- US sees slowest rate of growth in over a year
5.00pm: Afternoon recovery time
The FTSE 100 ended modestly lower on Thursday, recouping earlier bigger losses in the afternoon as Wall Street made positive progress after some weak data thanks to strong earnings reports.
At the close, the UK blue-chip index was 3.80 points, or 0.1% lower at 7,249.47, just below the day’s peak of 7,257.85 and well above the session low of 7,219.71.
On Wall Street around London’s close, the Dow Jones Industrials Average was ahead 180 points, or 0.5% at 35,670, with the broader S&P 500 index 0.9% higher and the tech-laden Nasdaq Composite up 1.2%.
Joshua Mahony, senior market analyst at IG, a global leader in online trading commented: “US markets are outperforming their European counterparts, with a weaker Q3 GDP reading helping to allay fears over a swift tightening phase from the Fed. While it is questionable whether today’s GDP reading will be enough to halt the expected commencement of tapering next week, it does build on the weak payrolls figure to bring a greater degree of doubt.”
He noted: “The annualised GDP reading of 2% represents the slowest rate of growth in over a year, with labour market and supply-side constraints clearly stifling the economic recovery. Nonetheless, weakness on the GDP-front has been partially mitigated by the improved jobless claims data, with both initial and continuing claims heading lower over recent weeks. The contraction in continuing claims is particularly impressive, with the 2.2 million figure representing the lowest level since the height of the pandemic.”
Mahoney also noted: “The ECB provided an unsurprisingly cautious approach today, with their decision to keep policy unchanged largely providing a sense of stability for now. With growth and inflation forecasts due in December, it always seemed likely that we would see Lagarde & co leave things unchanged until that meeting. Despite much soul-searching from the ECB, they clearly remain steadfast in their view that this latest bout of above-target inflation will be fleeting in nature.
“Nonetheless, while the ECB continue to reiterate their view that prices will return into target range next year, the rise in two-year treasury yields does highlight growing expectations that the committee will ultimately opt to raise rates sooner than expected. After-all, markets continue to price in a 10 basis point increase to the deposit rate by next October.”
3.50pm: Sainsbury’s reassures shoppers that Christmas won’t be cancelled
The FTSE 100 clawed back nearly all of its losses before close and was down only 2 points to 7,250.
Meanwhile, J Sainsbury PLC (LSE:SBRY) tried to reassure shoppers that Christmas won’t be cancelled by stressing that turkeys and party food will be available at its stores in the festive period.
However, it noted that customers may have to make do with alternatives to certain products.
There are widespread concerns that staff shortages and supply chain constraints will reduce the availability of popular Christmas products such as turkeys.
Chief executive Simon Roberts has written a letter to customers promising that “we’re working flat out to make it a Christmas to remember”.
“I also want to reassure you that there will be plenty of food and that we are confident that even if the exact product you are looking for isn’t available, there will be a good alternative,” he said.
He added that fresh turkeys will arrive on 19 December, but pointed out that customers who want to get ahead can buy frozen turkeys and frozen party food now.
2.50pm: Wall Street starts on front foot
The FTSE 100 was little moved just as Wall Street started on the front foot.
US investors appeared to shrug off news that US growth had slowed sharply in the third quarter.
In early New York deals, the Dow Jones Industrial Average (DJIA) added around 178 points to stand at 35,669.
The S&P 500 gained around 24 points at 4,576. The technology-laden Nasdaq added around 69 points at 15,305.
US gross domestic product (GDP), which pulls together the value of all goods and services produced by an economy, grew 2% in the three months to end- September, according to official data.
“With a slight slowdown to 2% growth in GDP for the 3rd quarter, versus 6.7% previously, the U.S. economy has moved further out of ‘recovery mode’ as personal spending normalizes, and disposable incomes decrease from pandemic highs, noted Caleb Thibodeau – associate at Global Capital Markets for Validus Risk Management.
“This is evident in the GDP breakdown this quarter with personal consumption expenditure on goods being the largest drag downwards.
“The consumption of durable goods sticks out as the largest negative contribution to the overall Q3 GDP figure,” he added.
“While this makes sense in the context of reduced stimulus to main street, the continued supply constraints in the manufacturing sector and availability of these goods such as vehicles, may also be a factor.”
London’s leading index shed 16 points to 7,237.
1.30pm: Tesco partners with fast-delivery service Gorillas
The FTSE 100 trimmed its losses at lunchtime, though it was still down 13 points to 7,239.
Tesco PLC (LSE:TSCO) has announced a pilot with rapid-delivery company, Gorillas, to trial the service on its customers.
As of Thursday, Tesco products will be available to purchase on the Gorillas app and immediately delivered to customers in a selected area.
The partnership will see Gorillas set up micro-fulfilment sites at five large Tesco stores, where they will pick, pack and deliver to customers in as little as ten minutes.
The first micro-fulfilment site will use excess warehouse space within the Thornton Heath Tesco store and stock a selection of around 2,000 products.
Shares were flat at 272.55p on Thursday at lunchtime.
12.20pm: US stocks to recover after tough Wednesday
The Footsie stayed put at noon, down 17 points to 7,235 while US stocks are expected to start higher.
They will be recovering after a four-day winning streak for the blue-chip Dow Jones index was halted in the previous session as the prospect of higher interest rates and weaker global growth overshadowed upbeat corporate earnings.
Investors will also be watching for US third-quarter growth data, due for release before the market opens.
Dow futures rose 0.06% in Thursday pre-market trading, while the broader S&P 500 index gained 0.16% and those for the tech-heavy Nasdaq 100 added 0.38%.
US equity markets reversed course on Wednesday afternoon after the Bank of Canada (TSX:B of C) took a more hawkish stance, ending its quantitative easing (QE) purchases and moving forward the indicated timing of its first rate hike from the second of 2022 to the “middle quarters”. That resulted in a drop in long bond yields and equities.
At the close, the Dow was down 266 points, or 0.74%, to 35,491, while the S&P 500 eased 23 points to 4,552 and the tech-heavy Nasdaq Composite was flat at 15,236.
“Concerns seem to be mounting over rising inflation prompting central banks to tighten monetary policy at a time when the global economy is still recovering from coronavirus (COVID-19),” said Lukman Otunuga, senior research analyst at FXTM.
“This unease may be reflected in risk sentiment with European and US stock futures mixed ahead of another busy day for financial markets. There is certainly a lot on the plate, ranging from the European Central Bank meeting and updated earnings from tech titans to the third quarter US GDP report among other key economic data.”
Otunuga noted that according to Bloomberg estimates, US economic growth for the July-September quarter will dip sharply to 2.6%, compared to the 6.3% witnessed in the first quarter and 6.7% seen in the second quarter.
“The sharp decline in growth may be attributed to labour constraints, supply chain disruptions, and rising delta variant cases,” he said.
11.15am: Middle-income households to see seven-year GBP3,000 tax hike after Autumn Budget
The FTSE 100 extended its losses in the late morning, dropping 17 points to 7,236.
Research from think tank Resolution Foundation said that the new Budget unveiled by Rishi Sunak on Wednesday will push tax as a share of the economy to its highest level since 1950.
In 2026, households will pay an extra GBP3,000 per year compared to what they paid in 2019, when Boris Johnson became Prime Minister.
The combined impact of policies announced by the Chancellor – including on Universal Credit (UC), reduced Alcohol and Fuel Duties, and higher Council Tax, Income Tax and National Insurance – will deliver a 2.8% income boost to the poorest fifth of households by the middle of the decade, but an income hit of 2% to middle-income households, and a 3.1% hit to the richest fifth of households.
On Thursday morning, the Chancellor told LBC it was his “mission over this parliament” to push taxes down again.
“In general you do have to pay for the things you are spending money on, and we outlined an ambitious programme of investment in public services, infrastructure and skills,” he said, adding that the UK needs these rises “to deal with the damage coronavirus has done to our economy, to get our borrowing and debt back under control”.
9.55am: Shell leads blue-chip fallers after quarterly numbers disappoint
The FTSE 100 was firmly in the red in mid-morning and was down 11 points to 7,241.
Royal Dutch Shell Plc B was the top faller among the blue-chip constituents, down 3.5% to 1,706.1p after its quarterly numbers missed forecasts.
The Anglo-Dutch group reported some US$4.1bn of adjusted earnings, well below expectations of US$5.4bn, which disappointed the City considering the rocketing fossil fuel prices during the quarter.
“The company also cited higher costs elsewhere as it said that the fourth quarter would see a better performance due to lower maintenance costs, however that hasn’t stopped the share price slipping back in early trade,” commented Michael Hewson, chief market Analyst at CMC Markets UK.
“This underperformance has prompted activist shareholder Dan Loeb’s Third Point Group to call for the breakup of the company, after taking a US$750mln stake in the business, splitting it into the legacy business, and into renewables and marketing unit. His argument appears to be that Shell is trying to serve two masters and that you can’t be all things to all people.”
“The problem with that argument is that the legacy business needs to fund the transition to renewables so there inevitably needs to be an element of cross over, although the argument for split has garnered some support on the margins.”
8.40am: Lloyds gallops ahead after comfortably beating City forecasts
Defying predictions of an early positive start, the FTSE 100 began as it left off on Wednesday (in the red) as the market continued to digest the contents of Rishi Sunak’s ‘spend, spend, spend’ Budget.
The morning’s big news came from Lloyds Banking Group, a favourite of the rank and file private investor. And the quarterlies were well received, with the stock up 2.3% in early trade.
“Lloyds has joined the merry throng of the UK banks in the current reporting season, with a further release of credit impairments and improved guidance outlook for the year,” said Richard Hunter, head of markets at Interactive Investor.
“The improving performance within the UK economy, of which Lloyds is often seen as something of a bellwether, has enabled pre-tax profit in the quarter to double to GBP2bn from a year before, comfortably exceeding expectations.”
Leading the blue-chip index with a 3.2% gain was WPP, the advertising and marketing giant, which raised its earnings guidance for the year.
The drag on the Footsie was exerted by the oilers after crude prices hit a two-week low. Shell and BP were off around 1.2% each.
6.50 am: Quiet start predicted
FTSE 100 was projected to open slightly higher as markets assess what was possibly the most left-wing Tory Budget for a generation.
Financial spread betters suggest the index will start around eight points higher after closing down 24 at 7,253 yesterday.
Headlines from yesterday’s speech focused on the GBP150bn of spending Rishi Sunak unveiled, cuts to duty on beer and Prosecco and the reduction in business rates.
The cost of inflation on household bills and the cut in Universal Credit also feature this morning, though all the press picked up the point that the UK tax burden will the highest since the 1950s.
From a market’s view, Michael Brown, head of market intelligence at Caxton FX, said: “The Budget brought little in the way of surprises, given how much was leaked in advance, though did see a sharp upgrade to near-term growth forecasts, while also leaving room for substantial pre-election tax cuts in a couple of years’ time.
“While important, particularly when considering personal finances and the broader political landscape, the Budget tends to have minimal impact on the FX market.
“This proved to be the case again yesterday, with EUR/GBP holding near 20-month lows, and GBP/USD continued to trade north of the 50-day moving average at 1.3710; next week’s BoE decision, where the market fully prices a 10bps hike, should be much less of a damp squib.”
Lloyds Banking Group was one of the beneficiaries of the chancellor’s largesse as he cut the amount it pays in corporation tax and it releases one of today’s main company updates.
The bank is especially geared to how well the UK economy does, so it will be hoping that the plans unveiled yesterday by the chancellor to keep the UK recovery on track do the trick.
Today’s third-quarter update is recently appointed chief executive Charlie Nunn’s first outing, so brokers expect a conservative tone, especially on dividends with the strategy going forward likely to be outlined with the full-year results.
Overseas, US markets closed lower as profit-taking saw a retreat from the highs earlier in the week. Nasdaq did best buoyed by the massive quarterly numbers from Microsoft and Google.
6.50am: Early Markets – Asia / Australia
Asia-Pacific shares were mostly lower on Thursday as the Bank of Japan kept interest rate targets unchanged with short-term rates at -0.1% and 10-year bond yields at around 0%.
Retail sales in Japan fell 0.6% in September from a year earlier, as per official data released Thursday.
China’s Shanghai Composite slumped 0.92% and Hong Kong’s Hang Seng index slipped 0.03%
In Japan, the Nikkei 225 fell 0.77% while South Korea’s Kospi gained 0.26%.
Australia’s S&P/ASX200 closed 0.25% lower at 7,430.40 as the Reserve Bank of Australia’s Deputy Governor Guy Debelle said the theory that increasing inflation may signal that quantitative easing as a means of financing government deficits is becoming “problematic” was wrong.