FTSE 100 finishes near flat as US inflation puts a lid on gains

  • FTSE 100 little changed
  • Banks see morning’s gains melt away
  • Cineworld slumps as streaming takes bite out of Black Widow box office takings

5pm: FTSE closes near flat

FTSE 100 index closed very slightly lower on Tuesday as strong inflation data out of the US put a lid on market gains.

The UK’s premier share index finished the day down 0.70, or 0.01%, at 7,124, well below the session peak of 7,152 and nearer the low of 7,116.

Midcap FTSE 250 was a higher though, up nearly 31 points, or 0.14%, at 22,926.

Joshua Mahony, senior market analyst at online trading firm IG noted that the “relatively muted market reaction” highlighted that many traders had now grown accustomed to the idea of near-term inflation, while the threat of a hawkish Federal Reserve was being disregarded for now.

“Nonetheless, while markets remain somewhat optimistic that near-term inflation will be fleeting in nature, there is a very real risk that elevated prices persist to the point that the Fed is forced to shorten the timescales associated with the first rate rise,” he said.

Top laggard on FTSE was NatWest Group (LON;NWG), which shed 2.66% at 201.30p, despite news of the Bank of England‘s move to remove restrictions on dividend payouts.

4pm: Back to square one

With barely more than half an hour of trading left, the Footsie is more or less back to square one.

London’s index of leading shares, which got off to a decent start this morning buoyed by banks, is now little changed.

This morning’e enthisiasm for banks has waned; initially, investors were chuffed with the news that the Bank of England would allow the banks to ramp up their dividends, ending restrictions imposed during the pandemic last year but as the day wore on the likes of Nat West Group PLC (LON:NWG) moved into the red as analysts said investors should not expect a huge windfall yet.

Nat West was down 2.0% at 202.7p, making it the biggest blue-chip faller, while Lloyds Banking Group PLC (LON:LLOY) was 0.2% cheaper at 47.1p.

While the central bank’s Financial Policy Committee (FPC) approved of the lifting of the curbs on dividend payments, its half-yearly pronouncements on the state of the UK’s financial system contained a number of cautious statements.

Noting that corporate debt vulnerabilities have “increased modestly” in the first half of the year, but more so among small and medium-sized enterprises (SMEs), the FRC said it expects banks to use “all elements of their capital buffers” to support the economy through the recovery.

“UK banks aren’t US banks and anyone expecting a big increase in payouts needs to temper their optimism, which probably helps explain why despite an initial move higher, the bulk of, if not all of today’s gains have disappeared, for Lloyds, NatWest Group and Barclays, probably as a consequence of what is happening to yields, after today’s US inflation report, which has seen short term rates rise and long term rates decline, thus flattening the yield differentials which allows banks to maximise their profits,” said Michael Hewson of CMC Markets and frontrunner in the prestigious Longest Sentence of the Year Award 2021.

Among the mid-caps, Cineworld Group PLC (LON:CINE) was the worse performer, tumbling 8.3% to 67.42p despite confirmation yesterday that cinemas would soon be able to return to full capacity.

That’s if people remember what going to the cinema to see a film is like.

Disney’s Black Widow was released over the weekend in what Americans like to refer to as theatres but the film was also available online via streaming. Cannibalisation is all part of being a Black Widow but with a reported US$60mln in streaming receipts generated by the film, cinema chains will not be happy at this new development.

3.50pm: Inflation surprise in the US

The headline US consumer price index (CPI) rose 0.9% in June, surprising economists who had forecast a 0.5% increase.

The core CPI surged 0.9%, well above the consensus forecast of a 0.4% increase.

“US inflation surprised on the upside in June for the third month running. Headline inflation rose to 5.4% from 5.0% while the more important core inflation measure increased to 4.5% from 3.8%,” said Rupert Thompson, the chief investment officer of asset manager, Kingswood.

“The Fed has continued to insist that the current surge in inflation should prove transitory and is nothing to get too alarmed about; however, with numbers like these, it will become more difficult for the Fed to maintain such a relaxed line. The figures should also put some upward pressure on Treasury yields which have recently caught many investors off guard with their recent marked decline,” he added.

James Knightley, the chief international economist at ING, said Fed the inflation surges heaps pressure on the US Federal Reserve.

“Pipeline cost pressures continue to build and corporates are looking to pass them onto customers in an environment of such robust demand. The case for a 2022 rate hike is strong,” he said.

Over the in the UK, the inflation data was met with a barely percepitible shrug.

The FTSE 100 was up 8 points (0.1%) at 7,134, with broadvster ITV PLC (LON:ITV), up 1.7% at 125.8p, and marketing conglomerate WPP PLC (LON:WPP), up 1.6% at 982p, the two biggest risers, suggesting something is afoot in the advertising world.

2.40pm: US stocks open in the red

Wall Street started Tuesday’s session in the red after US inflation data came in higher than analyst forecasts.

Shortly after the opening bell, the Dow Jones Industrial Average was down 0.08% at 34,968 while the S&P 500 dropped 0.12% to 4,378 and the Nasdaq fell 0.03% to 14,728.

Market sentiment took a hit after the latest US consumer price index (CPI) rose 5.4% in June compared to a year ago, above the 5% recorded in May and above the 4.9% rise expected by analysts.

The jump in inflation is likely to spark fierce debate around the Federal Reserve’s previous argument that inflationary pressures on the economy will be temporary, with some fearing that relaxed monetary policy and low interest rates could cause runaway price increases.

“The Fed will have to try harder to convince the markets that price pressures are still going to be transitory. It will be interesting to see how the Fed will react to this latest surge in inflation – will the dovish policymakers still stick to “transitory” script or change tack? But if the current trend for inflation continues then surely the FOMC will have to react and do so sooner. For now, though, the market is probably going to give the Fed the benefit of the doubt”, said Fawad Razaqzada at ThinkMarkets.

Back in London, the FTSE 100 was managing to inch higher in late afternoon, rising 16 points to 7,141 at around 2.40pm.

12.55pm: US stocks set for mixed start

US indices are set for a mixed start ahead of US inflation data today.

Spread betting quotes point to the S&P 500 opening barely a point higher at 4,386 and the tech-heavy Nasdaq 100 starting 51 points to the good at 14,929 but the Dow Jones 30-share is seen drooping 25 points to 34,971.

The Nasdaq is probably outperforming because of a reporting from Associated Press that the European Union has put on hold its plans to introduce a digital tax on tax-dodging multinational companies operating in the ethersphere.

All eyes will be on the US consumer price index (CPI) due out at 1.30pm London time.

“Analyst expectations are centred around 4.9% on the headline CPI, which would be a touch weaker than 5.0% from the previous month. In terms of core CPI, they expect a 4.0% reading – if correct this, would be up from 3.8% previously and the highest reading since 1991. On a month-on-month basis, CPI is seen rising 0.5% and 0.4% for the core print,” said Fawad Razaqzada at ThinkMarkets.

“Expect the dollar and buck-denominated metals to move sharply on the back of today’s CPI data. If CPI is hotter than expected, it could revive taper talks again, sending the USD/JPY etc higher and potentially halting the Wall Street rally,” the analyst suggested.

Already release is the NFIB headline index of small business activity and sentiment, which rose to 102.5 in June from 99.6 in May, beating the consensus forecast of 99.5.

“The index was lifted by increases in most of the components, led by economic expectations, which jumped 14 points. This is the most volatile – by far – of the 10 equally-weighted headline components, and the June jump reverses the inexplicable plunge reported in May,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

“Sales and earnings expectations also rose in June, along with inventory expectations, hiring plans and employee compensation. Note that the labour market numbers are not new today; they were released last week as part of the NFIB jobs report, as usual. Their message is clear; businesses can’t find all the people they want, and compensation costs are rising strongly,” he added.

In London, the FTSE 100 is up 6 points (0.1%) at 7,132.

11.20am: Miners wanted after Chinese exports surge

Footsie’s gains have almost dissipated as we enter the final hour of trading in the morning session.

The FTSE 100 was up 8 points (0.1%) at 7,133, largely on the strength of demand for miners, where Fresnillo PLC (LON:FRES) and Anglo American PLC (LON:AAL) are the sector leaders; Fresnillo is 2.1% firmer at 807p and Anglo American is 1.2% heavier at 2,990.5p.

The mineral extractors are wanted after better-than-expected trade figures from China this morning.

There is still little sign of retailers getting much of a bounce from ostensibly sparkling retail sales data from June.

“The UK retail sector hasn’t just got a spring in its step, but a post-lockdown swagger. Like-for-like retail sales increased 17% in June, compared to the same month in 2019, according to the BRC-KPMG Retail Sales Monitor. Taken over the three months from April to June, the bounce back in sales witnessed made it the best three month period for growth on record according to the British Retail Consortium,” reported Susannah Streeter at Hargreaves Lansdown.

“Other economic data released by the ONS in July showed although people have returned to stores, many are still shunning high streets and shopping centres and nipping to retail parks instead for a quick retail fix.

“In the week up to 3rd July overall footfall was 72% of the equivalent week in 2019, but high street footfall came in at 65% of 2019 levels and shopping centre footfall was even lower, at 67% of pre-pandemic rates. In contrast footfall in retail parks was much higher, reaching 91% of its level in the equivalent week of 2019. This trend has been reflected in an operational update from British Land today, indicating that the outlook is much brighter for its retail park portfolio which is nudging the value of those asset values up,” she added.

Talking of British Land PLC (LON:BLND), the property company’s shares are up 0.1% at 520.4p in line with the market, after its operational update in which it said sales are running at 94% of pre-pandemic levels across its retail portfolio.

10.40am: UK retail sales see record growth

Retail sales increased by 13.1% in June compared to (pre-pandemic) June 2019, the British Retail Consortium (BRC) reported.

The growth rate was above the three-month moving average growth rate of 10.4% – again, compared to the same months of 2019.

UK retail sales increased 17.0% on a like-for-like basis from June 2019, when they had decreased 1.6% from the preceding year, the BRC said, driven by online sales.

“The second quarter of 2021 saw exceptional growth as the gradual unlocking of the UK economy encouraged a release of pent-up demand built up over previous lockdowns. In June, while growth in food sales begun to slow, non-food sales were bolstered by growing consumer confidence and the continued unleashing of consumer demand. With many people taking staycations, or cheaper UK-based holidays, many have found they have a little extra to spend at the shops, with strong growth in-store in June. Fashion and footwear did well while the sun was out in the first half of June, while the start of Euro 2020 provided a boost for TVs, snack food and beer,” said Helen Dickinson, the chief executive of the BRC.

“Nonetheless, UK retail is still facing strong headwinds with many retailers still making up for ground lost during the previous lockdowns. City centre retailers continue to suffer low footfall and spending as commuters and international tourist numbers remained well below pre-pandemic levels. Consumer comfort with the next stage of the roadmap will be key to the ongoing success of retail. Many customers are looking forward to a return to a more normal shopping experience, while others may be discouraged by the change in face covering rules. The Government will need to reassure the public on safety, while pushing forward with its hugely successful vaccination programme. The public will also need to be understanding of one another during the easing of restrictions; there has been a big rise in violence and abuse against retail workers during the pandemic and colleagues cannot be put in the firing line because of this change in policy,” she added.

The FTSE 100 was up 10 points (0.2%) at 7,136. Ironically, B&M European Value Retail SA (LON:BME) was one of the stocks failing to get with the programme, sliding 0.9% to 551.8p.

Banks are leading the Footsie higher after the Bank of England scrapped a ban on dividend payments introduced during the coronavirus pandemic.

The FTSE 100 was up 21 points (0.3%) at 7,146, with NatWest Group PLC (LON:NWG) the best performer, up 1.8% at 210.5p. HSBC Holdings PLC (LON:HSBA), up 1.5% at 419p , is the next best performer among FTSE 100 constituents with Lloyds Banking Group PLC (LON:LLOY), up 1.4% at 47.83p, lurking just outside the “medal positions”.

“The Bank of England has rolled with the good news first by applauding the banking sector’s resilience for steering the UK economy through the pandemic and for having the liquidity to withstand further punches,” said Susannah Streeter at Hargreaves Lansdown.

“Banks have clearly played a key role in helping businesses and consumers survive the financial crisis by extending loan terms, offering payment holidays and providing a bridge over troubles waters. Government loan schemes have also been a lifeline. Since March 2020, UK businesses have raised around GBP76 billion of net additional financing from UK banks and global financial markets. That has helped businesses’ cash balances increase by a quarter, around GBP132 billion since the end of 2019,” she observed.

Hospitality-focused stocks such as Compass Group PLC (LON:CPG) and Whitbread PLC (LON:WTB) are failing to join the advance, which suggests excitement over so-called Freedom Day on 19 June is being tempered with a dose of pessimism/realism.

Contract caterer Compass and hotels group Whitbread are both down 1%.

8.45am: Cautious progress

The FTSE 100 made a quiet start to proceedings as traders kept their powder dry ahead of the onset of US earnings season.

The UK blue-chip index appears to be an island of apathy surrounded by a sea of positivity with Wall Street finishing Monday in record territory once more and Asia’s main markets also buoyant.

Domestic banks were well bid ahead of a raft of updates from their American cousins this week with NatWest Group (LON:NWG) leading the Footsie with a 2.2% gain.

Royal Dutch Shell (LON:RDSA) was up 1% early on after Barclays Capital raised its recommendation on the oiler to ‘overweight’ from ‘equal-weight’.

The bank traversed the same path with mid-cap explorer and developer, EnQuest (LON:ENQ), which advanced 5%.

On the FTSE 250, drug research and development group PureTech Health (LON:PRTC) was well bid early on with a rise of 7%.

6.50 am: Quiet start predicted

The FTSE 100 is set for a fairly flat start with a quiet day in the City diary leading investors to look Stateside to the start of earnings season and inflation data later.

London’s blue-chip index should rise around two points, according to traders in the City, a day after pulling a positive result out of the bag in a late rally which left it just over three points higher at 7,125.42.

Overnight, Wall Street was more sprightly, with all three major indices finishing at record highs.

Investors are looking forward to the start of second quarter earnings season, which starts today with the banking sector, as usual, and numbers from JPMorgan Chase and Goldman Sachs.

Market analyst Michael Hewson at CMC Markets said expectations have been tempered slightly by recent comments from JPMorgan CEO Jamie Dimon, who warned that this past quarter’s performance was unlikely to match that of the first.

“Trading revenue could well be lower than the consensus estimates of $6.5bn as lower yields and volatility impact turnover. Dimon also played down expectations over loan demand and income after a bumper Q1.”

With Q1 deposits for JPM rising 24% year on year to US$2.3trn, Hewson said having so much cash on its balance sheet is a nice problem to have but speaks to a difficult lending environment.

“It would appear that higher long-term rates are impacting on housing loan demand, a trend currently being reflected in the latest housing numbers, while small business lending was down 50% compared to the same quarter a year ago.

“This suggests that the banks’ guidance could well be a significant driver of where we head next after the gains of the last couple of days.”

Asian markets are all in green this morning latest China trade figures showed a slowdown in imports but an unexpected rise in exports.

Market analyst Jeffrey Halley at Oanda said: “The robust China data will be a shot in the arm for Asia… and a sense of relief across the region will be palpable.

“Ex-China, Asia and Australia are dealing with varying waves of Covid-19, which, given their stubborn refusal to go away, will inevitably lead to some mollifying of growth prospects for the rest of the year. The Bank of Indonesia head kicked that process of yesterday by downgrading the country’s 2021 growth forecast, suggesting short-term downward pressure on the Rupiah, and reaffirming the central bank’s dovish stance. He won’t be the last.”

Around the markets

  • Pound – flat at US$1.3889
  • Gold – flat at US$1,807.12 per oz
  • Oil – Brent crude up 0.2% at US$75.28 per barrel
  • Bitcoin – down 4% (24hrs) at US$32,816.26

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were higher on Tuesday as China’s exports surged 32.2% in June compared with a year earlier.

That was much higher than a forecast by analysts in a Reuters poll for a 23.1% rise in exports for June.

The Shanghai Composite in China gained 0.30% while Hong Kong’s Hang Seng index surged 1.70%

In Japan, the Nikkei 225 rose 0.56% and South Korea’s Kospi lifted 0.77%.

Shares in Australia gained, with the S&P/ASX 200 trading 0.20% higher.



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