FTSE 100 closes well off day’s peak as Dow Jones drifts from highs; FTSE 250 index stars

  • FTSE 100 gains 49 points
  • FTSE 250 jumps 259 points
  • US stocks retreat from opening bounce

5.00pm: Strong start to August

The FTSE 100 index ended higher on the first trading day of the new month, bouncing back after Friday’s downbeat end to last week helped by upbeat earnings and some M&A news which lifted the FTSE 250 index to new highs, although both indices ended off highs as US blue-chips drifted back from opening peaks.

At the close, the UK blue-chip index was 49.42 points, or 0.7% higher at 7,087.80, below the day’s peak of 7,111.66 but above the session low of 7,032.29. Meanwhile, the mid-cap FTSE 250 index ended 259 points, or 1.1% higher at 23,208, albeit below that new record high of 23,306.07.

On Wall Street by London’s close, the Dow Jones Industrials Average was up 44 points, or 0.1% at 34,976, well below the opening 150 point jump. The broader S&P 500, however, stayed 0.4% higher, while the tech-laden Nasdaq Composite was ahead 0.2%.

Craig Erlam, senior market analyst at OANDA Europe commented: “There was an abundance of event risk last week and rather than inspire, it seemed to push investors to the sidelines and it never really took off. Friday was a bit of a negative way to wrap things up but looking back, it wasn’t really an accurate reflection of how events unfolded. Perhaps month end had a hand to play in that.”

He added: “Earnings are still very strong, despite the downside risks to the outlook for many companies and the Fed was very balanced which should keep a taper tantrum at bay. Risks naturally remain, not least the impact that delta will have on the various populations, behaviour and restrictions but there’s plenty of cause for optimism going into year-end.

“The introduction of a $1 trillion infrastructure bill into the Senate may be giving sentiment a bit of a bump at the start of the week. There is still some way to go but this was an important step towards some much needed investment.

“The PMIs we’ve seen from around the globe on Monday highlight the collective challenges facing manufacturers but also the vast differences between countries as a result of vaccine rollouts. The common complaint is unsurprisingly on the supply side which is causing higher input costs, much to the unease of central banks that are seeing higher inflation as a result. Although the widely held belief is that it is temporary and will relieve itself once supply shortages are overcome.”

Erlam concluded: “Covid remains a massive downside risk for many countries, especially those with very low vaccine rates and that’s likely to continue to weigh heavily going foward as the delta variant spreads rapidly. Regional differences in the vaccine distribution is going to create big disparities between the economic recoveries we see, with major developed nations seeing the greatest benefits this year and next.”

3.55pm: Mid-caps take centre-stage

It’s been another day in which the FTSE 100 has had to yield the stage to the FTSE 250.

The senior index, at 7,093, remains just over 10% off its all-time high of 7,877, set on 22 May 2018.

Since the FTSE 100 set its previous high, the FTSE 250 has gained 10.4%; in other words, the FTSE 250 has gained about the same amount, in percentage terms, as the FTSE 100 has lost since the Footsie’s all-time high.

During that period (i.e. from 22/5/18), the FTSE 250 has had some stunning performances from its constituents, such as Future PLC (LSE:FUTR), which is up 675%; Kainos (LSE:KNOS) Group Ltd, up 333%; Games Workshop Group PLC (LSE:GAW), up 326%; Liontrust Asset Management (LSE:LIO) PLC, up 251%; Petropavlovsk PLC (LSE:POG), up 211%; Pets at Home PLC, up 200%; and Baillie Gifford US Growth Trust PLC – the FTSE 250’s answer to Scottish Mortgage Trust – up 200%.

The best that the FTSE 100 can manage over that period is the aforementioned Scottish Mortgage Trust, which is up 162%.

The Footsie has some heavily-weighted duds weighing it down. The two worst performers, Rolls-Royce Group PLC (-65%) and British Airways owner International Consolidated Airlines SA (-61) are both valued at around GBP6.3bn and are not particularly heavy hitters in terms of influencing the direction of the Footsie but the same cannot be said of the three next worst performers:

Even so, the FTSE 250 has not been without its dead weights. Its largest stock by market cap, the former FTSE 100 stock Carnival PLC (LSE:CCL), is down 71% since the FTSE 100’s last peak. Even after that precipitous fall, with a market capitalisation of GBP16.7bn, it is more than two times the size of the next largest constituent, former FTSE 100 stalwart and bid target Morrison (Wm) Supermarkets PLC.

Although some companies, such as Renishaw PLC (LSE:RSW), the engineering firm that put itself up for sale this year, have not been targeted by bidders with deep pockets, it has been open season on many other UK mid-caps, with two bids today announced – an agreed bid for Meggitt and indicative bid for Sanne.

The FTSE 100 today is up 61 points (0.9%) at 7,093, having put in a late spurt; it still lags the FTSE 250, however, which is up 1.0% at 23,182.

2.45pm: US indices open on the front foot

US markets opened higher with the Dow Jones jumping 191 points (0.6%) to 35,127.

The broader-based S&P 500 was 22 points (0.5%) heavier at 4,417.

In London, the FTSE 100 has stopped relinquishing the morning’s gains and is back on the rise at 7,072, up 40 points (0.6%).

1.55pm: Takeover activity lifts the FTSE

The FTSE 250 is outstripping the FTSE 100 today, thanks to takeover activity.

Meggit PLC, up 56% at 730p is far and away the best performer after agreeing to a GBP6.3bn takeover from US rival Parker-Hannifin and is overshadowing Sanne Group PLC (LSE:SNN), the fund management firm, which is mulling a possible offer from Apex Group.

Sanne’s shares are up 7.7% at 909p, fairly adjacent to the indicated offer price of 920p. The board of Sanne has indicated that should any bid be forthcoming at that price, it would be minded to recommend shareholders accept it.

READ Sanne Group rejects GBP1.3bn takeover offer by Cinven

Back in May, Sanne rejected a bid approach from private equity firm Cinven that valued it at GBP1.3bn; Sanne’s current market capitalisation after today’s rise is GBP1.37bn.

The FTSE 250 was up 191 points (0.8%) at 23,139. The FTSE 100, meanwhile, was up 35 points (0.5%) at 7,068.

12.30pm: US indices to recoup Friday’s losses

After Friday’s reverses, US indices look set to recover those losses when trading starts this afternoon.

The Dow Jones is expected to open 145 points higher at 35,080 while the S&P 500 is seen starting 23 points heavier at 4,418. The tech-laced Nasdaq 100 is tipped to rise 68 points to 15,028.

It is purchasing managers’ index (PMI) day worldwide so traders will be looking for the Markit manufacturing PMI to provide a temperature gauge of the US economy. Also out today is the Institute of Supply Management’s (ISM) manufacturing PMI.

“The ISM index has been above 60% for five consecutive months and in six of the past seven. With the supply side striving to keep up with demand, activity should be firm enough to generate another elevated reading. The supplier delivery component merits special attention because of insights it might provide on supply-chain developments. We also will be interested in the employment component, hoping for a pickup from the sub-50% reading in June,” said Daiwa Capital Markets.

A busy week is in store on the earnings front, with 150 companies in the S&P 500 reporting, along with a further 82 from the STOXX 600, among others, according to Deutsche Bank (NYSE:DB)’s Jim Reid.

Back in London, the FTSE 100 has subsided back below 7,100 to 7,081, up 49 points on the day.

10.45am: FTSE 100 in consolidation mode

Reacting to this morning’s UK PMI manufacturing data, Pantheon Macroeconomics said the manufacturing recovery had been temporarily slowed by rising COVID-19 cases.

“The sharp decline in the new orders index to 57.3 in July, from 64.2 in June, demonstrates that the slowdown primarily was demand-led, though production also remains constrained by supply issues. Even with the diminished rate of demand growth, suppliers’ delivery times continued to lengthen rapidly and work backlogs continued to accumulate, albeit both at slower rates than in the previous two months. In addition, producers remained successful in passing on higher input prices to customers; the output price index remained in July at a level consistent with a further rise in producer output price inflation to about 5.5% in the autumn, from 2.7% in June,” said Pantheon‘s Samuel Tombs.

“Looking ahead, the adverse impact of Covid-19 on production lines should ease over the coming months, thanks to changes to self-isolation rules for doubly-vaccinated workers and an easing of social distancing rules. Expanding manufacturers also should be able to source new employees more easily after the furlough scheme has been wound down at the end of September. Nonetheless, demand likely is being supported at present by firms panic-buying goods in order to rebuild their inventories, as well as by high demand for consumer goods, because Covid-19 still is dissuading people from purchasing services. These temporary supports to demand probably will have faded by the end of this year, leaving both goods output and prices vulnerable to fall back in the winter,” Tombs added.

The FTSE 100 seems to have parked itself just above the 7,100 level now; it is up 72 points at 7,105.

Pearson PLC (LSE:PSON) is failing to get with the programme, shedding 2.8% at 844.8p, giving back some of the gains made on Friday following its halfway decent half-year report.

Student accommodation operator Unite Group PLC (LSE:UTG) was 2.8% firmer at 1,189.5p after Barclays upgraded the stock to ‘overweight’ from ‘underweight’, although the price target remains unchanged at 1,250p.

9.45am: UK manufacturing PMI slips in July

The UK Manufacturing purchasing managers’ index (PMI) for July slipped to at 60.4 from 63.9 in June, IHS Markit/CIPS revealed.

A reading above 50 indicates an expansion in activity.

Although rates of expansion in output and new orders slowed, they remained among the best in the survey history amid robust sales to both domestic and export clients, IHS Markit reported.

Scarcities remained a prime concern, however, as stretched supply chains and staff shortages were constraints preventing faster growth of output and employment, it added.

“Although July saw UK manufacturers report a further month of solid growth, scarcities of inputs, transport and labour are stifling many businesses,” said Rob Dobson, IHS Markit director.

“On one hand, manufacturers are benefiting from reopening economies. This is leading to solid inflows of new work from both domestic and overseas markets, including the US, the EU, China and the Middle East.

“On the other, the recent surge in global manufacturing growth has led to another month of near-record supply chain delays, exacerbated by factories and their customers building up safety stocks. Some firms also noted that post-Brexit issues were still a constraint on efforts to rebuild sales and manage supply and distribution channels to the EU,”2 he added.

UK Manufacturing PMI July 2021

Duncan Brock, the group director at the Chartered Institute of Procurement & Supply (CIPS), said UK manufacturing in July was one again unable to maintain the pace of output growth seen earlier in the year, such as in May, when the PMI hit a new high.

“A mismatch in global recovery rates following the pandemic meant some businesses abandoned their usual suppliers to seek new sources and avoid elevated lead times and the shortages gripping the sector. Disruption is a worldwide problem however, so there was likely to be limited success in re-modelling supply chains completely with the challenges too difficult to circumnavigate,” Brock said.

“As more and more supply chain managers chased fewer materials, three quarters of manufacturing companies paid higher prices as the weight of inflation bore down on an increasing number of input items. Firms were also in stronger pursuit of skilled labour as recruitment became more difficult with workers changing jobs, isolating or hesitating to return,” he added.

The FTSE 100 as up 62 points (0.9%) at 7,094.

8.40am: Meggitt soars as it agrees to takeover

The sun is shining outside and on traders’ screens as aerospace and retail-related stock lead the Footsie’s advance in London.

The FTSE 100 was up 70 points (1.0%) at 7,102, with Melrose Industries PLC (LSE:MRO), owner of aerospace and automotive engineer GKN (LSE:GKN), on top of the tree with a 5.7% gain.

Also going well were British Airways owner International Consolidated Airlines SA, up 4.2%, and aeroplane engine maker Rolls-Royce Holdings PLC (LSE:RR.), up 4.1%.

It appears speculators are taking a punt on the sector after Meggitt PLC (LSE:MGGT) soared 59% to 745.8p this morning on an agreed bid from Parker-Hannifin Corporation (NYSE:PH) worth 800p in cash per share.

The terms value Meggitt at roughly GBP6.3bn.

Next PLC (LSE:NXT) is leading the way in the retail sector, as it often does, with a 3.1% gain at 8,122p while JD Sports Fashion PLC (LSE:JD.), up 2.6% at 920.2p, is in hot pursuit.

Banking giant HSBC Holdings PLC outperformed the market, rising 1.4% to 403.1p after its results announcement.

“The banking bounce back has continued with HSBC doubling first-half pre-tax profits as economies come out of their defensive hiding places, and the spectre of bad debt recedes,” said Susannah Streeter at Hargreaves Lansdown.

“The worst-case scenario of an increase in bad loans hasn’t materialised, so the bank has been confident enough to release over $700 million that had been set aside as a buffer. It is in stark contrast to a year ago when it clocked up US$6.9 billion in impairment charges.

“Given the frightening twists the global economy has had to deal with due to the emergence of new variants, the worry is that there could still be monsters lurking under the bed, so the bank is keen to stress it views the recovery as still in the early stages. If inflation lingers, central banks may be minded to push up rates more quickly but that still looks like it is quite far down the road,” she added.

SSE PLC (LSE:SSE), in contention for the little-wanted accolade of London’s least sexy stock, was up 1.8% at 1,471p after it agreed to sell its one-third stake in gas distribution operator Scotia Networks for GBP1,225mln in cash.

6.45am: Risk-on back on

The FTSE 100 is expected to jump 37 points at the very start of the week as risk sentiment is rebounding after a sour end to last week, according to Deutsche Bank (NYSE:DB).

“Last week Asia markets saw big declines due to a regulatory crackdown in China, with the Nikkei more or less trading near to its lows this year and the Hang Seng trading at a nine-month low. The extent of the falls appeared to prompt a partial backtrack, or softening of tone by the Chinese authorities prompting a little bit of a rebound which appears to have continued today in Asia,” said Michael Hewson at CMC Markets.

Monday will see the release of manufacturing PMIs for July across Europe, with the UK expected to see a slowdown to 60.4, from 63.9 due to disruptions caused by staff shortages, and interruptions to supply chains due to a rise in infections and workers self-isolating.

Input costs are also rising, raising some concern that price rises could become more persistent and act as a brake on consumer confidence.

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were higher on Monday as U.S. fintech firm Square announced it has agreed to buy Australian buy now, pay later giant Afterpay.

The Shanghai Composite in China surged 1.40% and Hong Kong’s Hang Seng index lifted 1.04%

In Japan, the Nikkei 225 jumped 1.89% while South Korea’s Kospi gained 0.55%.

Shares in Australia surged, with the S&P/ASX 200 trading 1.41% higher.


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