- FTSE 100 closes 24 points higher
- US blue-chips rally after wobble
- BP props up the Footsie after announcing buyback programme
5.00pm: Gains hold
At the close, the UK blue-chip index was 24.00 points, or 0.3% higher at 7,105.72, below the day’s peak of 7,119.19 but above the session low of 7,074.32.
On Wall Street around London’s close, the Dow Jones Industrials Average had jumped 172 points, or 0.5% to 35,010, recovering from an early wobble after an opening leap. The broader S&P 500, however, was just 0.2% higher, although the tech-laden Nasdaq Composite was ahead 0.5%.
Joshua Mahony, senior market analyst at IG, a global leader in online trading commented: “A somewhat quiet economic calendar has seen the US factory orders continue to grow, with new orders rising by $7.4 billion to $506 billion in June.
“Nonetheless, good economic news does not always translate into good news for stocks, with the threat of tightening at the Fed hurting the highly inflated growth stock valuations seen on the Nasdaq.”
He added: “Today has seen yet another bout of European financial earnings, with the likes of Standard Chartered, Societe Generale, and Bank of Ireland (LSE:BKIR) all providing impressive numbers as the economic recovery takes shape.
“Unfortunately, Standard Chartered have failed to really gain traction thanks to their highly internationalised profile, with the easing fears around Indian Covid cases now shifting towards another major market in Indonesia. Elsewhere, the theme seen throughout many of the banks remain the same, with the recovery of bad loan provisions providing a significant boost to the bottom line.
“Much of the thanks should go to governments though, with supportive measures helping to minimise the economic fallout of what could have been an incredibly damaging time for businesses. With all this cash sloshing about it should come as no surprise to see banks throughout Europe employ a mixture of share buy-backs and dividends after restrictions on such actions were finally removed.”
3.50pm: BP provides support
Shares in the oil giant are 4.9% firmer at 304p after its second-quarter results.
Despite that, the FTSE 100 is only 14 points firmer (0.2%) at 7,096.
“They say that cash is king, and investors are certainly cheering BP’s decision to not only increase its dividend but launch a fresh share buyback. This one is worth US$1.4 billion (or GBP1 billion at current exchange rates), on top of the US$500 million returned to shareholders in the first half of this year,” said AJ Bell’s investment director, Russ Mould.
“That takes the total buyback bonanza so far to GBP12.8 billion from 14 FTSE 100 companies, adding to the GBP78 billion analysts believe they will pay out in ordinary dividends,” Mould said.
David Smith, a fund manager of Henderson High Income Trust, commented on what his PR team called ‘the broader context of the UK dividend landscape’.
“The significant year-on-year growth seen this quarter is unsurprising given the comparative period last year was in the eye of the dividend storm caused by the pandemic. Nonetheless it’s been encouraging that those companies that have seen a strong rebound in their earnings and cash flows have returned to good levels of dividends earlier than our initial expectations. Also with the significant growth in dividends from the mining sector and restrictions on payments from banks removed, the outlook for aggregate market dividend growth for the rest of the year is positive.
“Although social restrictions in the UK have now been lifted, it still feels too early to expect dividends to return this year for some of those companies most impacted by the pandemic, such as hospitality and travel. It’s more likely that dividends from these sectors start to re-emerge in the Autumn of 2022 at the earliest but over the medium-term that helps underpin continued dividend recovery,” Smith said.
2.45pm: US indices open modestly higher
US markets have opened higher but in a half-hearted fashion.
The Dow Jones average was up 31 points (0.1%) at 34,868 ans the broader-based S&P 500 was 3 points to the good at 4,391.
In London, the FTSE 100 has perked up a bit and is up 21 points (0.3%) at 7,102 but not for the first time it is being shown a clean pair of heels by the FTSE 250, which is up 165 points (0.7%) at 23,374.
The mid-cap index is outperforming despite disappointing interims from inter-dealer broker TP ICAP (LSE:TCAP) Group PLC, which have sent the shares 1.6% lower, and the announcement from Rotork PLC (LSE:ROR) that its chief executive will be heading back to the USA next year, which means the company will need to find a new boss. Rotork’s shares were down 6.2% at 340.2p.
1.45pm: Day fizzling out for the Footsie
The Footsie has seen most of the mornings gains disappear over the lunchtime session.
London’s index of blue-chips was up 10 points (0.1%) at 7,092.
One of the top risers is bottling company Coca-Cola HBC AG, which is up 1.6% for reasons unknown, unless it is to do with PepsiCo (NASDAQ:PEP)’s decision to sell a number of its juice brands to a private equity firm.
12.40pm: US indices to open higher
As in London, US investors look set to shrug off the latest crackdown in China – this one is targeted at video games companies – and drive equity prices higher.
The Dow Jones average is expected to open 156 points higher at 34,994; the S&P 500 is tipped to rise 16 points while the Nasdaq 100 is on track to advance 18 points to 14,982.
Breaking: ????????????Chinese gaming stocks are in free fall today. NetEase is down 15%. Tencent is down 9%. Bilibili is down 9.5%. XD is down 18%.
— Josh Ye ??? (@TheRealJoshYe) August 3, 2021
That has not stopped some pundits from wondering whether US markets are getting a bit “toppy”.
“We see the potential for the rally in cyclical stocks to continue, although prevailing valuations and the pattern of past recoveries suggest to us the next leg of any upcycle may favour names with higher quality business models. Now is not the time for value investors to forget the lessons of the past decade and a half – when a wave of technological innovation disrupted many traditional industries,” suggested Mark Finn, the portfolio manager of the T Rowe Price US Large Cap Value Equity Fund.
Jacob Mitchell, portfolio manager of the Antipodes Global Fund – UCITS, and the chief investment officer of Antipodes Partners, noted that US equities have never been more expensive in the last 25 years, “both in a relative and absolute sense”.
“Today, the rest of the world is valued at a 40% discount to US equities – and this discount is as extreme as it has been in 25 years but a new capex [capital expenditure]cycle evens out the playing field,” Mitchell suggested.
“Given the US is home to big cap tech, secular trends around software and the internet have disproportionately benefited US equities – whereas emerging investment cycles around decarbonisation and investment will benefit companies globally, not just in the US. This extraordinary premium for US equities is unlikely to be as sustainable as many believe,” he warned.
It’s a relatively quiet day on the macro front in the US today, with factory orders for June expected to rise 1.0% after advancing 1.7% in May.
Vehicle sales for July should, according to Daiwa America’s Mike Moran, show a “small pick-up” (what model, Mike?) to around 15.6mln units on an annualised basis.
In the UK, the FTSE 100 made sedate progress throughout the morning and has not exactly hit the accelerator pedal during the lunchtime session, although it is above the 7,100 level at 7,105, up 23 points (0.3%).
11.05am: Standard Chartered and BP drive the Footsie higher
The FTSE 100 was up 30 points (0.4%) at 7,112, helped by Standard Chartered’s 3.4% climb to 304.65p.
“Standard Chartered has followed the trend set by more UK centric rivals, with massive bad loan releases boosting the bottom line even as lower interest rates squeeze revenues,” reported Hargreaves Lansdown’s Nicholas Hyett.
“However, unlike its UK counterparts a majority of overall revenues comes from non-interest rate related fees and commissions and that should stand it in better stead once the bumper period at the start of the pandemic is behind us. Meanwhile, a significant position in the trade finance market gives the bank a degree of economic sensitivity that may not always be welcome but is a useful tailwind when economies are reopening as they are at present.
“Standard Chartered’s capital position is notably modest versus some we can think of, but that hasn’t stopped it upping shareholder returns with a $250mln. It’s a vote of confidence in future revenue growth that doesn’t seem unwarranted,” Hyett said.
Rob Murphy, the managing director at research house Edison Group, said StanChart was the latest bank to report a boost in profits and resume dividend payments.
“The bank saw its underlying revenue fall%, however, and like HSBC and other rivals, the bank faces headwinds once the unlocking of bad loan provisions stops boosting profits. Looking to navigate an extended period of historically low-interest rates which have sapped the profitability of traditional lending and deposit products, a shift to more fee-based products and a focus on the wealth management business is likely to continue – it plans to hire and promote 3,000 relationship managers and wealth specialists over the next five years as it seeks to double the size of its business serving affluent clients in Asia,” Murphy said.
Unless my newsfeed has stopped working, there has been no bid announced today for a FTSE 250 company, which makes a change.
Travis Perkins (LSE:TPK) shares fell 2.6% to 1,677p even though profitability in the first half of the year was higher than expected, according to David O’Brien, an equity analyst at Irish broker, Goodbody.
The increased profits were boosted by property profits, which were GBP7mln ahead of Goodbody’s forecasts.
“In addition, Travis Perkins (LSE:TPK) has reported accelerated revenue growth trends as UK consumers continue to invest in their properties (up 18% in Q2 compared to 2019, and up from 10% in Q1). Management expects this to continue as we optimise our houses for working from home, and invest improving energy efficiency. Overall, this is a solid outcome with an increase in profit guidance welcome,” O’Brien said.
9.50am: Direct Line and Hiscox lead the FTSE 250’s advance
London’s blue-chips continue to make steady progress despite some unease about regulatory crackdown developments in China.
The FTSE 100 was up 16 points (0.2%) at 7,098, with resource stocks to the fore.
“Fears over Chinese regulatory interference aren’t going away, with Tencent the latest stock to slump on chatter about Beijing seeking to wield its power,” said Russ Mould, the investment director at AJ Bell.
“Talk that gaming will be the next sector to come under pressure from the authorities in China saw Tencent’s shares fall more than 10% at one point on Tuesday. They are now down by more than a fifth year to date as investors reassess their willingness to have exposure to big Chinese names.
“This is turning out to be one of the big stories of 2021 for global markets, overshadowing what many people thought would the key focal point for Asia – namely a year of strong economic growth.
“As part of the broader issues troubling Asia, it is also worth watching property developer China Evergrande after yet more suppliers said payments were overdue. This highly indebted company is one of the biggest players in the Chinese property market and it would be highly embarrassing to the government if it collapsed due to financial pressures. Its shares fell nearly 8%, meaning the stock is now down by 63% year to date,” Mould observed.
Nevertheless, it is still around and judging by today’s 3.0% gain at 308.6p following its half-year report, doing all right.
“Direct Line’s results are pretty positive overall. Several key trends are normalising and the group’s been helped through the transition by relatively benign weather. Assuming the weather cooperates, Direct Line has upgraded its full-year profitability guidance; however, medium-term guidance is unchanged as the benefits of unlocking and nice weather can’t be relied upon forever,” reported Hargreaves Lansdown’s William Ryder.
“Direct Line looks in a reasonable place to us, but general insurance is still a really tough market. Competition is always tough, especially on price comparison websites, and it’s difficult to find a long term edge. While Direct Line is doing a lot of the right things, like investing in technology to improve underwriting efficiency and control costs, competitors are doing the same. Direct Line can boast a strong brand, but whether that will be enough to drive sustained outperformance remains to be seen,” he added.
Elsewhere in the insurance sector, underwriter Hiscox Limited is keeping Direct Line off the FTSE 250 top perch after its interims got the thumbs up from the City.
Hiscox shares were 4.2% firmer at 902.2p as Hiscox moved back into the black with a profit before tax of US$133.4mln in the first half of 2021, compared to a loss the year before of US$138.9mln.
8.45am: FTSE 100 dragged higher by positive response to results from BP
The FTSE 100 was up 7 points (0.1%) at 7,088, with BP, up 3.0% at 298.5p, the top riser after its results.
“BP isn’t quite throwing caution to the wind, but the company’s steady as she goes approach has been infused with optimism as higher oil prices make immediate prospects look brighter,” said Susannah Streeter at hargreaves Lansdown.
“With profits for the quarter coming in at $3.1 billion, the company is splashing surplus cash piled up through an annual increase in the dividend by 4% through to 2025 and $1.4 billion in share buybacks,” she added.
The proposed transaction puts an enterprise value (i.e. acquisition cost adjusted for debt or cash on the balance sheet) on Smiths Medical of US$2.3bn (GBP1.7bn), which even with a possible additional US$200mln to come based on performance targets was regarded by the market as a bit skinny.
I am obliged by an ancient by-law to remark that the company is “on a roll” judging by its interim results, which prompted a 1.3% increase in the share price to 2,840p.
“Greggs has had a tough H1 [first half] with two-year like-for-like sales down 9.2%; however, all is not lost as the overall UK food-to-go market remains depressed by around 20% as many knowledge workers stay away and the pingdemic takes a toll. Greggs has been able to punch above its weight in food-to-go because it has had less restriction exposure, and it sells the value products cost-conscious first-returners desire,” said Ross Hindle, an analyst at Third Bridge.
6.45am: Subdued start in prospect
After a strong start to the week, the FTSE 100 could give up some of its hard-fought gains as markets continue to be disappointed with economic data from around the world.
London’s top equity benchmark is heading for an 11-point fall, according to the IG spread betting platform, following a day when it gained 56 points to finish at 7,081.72.
There could be more falls for the City’s China-facing stocks, with shares in Tencent and other online gaming firms being knocked lower after a website run by state-run Xinhua News Agency criticised the gaming industry and called games “spiritual opium” and “electronic drugs”.
Wall Street had a mediocre time overnight, with the Dow Jones and S&P 500 falling 0.3% and 0.2% while the Nasdaq was only just above flat as treasury yields were sent lower.
Asian stocks are mostly in the red this morning too, with the Nikkei down 0.6% and the Shanghai Composite and Hang Seng both 0.3% lower, with only India’s Sensex in positive territory.
Blame has been put on the US manufacturing PMI survey, which “didn’t hit the heady heights expected by markets”, as said market analyst Jeffrey Halley at Oanda.
“To be fair, a print of 59.5 is still impressive, but like technology stocks, the bar is set high, and markets have itchy trigger fingers nowadays if the music isn’t playing loud enough.”
He added: “The ‘peak recovery’ interpretation saw US 10-year yields shed ten basis points intra-day before settling under 1.20% at around 1.18%. To be fair to the bond market, the US data followed China’s PMIs earlier in the day, which also underwhelmed, reinforcing the ‘peak recovery’ narrative.
“We can also throw the Covid-19 delta-variant into the mixture, with concerns rising once again, that the global recovery could be thrown off track by the virus.
“The rise in US cases, and ASEAN’s situation, is well known, but what is spooking markets is China, which has seen a small number of cases popping up across a number of cities. It’s not a huge reach to extrapolate even more supply chain disruptions, especially if it proves as elusive to control for Chinese authorities as it has to officials globally.”
Around the markets
- Pound up 0.1% to US$1.3893
- Oil flat at US$72.91 per barrel of Brent crude
- Gold down 0.1% to US$1,810.9 per oz
- Bitcoin down 4% to US$38,278.1
6.50am: Early Markets – Asia / Australia
Stocks in the Asia-Pacific region were mostly lower on Tuesday as shares of Chinese online gaming players were hit hard after the activity was described as a type of “opium” by Chinese state media.
The Shanghai Composite fell 0.56% and Hong Kong’s Hang Seng index dipped 0.48%
In Japan, the Nikkei 225 declined 0.53% while South Korea’s Kospi gained 0.26%.
Shares in Australia fell, with the S&P/ASX 200 trading 0.57% lower.