FTSE 100 ends modestly higher as US stocks retreat after ADP jobs shocker

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  • FTSE 100 finishes up 18 points
  • US stocks weak as ADP jobs report undershoots forecasts
  • Robinhood rockets amid memestock momentum

4.55pm: Footsie firmer but off highs


The FTSE 100 index closed firmer on Wednesday helped by an upward revision for the UK services PMI, boosted by the UK lockdown easing in mid-July.


But it came off highs in the afternoon as US blue-chips dropped after a collapse in the ADP private payrolls reading raised questions over bullish predications for Friday’s payroll release.


At the close, the UK blue-chip index was 18.14 points, or 0.3% higher at 7,123.86, below the day’s peak of 7,142.54 but above the session low of 7,105.72.


On Wall Street around London’s close, the Dow Jones Industrials Average was down 300 points, or 0.9%, to 34,816, while the broader S&P 500 index shed 0.4%, and the tech-laden Nasdaq Composite slipped 0.01%.


Joshua Mahony, senior market analyst at IG, a global leader in online trading commented: “With Friday’s jobs report coming into view, we have seen a raft of economic data points released to provide us with a fresh update on the ongoing recovery.


“Certainly today has provided mixed signals over how the headline payrolls figure will move, with a sharp decline in the ADP payrolls figure counteracted by rising employment expansion within both the manufacturing and services ISM PMI surveys. However, with the ADP falling sharply lower, we have seen treasury yields decline which has ensured outperformance for the Nasdaq.”


Mahoney added: “Despite some unwelcome data out of the eurozone and US, the UK has enjoyed a relatively upbeat day after a strong upward revision to the services PMI.


“The UK’s reliance upon the hard-hit services sector saw the country experience one of the biggest downturns of any developed nation. However, with the UK reopening bringing an uptick in demand for the services sector, it is likely that we will also see growth receive a boost as we go forward.”


3.20pm: Gains maintained


Heading into the final hour of trading in London, the FTSE 100 had managed to regain some momentum in late afternoon, rising 32 points to 7,137 at around 3.15pm.


However, there was more excitement on the other side of the Atlantic as retail trading platform Robinhood Markets Inc (NASDAQ:HOOD) soared 38% to US$64.50 in mid-morning deals on Wall Street as the stock seemed to have been captured by the same ‘memestock’ mani that helped boost the likes of GameStop Corp (NYSE:GME) and AMC Entertainment Holdings (NYSE:AMC) Inc earlier this year.


The surge may be particularly welcome for Robinhood following its lacklustre IPO last week, which saw the shares list at US$38 each only to see them close 8.4% lower on the first day of deals. However, today’s spurt means the stock is now changing hands at a 70% premium to its IPO price.


The performance may also leave some analysts, who at the outset deemed that retail traders had turned sour on Robinhood, looking a little red-faced.


2.40pm: Wall Street opens in the red


The main indices on Wall Street opened in negative territory on Wednesday after a much lower than expected ADP jobs report rattled traders.


Shortly after the opening bell, the Dow Jones Industrial Average was down 0.62% at 34,898 while the S&P 500 dropped 0.3% to 4,409 and the Nasdaq fell 0.04% to 14,754.


Back in London, the FTSE 100 had lost momentum amid the weaker start in New York and was up just 6 points at 7,111 at around 2.40pm.


1.15pm: US ADP jobs fall well short of forecasts


The latest ADP jobs report showed the US private sector massively undershot forecasts for hiring in July, adding around 330,000 jobs during the month compared to forecasts of a 695,000 rise.


The figure for June was also revised down to 680,000 jobs added compared to the initial figure of 692,000 reported initially.


The biggest increase came from the leisure and hospitality sector, which added 139,000 jobs during the month, while the information sector was the worst-performing, losing 1,000 jobs.


The sluggish pace of hiring may worry many who are hoping the US economy can fill a record 9.2mln job openings across the country, however other factors such as a lack of raw materials may also stymie production in some sectors.


The much lower than expected figure will also raise concerns about the non-farm payroll figure on Friday, which will now be thrown into doubt and increase pessimism about the prospects for the US economic recovery from the pandemic.


Back in London, the FTSE 100 had lost a little momentum in mid-afternoon and was up 16 points at 7,122 at around 1.40pm.


12.35pm: Wall Street to see mixed open ahead of jobs data


The US markets are expected to make mixed start on Wednesday as traders await the ADP private sector jobs data ahead of the all-important non-farm payrolls on Friday.


Spread-betters are predicting the Dow Jones Industrial Average will open around 53 points lower while the S&P 500 is expected to slide 4.5 points. The Nasdaq, meanwhile, is predicted to be the positive outlier with a gain of 9 points.


The ADP report is expected to show that the US private sector added around 700,000 new jobs in July, around the same as the previous month, although some analysts have cautioned the actual figure could be widely different.


“The latest US jobs data will give an indication on how fast the US labour market is progressing towards the Fed’s policy goal, and how close we are to the ‘substantial’ progress that the Fed pursues to trigger the most-apprehended tapering of its massive bond buying program”, said Ipek Ozkardeskaya, senior analyst at Swissquote.


“A read below 500’000 should throw the mood off the cliff, as there is not much to awaken the Fed doves with inflation hovering above the 5% mark. A strong read, on the other hand, should accelerate the thinking that the Fed will get to the tapering stage quicker than otherwise. That could apply a certain pressure on the US stocks, but it’s always better to walk towards an inevitable policy tightening with a set of strong economic data than the contrary”, she added.


Meanwhile, traders will likely be keeping an eye on shares in CVS Health Corp (NYSE:CVS) after the pharmacy chain reported second-quarter earnings that beat estimates while also raising its forward guidance.


Meanwhile, troubled synthetic biology firm Zymergen will also be in focus after the group warned revenue is expected to be immaterial in 2022 and that its CEO will be stepping down. The stock has already plunged 73% to US$9.34 in pre-market deals.


Back in London, the FTSE 100 was holding steady at lunchtime, up 28 points at 7,133 at around 12.35pm.


11.45am: UK SME defaults on pandemic loans lower than feared


The number of small and medium-sized businesses (SMEs) in the UK expected to default on repayments of state-backed COVID-19 emergency loans has turned out to be lower than initially feared at around GBP5bn.


According to an FT report citing officials and bankers, an assessment of the first few months of servicing the loans showed that so far around 5-10% of SMEs that dipped into the government’s GBP47.4bn support scheme have missed repayments, with many pointing to the stronger than expected rebound in the UK economy following the relaxation of lockdown restrictions.


However, despite the more favourable picture some analysts have highlighted that the data still doesn’t remove the fact that debts has ballooned as a result of COVID-19.


“Today’s data sheds some light on the scale of SME debt defaults in the UK and despite a lower predicted number than first thought, we must acknowledge that our business debt burden has ballooned to unprecedented levels and unfortunately this has already created a relentless flow of weak zombie-like companies falling off a loan default cliff. It is imperative that we support sectors and businesses that are strong and nimble enough to adapt to the new economy and therefore continue contributing to its growth”, said Douglas Grant, director of Isle of Man-based bank Conister, part of AIM-listed Manx Financial Group (AIM:MFX) PLC.


Back on the markets, the FTSE 100 was inching slightly higher into late morning, rising 28 points to 7,133 at around 11.40am.


10.25am: FTSE 100 maintains gains into mid-morning


As the Wednesday session entered mid-morning, the FTSE 100 had managed to retain most of its gains from earlier in the day and was up around 25 points at 7,130 at around 10.20am.


Housebuilder Taylor Wimpey (LSE:TW.) continued to be the biggest blue-chip riser with a 3.2% gain to 170.1p, followed by bookmakers Entain PLC (LSE:ENT), which rose 2.2% to 1,842p, and Flutter Entertainment PLC (LSE:FLTR) which was up 2.2% at 12,250p.


Meanwhile, shares in budget carrier Ryanair Holdings PLC (LSE:RYA) were lifted slightly, rising 0.5% to EUR16.72, after the firm reported that its passenger numbers doubled in July as the travel industry began to recover from the effects of the pandemic.


The carrier flew 9.3mln people last month, across over 61,000 flights, compared to 4.4mln in July 2020. The load factor rose to 80% from 72% in July, which analysts at Liberum noted was the strongest since the start of the pandemic.


9.45am: UK services sector recovery slows in July


The recovery of the UK’s services sector slowed in July alongside record inflationary pressures, according to new data.


IHS Markit’s services PMI showed that business activity in the sector had increased for the fifth month running in July, however the rate of growth was at its weakest level since March.


The PMI stood at 59.6 in July, above the earlier flash reading of 57.8 but down from 62.4 in June.


The data firm flagged staff shortages and supply issues as causing a “severe constraint” on business capacity, leading to a strong rise in backlogs of work during the month.


A tight labour market was also highlighted as increasing wage pressures across the sector, which in turn led to the fastest increase in input costs since the survey began in July 1996.


“July data illustrates that recovery speed across the UK economy has slowed in comparison to the second quarter of 2021. More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we’ve already seen the peak phase of pent up consumer spending”, said IHS Markit economics director Tim Moore.


Moore also said that any re-acceleration in services growth in August “looks unlikely” given the reduced pace of new orders and a softening of business expectations as well as ongoing worries about staff recruitment and escalating costs.


The slowdown appeared to have left the FTSE 100 mostly unaffected, with the index up 21 points at 7,126 at around 9.40am.


8,30am: FTSE 100 makes positive start


The FTSE 100 made a positive start to Wednesday’s session, supported by rises among insurers, airlines and miners.


The blue-chip index added around 24 points to 7,129 in early deals, led by biggest riser Taylor Wimpey (LSE:TW.) PLC, which surged 4.9% to 173p after delivering a record first half performance.


Also on the rise was Legal & General Group PLC (LSE:LGEN), which jumped 2.6% to 270.7p.


The insurance group was boosted by a strong set of half-year results, which saw its first half operating profit from continuing divisions rise 13% to GBP1,271mln from GBP1,128mln the year before.


Profit before tax leapt to GBP1,320mln from GBP285mln in the first half of 2020, feeding through to an increase in earnings per share to 17.78p from 4.89p.


The company also said it expects to deliver double-digit percentage growth in operating profit this year as a result of its first-half performance.


Other notable risers included Scottish Mortgage Investment Trust PLC (LSE:SMT), which was up 2% at 1,335.5p, as well as Barratt Developments (LSE:BDEV) PLC, which climbed 2.3% to 723p.


In the fallers, food delivery firm Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB) was at the bottom of the pile after falling 1.8% to 6,279p, followed by Fresnillo PLC (LSE:FRES) with a 1.1% drop to 829p.


6.35am: Higher start predicted


The FTSE 100 is expected to start higher on Wednesday as investors await fresh PMI readings from the UK and the US.


Spread-betters IG expect the blue-chip index to open up around 13 points after ending Tuesday’s session 24 points higher at 7,105.


The expectations of a higher start come ahead of PMI readings for the UK and the US due later today, which will be eyed closely for clarity on how both economies are rebounding from the effects of the pandemic.


With vaccination rates higher than many other nations, there will be hope the risk of fresh restrictions caused by a spike in new COVID-19 cases is continuing to shrink, although there will also be a focus on whether economic activity may be peaking in the short term.


There will also be interest in the latest US ADP jobs figures, which will be used to gauge the possible level of the all-important non-farm payrolls on Friday.


The positive start also follows a solid finish for Wall Street overnight, with the Dow Jones Industrial Average closing 0.8% higher at 35,116 while the S&P 500 climbed 0.82% to 4,423 and the Nasdaq rose 0.55% to 14,761.


This was followed by a more mixed performance in Asia this morning, with Japan’s Nikkei 225 falling 0.21% while Hong Kong’s Hang Seng was up 1.23%.


On currency markets, the pound was up 0.09% at US$1.393 against the dollar, with the PMI readings later today potentially providing a catalyst for movement.


Around the markets:


Sterling: US$1.393, up 0.09%


Brent crude: US$72.41 a barrel, no change


Gold: US$1,813 an ounce, up 0.13%


Bitcoin: US$38,185, down 0.24%


6.50am: Early Markets – Asia / Australia


Stocks in the Asia-Pacific region were mostly higher on Wednesday as the Caixin/Markit Services Purchasing Managers’ Index in China for July came in at 54.9, up from June’s reading of 50.3.


The reading has confirmed accelerating Chinese services activity in July.


China’s Shanghai Composite gained 0.53% and Hong Kong’s Hang Seng index rose 1%


In Japan, the Nikkei 225 declined 0.21% while South Korea’s Kospi surged 1.38%.


Shares in Australia lifted, with the S&P/ASX 200 trading 0.39% higher.

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