FTSE 100 on the front foot despite slowdown in manufacturing recovery

  • FTSE 100 closes ahead
  • US stocks firmly higher
  • Bitcoin back above US$50,000

5pm: FTSE 100 closes 0.3% higher

FTSE 100 closed higher at the end of the first day of the trading week as traders appeared to brush aside worries over the pandemic or the Fed’s position on stimulus tapering.

Footsie closed around 21 points, or 0.30% to the good at 7,109.

Wall Street was also bounding along on the day, with the Dow Jones up almost 260 points, the S&P 550 ahead by 42 and the Nasdaq exchange over 207 points higher.

“Another strong earnings season has provided the foundation for gains throughout the year, and has meant that even small dips like last week are seen as buying opportunities,” noted Chris Beauchamp, chief market analyst, at online trading firm IG.

“If there is any nervousness about this week’s Jackson Hole symposium it certainly isn’t showing up today,” he added.

“Given how much this tapering has been discussed and debated in markets over the past few months, it seems any risk of a repeat of 2013’s Taper Tantrum is small.

“European stocks are more muted in their gains, but nonetheless a broad movement back into stocks is taking place, in defiance of the ongoing struggle against Covid-19’s Delta variant.”

3.40pm: FTSE higher

The first half-hour of trading usually sets the tone for the day and that has certainly been the case in London today.

The FTSE 100 has not so much traded sideways as parked its front wheel in the bike rack; the index is up 25 points at 7,113.

Fortunately, there has been a bit of excitement in the crypto market to keep traders awake.

Bitcoin has shot up above US$50,000 to US$50,223, up 3.7% on the day.

Ethereum is up 6.5%, Ripple 6.8%, Litecoin 5.6%, Monero 11.5% and Phantasm, a cryptocurrency I have just made up, was up by [insert implausible number here].

“Even though Bitcoin has rallied around 75% from the bottom around a month ago, the Google trends for Bitcoin searches remains relatively low. In fact, the last time Bitcoin was at $50,000, the Google trends was much higher than what it is now,” reported Marcus Sotiriou, a sales trader at digital asset broker GlobalBlock.

“Bitcoin adoption continues to rise as Palantir, who are a multibillion-dollar software company, are now taking payments in Bitcoin and will hold all the Bitcoin they receive. Palantir’s billionaire CEO Peter Thiel has told Bloomberg that they are preparing for a black swan event. I think this is because of concerns with the soundness of the dollar, due to central bank monetary policies. Palantir have added $50 million of gold bars to their treasury and the CFO has also declared that Palantir are considering an investment into Bitcoin as a treasury reserve asset,” Sotiriou noted.

“Furthermore, the second-largest mortgage lender in the US has announced plans to accept Bitcoin as payment in Q3 this year. Home buyers will be able to pay for their mortgage in Bitcoin. People may not be willing to spend much Bitcoin at this point but these integrations definitely adds social proofing to the young asset,” he suggested.

2.50pm: US stocks flash out of the traps

As expected, US stocks have opened higher.

The Dow Jones is up 202 points (0.6%) at 35,322 and the S&P 500 is 26 points (0.6%) firmer at 4,467.

In London, the Footsie’s performance looks drab in comparison; the index is up 17 points (0.2%) at 7,105, with the strength of sterling weighing on sentiment.

The pound is up seven-tenths of a cent at US$1.3697 ahead of the start of the Jackson Hole symposium of central bankers later this week.

“One of the most eagerly-anticipated events – the Jackson Hole conference – is taking place on Thursday but instead of a three-day-in-person meeting, it is now going to be a virtual event, which probably means the Fed is unlikely to kick off any major pivot in the tapering narrative in light of the recent upsurge in Delta cases and hospitalisations. Previously, analysts had expected Powell and co to spill the beans on tapering timeline,” suggested Fawad Razaqzada at ThinkMarkets.

“If Powell signals the Fed will maintain status quo in the upcoming policy meetings, then the stock market bears may decide to stay largely on the sidelines. The greenback may fall, and this could support gold. For most other commodities, which are sensitive to concerns about demand or supply dynamics, will likely remain subdued – unless Delta cases fall back sharply. Otherwise, as there is always the risk we may see more restrictions, or the current restrictions being extended, Monday’s recovery may not last very long for crude oil and copper. So, the impact of the Fed on commodities that are sensitive to the economy will be limited,” he added.

2.25pm: CBI Industrial Trends Survey paints a brighter picture than expected

The CBI Industrial Trends Survey for August saw the total orders balance (percentage of respondents reporting a decrease subtracted from those reporting an increase) rise to +18.

August’s reading was marginally above the +16 consensus and up a tad from July’s +17.

CBI industrial trends

“The CBI Industrial Trends Survey corroborates Markit’s manufacturing PMI in suggesting that output started to level off in August. The survey measures total orders compared to normal levels for the time of the year, so it is a better indicator of the level of manufacturing output than the growth rate. In addition, the survey is not seasonally adjusted and usually rises a bit in August. Accordingly, the seasonally-adjusted balance fell to +16, from +19 in July,” explained Pantheon Macro’s Gabriella Dickens.

“The survey also showed that orders probably would be higher absent Brexit; the exports orders balance dropped to -16–well below its 2010-to-2019 average, -9–from -7 in July, despite very strong global demand.

“Looking ahead, manufacturers will be kept busy over the coming months by working through backlogs of orders and replenishing their inventories; the net balance reporting that stocks are more than adequate to meet demand fell to -14 in August–its lowest level since the survey began–from -11 in July. Nonetheless, the eventual shift by households back towards consuming more services and fewer goods suggests that manufacturing output won’t sustainably overshoot pre-Covid levels in the next 12 months,” she added.

The FTSE 100 continues to enjoy its extended breather, budging little after opening higher. London’s index of leading shares is up 21 points (0.3%) at 7,109, led by Sainsbury (J) PLC, up 15% at 340.1p, which is the latest supermarket group to apparently catch the eye of the rapacious private equity sector.

“Similarly to Morrisons, Sainsbury’s is very attractive to private equity investors because of its property portfolio. Sainsbury’s also has two other advantages, a very loyal customer base and a strong digital strategy. The group has self-checkout and was an early adopter of customer self-scanning. Usage of the Sainsbury’s app has seen an enormous spike during Covid and the customer stickiness it is driving is remarkable,” said Ross Hindle at Third Bridge.

“Timing is also a factor. After 18 months of disruption, every big grocer has capacity expansion plans, especially for their digital businesses. These have accelerated so much that some colossal choices need to be made about how shopping is going to evolve over the next decade. Sainsbury’s somehow needs to make the right call on whether innovations like instant grocery delivery are really going to take root and potentially build further infrastructure.

“Our experts say a deal could be very good for Sainsbury’s. The supermarket began a ‘something more’ strategy with its acquisition of Argos. Refreshed ownership could provide the momentum to accelerate the Sainsbury’s and Argos integration, which provides lots of options from a property and teams perspective,” Hindle said.

Shares in property firm Shaftesbury (LSE:SHB) PLC were 1.5% higher at 630.5p after the company said it was seeing an encouraging increase in demand for space and lettings in London’s West End since shops started to reopen on 12 April.

“A key waypoint for Shaftesbury (LSE:SHB) will be the anticipated return of office workers in the autumn. While people are no longer being asked to work from home in England, many employers are taking a cautious approach to getting people back into offices so there’s a chance that Shaftesbury (LSE:SHB) could be feeling a bit lost in a couple of weeks,” said Danni Hewson at Aj Bell.

“However, footfall has recovered, led by day-trippers and tourism and levels of occupancy and rental income are offering some encouragement to Shaftesbury (LSE:SHB),” she added.

1.45pm: Couch potatoes continue to thrive

The easing of many restrictions on dining in July does not seem to have much affected the average couch potato’s appetite for getting food delivered to the home.

The CGA & Slerp Hospitality at Home Tracker shows sales in July were 206% higher than in July 2019. While this is a step back from the growth rate in June (225%) and May (273%), delivery has maintained its 20.5% share month-on-month while takeaway sales (defined as being collected from an outlet by the customer, including Click & Collect and Drive-Thru) declined by 1.3%.

Takeaway restaurants, of course, make more money if customers collect the food themselves and for that matter, they almost certainly make more money if customers contact the takeaway restaurant directly and use the restaurant’s own delivery service rather than one of the heavily advertised food delivery services.

The release of the CGA & Slerp tracker data has not exactly made a big difference to Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB), up 0.5% at 6,838p, but Deliveroo PLC (LSE:ROO) is up 3.5% at 389.6p.

The FTSE 100 has largely marked time after a firm opening; it is currently up 26 points (0.4%) at 7,114.

12.40pm: US stocks to open higher

US stocks look set to start the new week positively, extending Friday’s rally as investors await data on US manufacturing and services sectors.

Futures for the Dow Jones Industrial Average were around 0.2% higher, while those for the S&P 500 index also added 0.2%, and tech-laden Nasdaq-100 futures gained 0.3%.

In London, the FTSE 100 was up 33 points (0.5%) at 7,121 and the FTSE 250 was 53 points (0.2%) better at 23,804.

Mid-cap WPP PLC (LSE:WPP) was among those driving the FTSE 250 higher, advancing 0.5% to 977.6p after it bought up Satalia, a technology company offering market-leading artificial intelligence (AI) solutions for clients.

Daniel Hulme, the founder and chief executive officer of Satalia, will become chief AI officer of WPP, working closely with WPP’s chief technology officer and WPP agencies to promote AI capabilities across the company.

Another midcap, easyJet PLC, was going well, climbing 2.7% after it appointed Stephen Hester as its chair designate, succeeding John Barton, who is stepping down on 1 December 2021 after nine years as chairman of the airline.

Hester has had a long career as a leader of major companies, notably as chief executive (CEO) of RSA Insurance Group PLC, CEO of Royal Bank of Scotland Group (now NatWest Group PLC (LSE:NWG)) and CEO of British Land (LSE:BLND) PLC.

11.50am: Component shortages hobble UK manufacturing recovery

Economists have been chewing over this morning’s PMI releases and seeing as the data was calculated by IHS Markit it seems only fair to give their talking head top billing.

“Although the PMI indicates that the economy continues to expand at a pace slightly above the pre-pandemic average, there are clear signs of the recovery losing momentum in the third quarter after a buoyant second quarter,” said Chris Williamson, the chief business economist at IHS Markit, after the PMI readings eased to levels not seen since the first quarter of this year.

“Despite COVID-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages.

“Supplier delays have risen to a degree exceeded only once before – in the initial months of the pandemic – and the number of companies reporting that output had fallen due to staff or materials shortages has risen far above anything ever seen previously in more than 20 years of survey history. In manufacturing, sectors including automotive production and electrical goods have fallen into decline due mainly to supply constraints,” Williamson said.

“Prices have risen sharply again, albeit with the rate of inflation moving below July’s record high, as shortages once again fuelled a sellers’ market for many goods and services and wages rose further.

“More positively, business expectations for the year ahead perked up in August, encouraging a record jump in employment as furloughed workers were brought back to the workplace; however, demand and supply availability need to improve further for this rise in employment to be sustained in coming months,” he added.

Duncan Brock, the group director at the Chartered Institute of Procurement & Supply, which sponsors the PMI surveys, said the “abnormally large slowdown” in overall activity in August “offers a stark warning to the UK economy that the accelerated levels of growth we have seen earlier in this summer are not sustainable”.

“Finding the right skills was difficult for businesses, meaning that job seekers had the pick of the bunch in terms of opportunities. The service sector was hiring at a brisker pace than any time in the past 25 years and stronger wage demands followed suit, which resulted in business costs climbing again. Manufacturers paid more for shipping their goods, and supplier delivery times were rivalling the height of the disruption last year,” Brock said.

“The mood generally remained buoyant, however, especially amongst service companies as the end of pandemic restrictions improved business activity. It was also encouraging that export order growth picked up since July, as countries recovered at different speeds; however, it’s likely that cautious consumers will continue to remain an obstacle for UK businesses until full confidence returns,” Brock predicted.

Martin Beck, the senior economic advisor to the EY ITEM Club, said component shortages appear to be key in the slowdown in the recovery of the manufacturing sector.

“The balances for costs and prices fell slightly in August, albeit they remain high by historical standards. The elevated balances reflected a combination of strong wage inflation, caused by labour shortages, and raw material prices being driven up by global component and raw material shortages. The end of the furlough scheme in September should help to alleviate labour shortages, given that sectors with high numbers of vacancies have also tended to see high usage of the furlough scheme but while supply chain disruption should begin to unwind as we move through H2 2021, rebuilding inventories and clearing backlogs will take time,” Beck predicted.

The FTSE 100 remains in positive territory, helped by enthusiasm for resource and aerospace stocks. London’s index of leading stocks was up 33 points (0.5%) at 7,121.

11.05am: Bitcoin rally hits US$50,000

Having threatened to slip toward US$20,000 three months ago, bitcoin is now heading back to its pomp of earlier in the year.

Trading at US$50,154, Bitcoin is up just over 2% and has a total market cap of around US$942bn.

Passing the key psychological mile marker is seen as significant as sentiments increasingly turn bullish for Bitcoin, which previously gave up around half its value amid a Chinese clampdown on crypto mining operations.

Commentators and trading tipsters see the top crypto rallying further to challenge this year’s prior highs – around US$65,000 seen in April – in the coming phase particular as institutional interest is claimed to have grown whilst retail Bitcoiners have largely HODL’D (“Held On for Dear Life”) through the recent downturn.

Equities were also in good heart helped by supermarkets and oilers as the price of crude ended its seven-day decline. BP PLC (LSE:BP.) was up 2.6% at 295.4p, while Shell added 1.6% to 1,409p.

FTSE 100 added 28 to 7,116.

9.50am: UK economy still recovering but more slowly

The IHS Markit / CIPS Flash UK Composite Purchasing Managers’ Index (PMI) for August fell to a six-month low of 55.3 from July’s 59.2.

A value above 50 still indicates expansion in activity, however.

The flash UK Services Business Activity Index for August: declined to 55.5, which was also a six-month low, from 59.6 in July.

The flash UK Manufacturing Output Index reading of 54.1 for August was yet another six-month low and came after July’s reading of 57.1.

Finally, the flash UK Manufacturing PMI for August was only a five-month low, at 60.1, little changed from July’s 60.4.

The FTSE 100 was up 20 points (0.3%) at 7,108.

8.35am: Digging itself out of a Jackson Hole

The FTSE 100 made a strong start to the new trading week, taking its cue from Asia’s main markets.

As we enter a quiet week for corporate news and economic data, the Jackson Hole virtual gathering of central bankers looks likely to have some sway on sentiment – particularly if Federal Reserve chair Jerome Powell provides a definitive update on the tapering of US bond-buying activity.

“The more recent economic numbers emanating from the US have suggested that the Fed has some additional breathing space before tapering begins, given the mixed messages which the data has provided,” said Richard Hunter, head of markets at Interactive Investor.

“Even so, any variance from the message will unsettle investors, whether that be in terms of the timeline for the withdrawal of tapering or a more hawkish view on inflationary trends.”

The top riser early on was Sainsbury (LON:SBRY), up 5.2% amid weekend reports it is in the cross-hairs of private equity. This as the battle continues for control of smaller rival Morrisons (LON:MRW) and the take-out of Asda.

Up 2.6% early on was Pearson (LON:PSON), which benefited from an upgrade to ‘overweight’ from JP Morgan Cazenove.

6.38 am: Positive start predicted

The FTSE 100 looks set to open its account in positive territory, building on Friday’s modest gain.

Overall it looks likely to be another difficult week with the accelerating spread of the Covid delta variant providing pause for thought.

In fact, the economic hit from the virus spread in the Asia-Pacific region was evident in lacklustre purchasing managers’ data from Japan and Australia earlier.

The dollar’s rise to a 10-month high underlined a trend towards safe-haven investment.

Oil, meanwhile, appears to have found its footing after a rocky week.

Looking ahead, economists and analysts will be taking note of the set-piece speech given by Federal Reserve chair Jerome Powell later this week at the virtual version of the annual Jackson Hole get together of central bankers.

In particular, further guidance will be sought on US plans to taper its bond-buying programme.

“While it’s been accepted wisdom that discussions on a taper are likely to start soon, with a slowdown in purchases starting sometime in the fourth quarter, it’s hard to imagine that the Fed would start down that road if the economic outlook deteriorated,” said Michael Hewson, an analyst at CMC.

“Furthermore, talking about a taper is one thing, it certainly doesn’t mean that we’re about to see the start of one, as Kaplan’s Friday comments illustrate.”

Here in the UK, scheduled corporate news is expected to be fairly light ahead of the Bank Holiday weekend and limited to largely mid-cap companies such as the oil services specialist John Wood Group (LON:WG.), recruiter Hays (LON:HAS) and building material firm CRH (LON:CRH).

Around the markets

  • Pound US$1.3658 (+0.26%)
  • Bitcoin US$50,324.31 (+2.68%)
  • Gold US$1,788.10 (+0.23%)
  • Brent crude US$66.42 (+1.90%)

6.20am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were higher on Monday as manufacturing surveys for August to be released today will offer an early indication of how global growth is faring in the face of the Delta variant.

The Shanghai Composite in China surged 1.86% and Hong Kong’s Hang Seng index rose 1.67%

In Japan, the Nikkei 225 jumped 1.85% while South Korea’s Kospi gained 1.40%.

Shares in Australia lifted, with the S&P/ASX 200 trading 0.36% higher.



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