- FTSE 100 closes nearly 38 points lower
- US blue-chips drop sharply
- National Insurance hike announced to fund UK social care system
5.05pm: Depressing day
The FTSE 100 index ended lower on Tuesday, giving back some of Monday’s gains as US blue-chips returned in dull fashion following the US Labor Day holiday still unsettled by Friday’s much weaker than expected August US jobs report.
At the closing bell, the UK blue-chip index was down 37.81 points, or 0.5% at 7,149.37, only just above the session low of 7,147.94, and well below the session peak of 7,187.18.
On Wall Street, around London’s close, the Dow Jones Industrials Average was a hefty 273 points, or 0.8% lower at 35,093, with the broader S&P 500 index down 0.4%. However, the tech-laden Nasdaq Composite inched 0.02% higher.
Joshua Mahony, senior market analyst at IG, a global leader in online trading, commented: “US markets are doing their best to sour market sentiment after a belated start to the week. Despite recent optimism that Friday’s poor payrolls figure will lead to delayed FOMC tapering, it appears US traders are less convinced of the positive implications from this economic warnings sign. Nonetheless, we are seeing a strong move higher for US 10-year yields, with the seven-week highs signalling a growing confidence that things are ultimately moving in the right directions.
“Interestingly, the Nasdaq is providing one rare area of safety, with the index gaining ground despite the fact that rising yields should instead drive growth stock underperformance. On a day that has seen most sectors on the back foot, the outperformance in banking stocks does highlight some element of confidence that the economy will improve and rates will ultimately rise.”
Mahoney added: “Energy stocks have been one area of weakness, following the Saudi decision to cut crude prices on concerns of deteriorating demand. Rising Delta cases in the US are expected to increase caution within the country, while also hampering travel plans. Nonetheless, with Hurricane Ida having taken millions of barrels out of production, and OPEC refusing US requests to ramp up output, it seems unlikely we are looking at the beginning of a major sell-off.”
3.50pm: Footsie flops
The FTSE 100 is now at its lowest of the day, down 32 points or 0.45% at 7155, dragged lower by the unconvincing start across the Atlantic.
Mid caps in London are also down, with Meggit PLC leading the fallers after US-based aerospace group Transdigm walked away from takeover talks.
TransDigm made an approach worth GBP7bn or 900p last month, trumping an agreed 800p per share/GBP6.7bn offer from Parker, but said today it had decided not to proceed any further.
There is also a US link for one of the FTSE 250’s top risers, with 888 Holdings confirming that it is in ‘advanced’ talks to snap up the non-US parts of William Hill from casino giant Caesars Entertainment Inc.
Looking ahead, market analyst Michael Hewson at CMC Markets said: “There’s not been a great deal to get excited about today, with this week’s ECB rate meeting looming large, and some chatter the central bank might start to look at discussing the tapering of its bond buying program when it meets on Thursday.
“This seems a somewhat remote prospect given that the PEPP is due to run until March next year, and with Q3 growth already slowing the ECB would need to ask itself what purpose would be served in sending such a hawkish signal at a time when the economic data is looking a little on the soft side.”
3.05pm: Mixed US open
Stock markets in Europe and the US are mostly in the red, with the Dow Jones and S&P 500 both opening lower as Wall Street got moving after a long weekend.
The tech-fueled Nasdaq has oscillated both higher and lower in the opening half hour.
Feeding off their US counterparts, London’s major share indices have also started to weaken.
2pm: Financials lead fallers
The Footsie is off its worst levels from this morning but still down around 12 points at 7175, while Wall Street futures are pointing towards the major US stock indices all opening in the red.
One of the biggest blue-chip fallers in London is Ocado Group PLC (LSE:OCDO), which has been hit by bearish comments from investment banks ahead of the online grocer’s quarterly trading update next week.
Barclays analysts said in a note today they expect sales to fall 1.2% compared to 5.4% and 40% growth in the second and first quarters respectively, saying while a fall in sales “would be unprecedented”, it “needs to be seen in the context of capacity limits and fire disruption”.
Meanwhile, UBS also issued a note, pointed to a “growing” challenge from smaller competitors, “with retailers embracing the more flexible, relatively capital light models”.
Markets’ expectations that the MPC will raise Bank Rate in Q2 2022 look way off the mark, now that households are going to be hit by a tax increase in April that will reduce the average workers’ tax-home pay by 1.2%.
— Samuel Tombs (@samueltombs) September 7, 2021
Among the analysis of the government’s earlier announcement to support the NHS and social care, some like economist Sam Tombs at Pantheon Macroeconomics, suggest it further pushes back expectations for a Bank of England rate hike, while Tom Selby, head of retirement policy at AJ Bell, says the proposals are “a National Insurance hike in all but name”, while he also sees a potential boost for the life insurance sector and investment and pension platforms.
“The government appears to have been spooked by the backlash over plans to increase National Insurance Contributions to fund its radical social care reforms,” he says.
“Those proposals would have loaded the costs on younger workers, sparking accusations of intergenerational unfairness.
“Instead, the government has decided to badge up the tax increase as a 1.25% ‘Health and Social Care Levy’, with workers of all ages required to pay.
“Of course, the bulk of the working population are still under state pension age, meaning in reality this is a National Insurance hike in all but name and it is almost certainly still younger people who will pay the lion’s share of these costs.
“This is likely to prove unpopular with voters, with less than one in six (15%) of people questioned yesterday saying they’d support an increase in National Insurance to fund social care reform. What’s more, it’s a clear breach of the Conservative’s manifesto ‘triple tax lock’.
“Increasing dividend taxation feels like a last-ditch attempt to convince voters that all sections of society are sharing responsibility for funding social care reform.”
Selby noted that the Prime Minister’s proposal to use the proceeds of the tax hike to introduce a lifetime cap on social care costs at GBP86,000 is likely to be partly designed to “and encourage more insurers to enter the market”.
Shares in life companies, Aviva and Legal & General, remained in the red.
Also, Selby said that if the levy operates in a similar way to NI, then workers’ pensions salary sacrifice “should become more attractive as a result of this announcement” as they will be incentivised to boost salary sacrifice contributions in order to reduce their overall tax bill, while also boosting their retirement pot and benefitting from tax-free investment growth in the process.
“The increase in dividend tax means people investing outside tax sheltered wrappers like pensions and ISAs should review their portfolios to make sure they are making as much used as possible of their annual contribution allowances to keep their tax bills as low as possible,” he said.
1.05pm: Boris Johnson announces National Insurance, dividend tax increase
The FTSE 100 was firmly in the red at lunchtime, down 15 points to 7,171.
Prime Minister Boris Johnson has announced a 1.25% increase in National Insurance from April 2022 to allow more funds for the health and social care system.
Tax on share dividends will also be raised by 1.25%.
The new levy will raise GBP36bn, used for better screening equipment, dedicated surgical facilities, faster access to specialists and new digital technology, the BBC reported.
“A national insurance increase is particularly unpopular with younger generations with just one in ten 18-44 year olds supporting a rise,” commented Tom Selby, head of retirement policy at AJ Bell, adding that it’s “clear breach of the Conservative manifesto and so would undoubtedly prove hugely controversial”.
3: So I will set out how we will support the NHS in the biggest catch-up programme in its history.
I will also set out a plan for social care to ensure that older people get the best possible care, without the fear or anxiety of catastrophic social care costs.
— Boris Johnson (@BorisJohnson) September 7, 2021
12.10pm: Mixed open in sight for Wall Street
FTSE 100 held its losses at noon, dropping 19 points to 7,167.
US indices aren’t expected to fare much better, with the Dow Jones Industrial Average called 0.2% lower and the S&P 500 estimated to see a flat start.
The Nasdaq will be the only bright spot, with futures pointing at a 0.2% rise at the opening bell.
Investors are waiting to see if the US central bank could now delay plans to begin tapering its bond purchases because of the risks from fresh coronavirus (COVID-19) Delta variant cases and concerns that growth may cool as a result.
Data out on Tuesday showed that China’s exports unexpectedly jumped in August when economists had been expecting a slowdown after new COVID-19 outbreaks cases in the country closed coastal ports.
“Coming off the back of a three-day weekend, the focus will be on the cash equity open later on Wall Street in the wake of Friday’s disappointing jobs report and the lapsing of those last US$300 stimulus cheques,” noted Neil Wilson at Markets.com.
“Still the relentless low-vol grind up is holding and Barclays today has lifted its S&P 500 price target to 4600 from 4400. Question is whether Sep/Oct produces a spike in volatility. A 3% drawdown – mild by anyone’s standards – takes you back to the 50-day SMA support that has held up so well this year, while a 10% correction tests the 200-day SMA. Technicals at the moment indicate sideways action and a loss of upwards momentum – merely a question of timing as to when we get a rollover.”
11.15am: Pubs and bars spending spikes as people enjoy post-lockdown socialising
The Footsie dipped further in the late morning, slipping 18 points to 7,168.
Pubs, bars and clubs saw a 43.4% jump in consumer spending in August, helped by the lifting of all restrictions.
Restaurant spending was up only 0.1%, though it was the first time it recorded positive growth since the pandemic started 17 months ago.
Overall consumer spending was 15.4%, according to Barclaycard data, as people enjoyed post-lockdown socialising and stayed in the UK for their holidays.
Fuller, Smith & Turner plc surged 6% to 768p and Young & Co’s Brewery PLC added 1% to 1,600p in the late morning.
9.45am: UK house prices rise again in August
The FTSE 100 extended its losses in mid-morning, dropping 12 points to 7,174.
House prices have risen again in August, according to the latest Halifax reading.
An increase of 0.7% month-on-month lifted the average house price to GBP262,954, the highest on record.
It may have been helped by buyers making the most of the reduced stamp duty before the threshold returns to its normal level of GBP125,000 from October.
The housing market was also supported by high consumer confidence, larger pots of savings built during lockdowns, a relatively strong labour market and ultra-low mortgage rates.
Homeworking is also pushing many people to find larger homes in greener areas.
“Forces affecting the housing market are not all positive,” noted Martin Beck, senior economic advisor to the EY ITEM Club.
“On measures such as the ratio of house prices to household incomes, affordability looks increasingly stretched. And despite a recovering economy, higher inflation, the prospect of some increase in unemployment when the furlough scheme ends and the reversal of other supports to household incomes will weigh on households’ finances. But elevated house prices are unlikely to see any significant fall for the foreseeable future.”
8.40am: FTSE 100 swims against the tide to open lower
The FTSE 100, like the UK as a whole, seems intent on marching to its own beat.
So, while Asia’s main markets ended the day in positive territory, and US stock futures are indicating Wall Street will return from the long weekend in good cheer, London made a dreary start.
That said, it was anything but a dreary start for one of the blue-chip index’s lesser-known constituents – the cardboard box maker DS Smith (LON:SMDS).
It opened 2.5% higher after the pandemic-led boom in internet home deliveries lifted volumes.
An extract from its short trading statement read: “e-commerce continues to be a priority and our growth is being supported by investment in technology solutions and the further roll-out of our digital platform, underpinned by our extensive European distribution network.”
On the FTSE 250, Vistry (LON:VTY), the builder formerly known as Bovis, led the index with a 6.7% gain after raising its profit forecasts again. The news lifted the entire sector
6.50 am: FTSE 100 called lower
The FTSE 100 is predicted to open lower on Tuesday morning, in contrast with stock markets elsewhere.
Asian stock indices are mostly higher this morning, while European and US futures are pointing north ahead of Wall Street reopening following a long weekend.
London’s blue chip index was called 17 points lower by CMC Markets, having closed almost 49 points higher at 7,187.18 at the start of the week.
Disappointing data overnight from the British Retail Consortium (BRC) may be a contributing factor, with a 3.0% rise in UK retail sales for August after a 6.4% gain the month before. It also was well shy of the average three-month growth of 6.9% and is the weakest month since February.
Food sales increased 2.9% year-on-year, versus an average of 5.4% seen over the past 12 months, while non-food retail sales jumped 10%, though again this was below the 14% average.
There was more positive data on wider consumer spending from Barclaycard, which revealed that the rate of consumers’ overall spending growth between 2019 and 2021 increased to 15.4% in August from 11.6% in July.
“Retail sales have fallen back to earth, now that pent-up demand that developed during the Q1 lockdown has been satiated and shoppers have the full range of services to consume,” observed economist Samuel Tombs at Pantheon Macroeconomics.
He expects the recovery in overall household spending to slow over the coming months, as inflation picks up, the furlough scheme is halted and the value of universal credit returns to its pre-Covid level.
“A renewed pick-up in Covid-19 cases, enabled by the reopening of schools and declining vaccine effectiveness, might also mean that some households hunker down again in the winter,” he added.
Wider sentiment is being helped by China trade data, as exports and imports came in stronger than expectations.
“Financial markets are upbeat because investors interpreted Friday’s disappointing jobs report as a reason for the Fed to postpone its tapering of bond purchases,” said market analyst Naeem Aslam at AvaTrade.
“The Federal Reserve Chair, Jerome Powell, stated that the labor market’s health remains a strong factor influencing their tapering decision, and that the central bank will closely monitor economic data in coming months to avoid making any impulsive decisions.”
Around the markets
- Pound: down 0.1% to US$1.3831
- Oil: Brent crude up 0.4% to US$72.54
- Gold: down 0.3% to US$1,818.82
6.50am: Early Markets – Asia / Australia
Stocks in the Asia-Pacific region were mixed on Tuesday as China’s exports jumped 25.6% year-over-year in August, above expectations for a 17.1% rise by analysts in a Reuters poll.
The Shanghai Composite surged 1.04% and Hong Kong’s Hang Seng index lifted 0.87%
In Japan, the Nikkei 225 gained 0.94% while South Korea’s Kospi dipped 0.54%.
Australia’s S&P/ASX 200 was about 0.07% lower in the last hour of trading with blue-chip miners and banks contributing to the decline.