FTSE 100 set for hesitant start

  • FTSE 100 closes up
  • US indices mixed
  • Oil giants wanted as Brent nudges US$74 a barrel

5:20pm: FTSE 100 ends higher, US stocks mixed midday

The FTSE 100 began the week on a positive note, finishing the day 41 points, or 0.6%, higher to 7,070 on strength in energy and financial stocks.

“Higher prices alongside a weaker recovery, as evidence in recent US jobs data and also the UK’s GDP reading for July is leading to fears of a stagflation scenario emerging,” Hargreaves Lansdown senior investment and markets analyst Susannah Streeter said.

Streeter added that ongoing worries about inflation “are holding back more dramatic gains.”

Leading the FTSE higher was shares of Royal Mail plc, which rose more than 3% following news that the company has signed a deal to deliver packages for Amazon.

Other notable movers included Rolls Royce Holdings, which gained more than 2% after the company announced it was selling its stake in AirTanker Holdings to Equitix Investment.

3.10pm: Footsie higher

Rising oil prices have sparked enthusiasm for oil giants Royal Dutch Shell (NYSE:RDS.A) PLC and BP PLC (LSE:BP.).

The two heavily weighted FTSE100 constituents have helped drive the index 49 points (0.7%) higher to 7,077.

Royal Dutch Shell (NYSE:RDS.A) is 2.2% heavier at 1,455.6p and BP is 2.2% firmer at 302.05p as Brent crude for November delivery trades at US$73.90, up by almost a dollar on the day.

“In Brent, a break above $73.7/b could see it challenge the July 29 high at $76.15/b next, while support remains the 21-day moving average at $71/b. Focus this week on monthly oil market reports from OPECtoday and the IEA on Tuesday,” said Saxo Bank’s head of commodity strategy, Ole Hansen.

2.35pm: US indices open higher

US indices have flashed out of the traps, with the Dow Jones up 209 points (0.6%) at 34,817 and the S&P 500 29 points (0.7%) heavier at 4,487.

“It is worth observing price action closely this week. Given last week’s falls for major indices, it could be that today’s stronger start could be faded later in the day or week, as trapped bulls exit their trades or fresh selling takes places at better levels,” said Fawad Razaqzada of ThinkMarkets.

No one likes trapped bulls.

“Sentiment has not been too great of late. Stagflation has been the key talking point amid weakening data from the US and rising inflationary pressures. Indeed, the Citi US Economic Surprise Index has been falling consistently and has now reached its lowest since June 2020.

“Although the economic calendar is quite quiet today, we have seen oil prices rising further with WTI closing in on $71 handle, and aluminium hitting its highest level in 13 years. These only add to rising input costs, potentially leading to further consumer inflation as producers pass on the extra costs,” Razaqzada added.

In London, the FTSE 100 is hovering a little below its best level of the day at 7,081, up 52 points (0.7%).

12.45pm: Wall Street bounceback expected

US indices are expected to bounce back when trading starts this afternoon.

The Dow Jones index is in line to rise by 200 points or so to around 34,810 while the S&P 500 is tipped to jump 24 points to 4,483.

“Last week was certainly something of a rarity compared to what we have seen in recent times, with sentiment having been rather sour all week, and dip buyers not yet emerging. In fact, despite there being no obvious catalyst for the risk aversion, both the Dow and S&P 500 notched their worst weekly performances since June last week, with chunky selling seen into Friday’s close,” said Michael Brown at Caxton FX, summing up last week’s events.

Those dip buyers finally seem to be emerging.

Having said that, the latest Deutsche Bank (NYSE:DB) survey of more than 550 market professionals across the world proclaims that an equity correction before the end of the year is “an overwhelming consensus now”.

Perhaps just as interesting is the nugget of information that “around 1 in 5 still haven’t stepped foot in their office since March 2020. This is around 1 in 3 in the US.”

“There is no drop off in long-term WFH expectations even as firms encourage workers back to the office. Economists are the finance group most likely to want to spend more time WFH in the future,” Deutsche’s report revealed.

WFH stands for working from home and is not to be confused with WTF.

In London, the FTSE 100 seems to have got its second wind, perhaps egged on by expectations of a rebound on Wall Street. The index is up 56 points (0.8%) at 7,085.

Among the mid-caps, Cairn Energy PLC (LSE:CNE) is 2.4% weaker at 186.4p after Berenberg downgraded the stock to ‘hold’ from ‘buy’. The target price remains at 215p so the downgrade reflects the decent run the shares have been on since the beginning of August.

11.05am: Consolidation mode

The FTSE 100 has moved into consolidation mode after a bright start.

London’s index of heavyweight shares is 37 points (0.5%) firmer at 7,067, driven by demand for housebuilders as the UK housing market shows little sign of cooling down, despite the withdrawal of what many pundits are deeming an unnecessary “stiffener” for the housing market in the form of the chancellor of the exchequer’s stamp duty giveaway.

“For many industries, 2021 has been a volatile year, but the housing market boom has been thunderous. As a result, house prices rocketed to an all-time high of GBP262,956 in August and what buyers want in a property has shifted dramatically,” said Ross Counsell, a chartered surveyor and director at property buyers.

As one wag commented, house prices in London have got so high that some young folks have taken to entering the US Open tennis tournament as a qualifier as a possible way of earning enough money for the deposit on a flat in London.

“So, what can we expect from the property towards the new year? Well, we can expect house price inflation to slow down for sure. The recent Halifax HPI statistics show strong support for this happening as house prices inflation hits a five-month low of 7.1%.

“This is expected to be very gradual over the next coming months. Although the stamp duty holiday has come to an end, we will be seeing an influx of those buyers that saved over lockdown rushing to purchase property,” Counsell predicted.

In other words, if you are trying to get on the property ladder, better get that tennis racquet down from the top of the wardrobe.

Persimmon PLC (LSE:PSN), up 1.9% at 2,793, leads the housebuilding sector higher.

Hopes that the UK health secretary, Sajid Javid, will rush to end COVID testing measures at UK airports has put some wind in the sails of WH Smith PLC (LSE:SMWH) shares. The newsagent, stationer and shoddy carpet specialist would benefit from an uplift in travel numbers as a lot of its retail outlets are located in travel hubs.

WH Smith’s shares were up 3.2% at 1,972.8p.

9.45am: Tech crackdown continues to weigh on Scottish Mortgage

Housebuilders have joined banks in making the early running in London.

The FTSE 100 is 36 points (0.5%) to the good at 7,066, with Berkeley Group Holdings PLC, Persimmon PLC (LSE:PSN) and Barratt Developments PLC (LSE:BDEV) to the fore in a buoyant housebuilding sector.

Tech stocks are getting the cold shoulder as China continues to crack down on big tech, with reports circulating that Ant’s mobile payments platform, Alipay, will be broken up.

Scottish Mortgage Investment Trust PLC (LSE:SMT), down 0.4% at 1,395p, was the most noticeable of the stocks hit by cooling of enthusiasm for all things tech-based.

“News that Beijing is looking to break up Ant Group’s Alipay hit the wider Hang Seng index which was down more than 2% but UK investors seem to have decided this news has little relevance to them for now,” declared AJ Bell’s investment director, Russ Mould.

“It’s hard to read the end-game as the regulatory pressure on Chinese firms continues to mount and this uncertainty is proving extremely damaging to the valuation of the likes of Alibaba and Tencent.

“Further setbacks could see sentiment towards this part of the market turn decidedly toxic,” he suggested.

The AGM statement from FirstGroup (LSE:FGP) PLC gave the share price a 3.1% fillip, as the transport group said its performance this year has been in line with expectations.

First Bus passenger volumes have reached 65% of pre-pandemic levels on average in recent weeks, and the group expects this to increase further as the autumn terms for schools and then universities get fully underway.

The group had previously signalled its intention to return GBP500mln to shareholders and has decided the best way to do this is by a tender offer where shareholders will be able to sell their shares back to the company at a price yet to be determined.

8.40am: AB Foods disappoints

Although results from Associated British Foods PLC (LSE:ABF) have disappointed, the FTSE 100 has got off to a brighter start than expected.

London’s index of leading shares was up 30 points (0.4%) at 7,059, with Barclays PLC (LSE:BARC) and Lloyds Banking Group PLC (LSE:LLOY), up 1.7% and 1.5% respectively, leading the advance.

AB Foods, however, was the worst blue-chip performer, shedding 2.6% at 1,919.5p as supply chain problems hit its Primark business.

“The ‘pingdemic’ came at a bad time for Primark, throttling some of the recovery it had been seeing and holding back sales in the fourth quarter,” said Richard Hunter, the head of markets at interactive investor.

“Footfall was affected by the caution of consumers to shop as well as those needing to self-isolate, with like-for-like sales down by 17% for the final quarter as compared to two years ago. Outside of the UK, various restrictions were in place in different locations over the period, further hampering progress, except for the now profitable US presence where like-for-like sales rose by 3% compared to two years previous,” he added.

Rolls-Royce Holdings PLC (LSE:RR.) edged up 0.8% to 110.06p after it agreed on the sale of its 23.1% shareholding in AirTanker Holdings Limited to Equitix Investment Management for cash proceeds of GBP189mln.

6.30am: Market set for a hesitant start

UK stocks are set for a hesitant start to the week, picking up a negative vibe from Asian markets, which have been hit by reports that the Chinese government is considering breaking up the Alipay online payments business.

Spread betting quotes indicate the FTSE 100 will open 9 points lower at 7,020.

US markets ended last week on a dull note, with the Dow off 272 points at 34,608 and the S&P 500 35 points weaker at 4,459.

Asian investors are taking a bath this morning with the Hang Seng down 519 points in Hong Kong while Tokyo’s Nikkei 225 is 76 points softer at 30,306.

On the UK corporate new scene, FTSE 100 heavyweight Associated British Foods PLC (LSE:ABF) (LSE:ABF), the owner of the fast-fashion brand Primark, will open the batting.

The retailer, which doesn’t have an online shop, saw trading booming over the summer with armies of loyal fans pouring into stores as they re-opened.

The easing of social distancing measures in August is likely to have given the retailer an added boost, according to Hargreaves Lansdown, given numbers of shoppers in stores are no longer restricted.

“Although the company has previously noted the outlook is still uncertain, it’s been confident enough to continue with its store opening programme and the retailer is also likely to benefit from the exodus of Gap from the UK high street,” analysts commented.

“Sales in its grocery division are also likely to have been resilient, although have tempered a little since last year’s stockpiling and as the craze for lockdown baking has waned a little. With a diversified business and more than GBP1bn in net cash to rely on, it is well placed to dodge any further curveballs the pandemic may throw.”

Around the markets

  • Sterling: US$1.3819, down 0.16 cents
  • Gilt: 0.667%
  • Gold: US$1,792.30 an ounce, up 20 cents
  • Brent crude: US$73.14 a barrel, up 22 cents
  • Bitcoin: US$44,687, down US$336

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mostly lower on Monday with Alibaba shares slipping 6% following a report that Beijing wants to break up Alipay and force the creation of a separate loans app.

China’s Shanghai Composite traded near the flat line, up 0.10%, while Hong Kong’s Hang Seng index slumped 2.29%

In Japan, the Nikkei 225 dipped 0.03% while South Korea’s Kospi declined 0.13%.

Australia’s S&P/ASX200 was up 0.09% in the last hour of trading.


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