- FTSE 100 flat
- Travel stocks lead risers
- Retail sales unexpectedly fall
London’s blue-chip index has seen all its earlier gains erased, with miners and utilities causing the main drag on the FTSE.
Diversified metals diggers Anglo American, Rio Tinto PLC and BHP Group PLC (LSE:BHP) have been bottom of the list since the start, while utilities such as Severn Trent (LSE:SVT) PLC and United Utilities PLC have tumbled from earlier positive positions to add to the downward pressure.
Others in other sectors, including healthcare with Smith & Nephew, finance with London Stock Exchange and paper & packaging with Mondi, have also moved from positive to negative positions.
Mining shares are likely to be under pressure from worries about China’s economy, as weaker steel in production in China has driven a sharp fall in iron ore prices in the past couple of months, though the embargo of Australian coal into China has sent metallurgical coal prices much higher.
UBS this morning slapped a ‘sell’ rating on Anglo American and some international rivals and reiterated the same rating on BHP in a note that saw the bank cut its global iron ore price forecasts for 2021-23 by around 10% as analysts now expect the market to be in surplus from the second half of the year, with the price seen falling below $100 per tonne by the end of 2021 and averaging $89/t in 2022 compared to the market’s expectations of nearer $132/t.
Looking at the Footsie’s risers, which are still led by IAG and joined by Rolls-Royce, this comes as Britain’s much-derided coronavirus ‘traffic light’ travel system is set to be scrapped today, according to reports.
Boris Johnson is expected to announce that there will be no more ‘amber list’ country ratings, while also removing the requirement for PCR tests for those who have been double-jabbed and taking dozens of countries off the ‘red list’, the Times has reported.
The prospects for a big rebound in transatlantic travel now look so much brighter, said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown: “Empty seats on aircraft are set to be snapped up by visitors desperate to see friends and family after so long.
“Rolls-Royce has caught a lift upwards, rising 2.3% as a change in rules would bode better for its core business of making and servicing engines for long-haul aircraft. It desperately needs a slice of good news on this front as it has admitted it will need passenger traffic to climb to at least 80% of pre-pandemic levels in order to meet its longer term targets and keep cashflow in the black.”
9.55am: ‘Consumers doing things rather than buying stuff’
More thoughts are coming in on the surprisingly bad ONS retail sales numbers earlier, which saw the fourth monthly decline in a row.
Monthly volumes fell 0.9%, compared to the 0.5% growth that markets expected, while year-on-year growth declined to zero, from 1.9%, well below the consensus forecast of 2.7%.
“People are spending more on doing things than they are stuff,” says Neil Wilson, market analyst at Markets.com. “We had 18 months locked up to order patio sets and games consoles. Now is the time to get out and go the pubs, restaurants or whatever it is you like to do.”
$GBP shrugs off poor retail sales:
All may not be as it seems for the UK consumer. The reason for that is that there seems (for the last few months at least) an absolute boom at restaurants and pubs etc. Round my way it’s been rammo pretty much throughout the whole week. $GBP
— ForexFlow (@forexflowlive) September 17, 2021
Economist Samuel Tombs at Pantheon Macroeconomics says the retail data for August brings “more evidence that the recovery in consumers’ spending has lost considerable momentum”.
He says it “should cause markets to doubt whether the MPC really will be in a position to hike Bank Rate as soon as February”.
Tombs noted that retail sales were still 4.6% above their February 2020 level, and the 1.2% month-to-month decline in food store sales probably was partly a consequence of the renewed rise in the number of people visiting restaurants.
Nonetheless, with non-food store sales dropping 1%, led by a 3.7% decline in department store sales and a 1.2% fall in sales of other stores, he said this reflected weaker demand for some pandemic-related hits.
“So far, households’ spending appears to have been no stronger in September,” he concluded, with recent Bank of England data showing that card transactions were 5.4% below pre-pandemic levels and Google mobility data has shown the number of people visiting retail and recreation locations in down 7.5%.
“The near-term outlook for households’ spending is overcast. Households’ real disposable incomes will decline in Q4 as CPI inflation soars to about 4%, labour income drops in the wake of the closure of the furlough scheme, and the GBP20 per week uplift to Universal Credit is withdrawn,” he said.
Nevertheless, the FTSE 100 is in fairly buoyant mood, up 23 points or 0.3% at 7,050.
Behind airline group IAG on the leaderboard is events group Informa PLC (LSE:INF), gambling groups Entain PLC (LSE:ENT) and Flutter Entertainment, miners Fresnillo, Antofagasta and Polymetal, and banks HSBC and NatWest Group.
HSBC has been lifted by a double-upgrade from Barclays, while NatWest is benefitting from Deutsche Bank (NYSE:DB) hiking its share price target.
8.55am: Positive start is a struggle
The FTSE 100 is looking to end the week in positive territory, but it was a struggle early on.
There was no real cue to be taken from either Wall Street or Asia’s main markets where the picture was mixed.
London traders were digesting the latest retail sales figures, which fell unexpectedly in the UK.
Month-on-month sales including petrol dropped by 0.9% (against predictions of a 0.5% rise), with concerns starting to crystalise that the recovery here at home is stalling.
Quite the opposite could be said of retail sales in the US, which on Thursday revealed it had shrugged off the impact of the Covid delta variant and hurricane Ida to deliver strong monthly growth.
On the market, the travel stocks were well bid in early London trading as the government is expected to make an announcement on easing holiday restrictions later in the day.
British Airways owner IAG led the Footsie with a 4.25% gain. InterContinental Hotels and TUI followed in its slipstream.
The main blue-chip casualty was Anglo American, which was downgraded to ‘equal weight’ by heavyweight bulge bracket bank, Morgan Stanley (NYSE:MS). The shares were off 3.8%.
6.50 am: FTSE called higher
FTSE 100 was tipped to make a bright start even with mixed outcomes overnight in the US and Asia.
A couple of hours before trading, financial spread betting firms were calling the London index to rise around 29 points and adding to yesterday’s ten-point gain at 7,027.
Today will be all about shopping with retail sales in August to give an idea of the mood of the UK consumer.
Similar US data yesterday showed Americans are shopping harder than expected with a rise of 0.70% in August against a predicted fall by the same margin.
In the UK, signs recently have been of some retail fatigue setting in after an initial bounce when lockdown restrictions eased.
July saw a 2.8% drop as restaurants pulled some customers back, while the pingdemic, shortages and the school holidays will have a major bearing on August’s numbers.
Economists expect a recovery for the month compared to July nonetheless and anything else will be a surprise.
Elsewhere, Asian markets were mixed as turmoil from the Evergrande debacle sparked some bargain-basement buying of property stocks in Hong Kong even though Goldman Sachs (NYSE:GS) warned the crisis might spill into China next.
US markets saw modest falls for the Dow Jones and S&P 500, while Nasdaq was flat.
On the UK company front, Lloyds Banking Group PLC (LSE:LLOY) and Natwest Group PLC might be busy early doors after an upgrade from Deutsche Bank (NYSE:DB).
“We expect strong deposit growth; rebounding consumer credit, and rising interest rates to lead to substantial growth in UK net interest income in the next two years which is not captured in consensus nor current valuations.
“We are positive on domestic exposure but our preference is Lloyds where we are 15% above consensus and it trades at 6.6x 2023E P/E with 10% yield,” said the bank
Target prices rise to 60p for Lloyds (from 57p) and to 260p from 230p for NatWest.
6.50am: Early Markets – Asia / Australia
Stocks in the Asia-Pacific region were mixed on Friday as China Evergrande Group shares slumped 11.79% as fears over its debt problems continue to weigh on investor sentiment.
China’s Shanghai Composite slipped 0.19% while Hong Kong’s Hang Seng index gained 0.29%
In Japan, the Nikkei 225 rose 0.60% and South Korea’s Kospi lifted 0.14%.
Australia’s S&P/ASX200 has, in the last hour of trading, fell 0.80% to 7,400 and is currently ~3% below its 52-week high.