- FTSE 100 up 66 points
- US markets make broad gains
- UK service sector grows but so do price worries
5:05pm: Global markets rebound on service sector gains
The FTSE 100 edged higher on Tuesday ending the day up 66 points or 0.94% to close at 70,077. After a choppy start to the trading week the UK-blue chip index was bolstered by positivity in the services sector.
Elsewhere, US markets registered a broad uptick across the board over the noon hour, following Monday’s poor showing. The Dow Jones Industrial Average reversed its losses from the day prior climbing 420 points (1.24%) to sit at 34,406. The S&P 500 added 57 points to hold at 4,357; while the tech weighted NASDAQ was up 207 points (1.46%) to 14,464 at midday.
In a morning market note, Joshua Mahony, senior market analyst at IG, explained that the market rise was likely a result of traders refocusing on the economic outlook ahead.
“While there are understandable concerns over how supply and logistic constraints could impact trade over the coming months, recent gains in treasury yields serve to highlight confidence in the pathway towards higher growth and rates,” he wrote. “Banks are an outperformer in UK markets, with rising yields highlighting the path towards higher rates and thus margins.”
According to the analyst, while many will be concerned that rising yields will push investors away from stocks, bank stocks provide a key hedge in an environment of rising yields.
3.47pm: Financials dominate risers
Banks are dominating the top ten risers in the leading index, as investors calculated that any forthcoming interest rate rises would be good for their business.
So Lloyds Banking Group PLC (LSE:LLOY) has been lifted by 3.5% and is leading the way, helped by a positive note from Credit Suisse.
Barclays PLC (LSE:BARC) – also in the Credit Suisse good books – is 3.13% better, Standard Chartered has climbed 2.61%, HSBC PLC (LSE:HSBA) is 2.56% higher and NatWest Group PLC (LSE:NWG) has put on 2.51%.
Elsewhere J Sainsbury PLC (LSE:SBRY) is up 2.24% on talk it could be a bid target in the wake of the takeover of rival Wm Morrison.
The strength in the oil price as the Opex+ group declined to raise its output targets this week has lifted Royal Dutch Shell B shares by 2.14% and BP PLC (LSE:BP.) by 1.93%.
Combined with a strong rebound on Wall Street, this has helped push the FTSE 100 up 65.94 points or 0.94% to 7076.95.
3.26pm: US service sector grows for 16th month
The US service sector has seen slightly stronger growth in September, and higher than the forecast figure.
The Institute for Supply Management said economic activity in the sector grew for the 16th month in a row, with the services PMI up from 61.7 in August to 61.9 last month.
Analysts had been expecting the index to fall to 59.9.
The sector has expanded for all but two of the last 140 months.
ISM chair Anthony Nieves said: “The slight uptick in the rate of expansion in the month of September continued the current period of strong growth for the services sector. However, ongoing challenges with labor resources, logistics, and materials are affecting the continuity of supply.”
The news has helped US markets put on a spurt, with the Dow Jones Industrial Average now up 351 points or 1.03%, the S&P 500 adding 1.09% and the tech-heavy Nasdaq Composite up 1.16%.
It has also given a lift to the FTSE 100, which is up 60.29 points or 0.86% at the day’s high of 7071.3.
2.47pm: Facebook edges higher at open
US markets have recovered some of the ground lost at the start of the week, when inflation fears and a slump in tech shares cause sharp declines.
The Dow Jones Industrial Average is up 91 points or 0.27% while the S&P 500 has added 0.38%. The tech heavy Nasdaq Composite has risen 0.53%.
Facebook Inc (NASDAQ:FB), which fell 4.9% on Monday amid whistleblower reports and a global outage, is up 0.91% in early trading.
Back in the UK and the FTSE 100 is off its highs but is still up 33.21 points or 0.47%at 7044.22.
The leading UK index was barely changed in value in the third quarter despite bid activity, but there were some big winners and losers.
2.39pm: IMF to cut growth forecasts
Ahead of its annual meeting next week, the International Monetary Fund has said it would be cutting its global growth forecasts.
In July it predicted 6% growth for the global economy this year but now it says this will be scaled back, with momentum in the US and China slowing.
Managing director Kristalina Georgieva said the global recovery remained hobbled by the pandemic and its impact.
IMF Chief Georgieva: Global Economic Growth In 2021 Now Expected To Be Slightly Below July Forecast Of 6% Growth
– Economic Divergence, Inflation And High Debt Levels Pose ‘More Pronounced’ Risks To Balanced Global Recovery
— LiveSquawk (@LiveSquawk) October 5, 2021
12.59pm: Bitcoin above US$50,000
In the cryptocurrency world, Bitcoin has climbed above US$50,000 as it continues to recover from concerns about China clamping down on the sector.
It rose to US$50,302 – its best level since early September – although it has since slipped back to US$49,960, up around 1.8%.
It has been lifted by news that that Swiss financial regulator has approved the first cryptocurrency investment fund in the country, along with a positive note from strategists at Bank of America (NYSE:BAC), who said the sector was too large to ignore.
Bitcoin is still below its all time high of US$64,900 which it reached in mid-April this year.
Naeem Aslam at Avatrade said: “Bitcoin has hit an important price level of 50,000 for the first time in 4 weeks, a level which investors have been looking at for some long time… If we see the price closing above 50,000, we are highly likely to see more upside moves.”
12.18pm: Dow expected to claw back some of its losses
US stocks are set to open higher, recovering from a tech-led sell-off on Monday which saw sharp declines in stocks including Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOG) and Apple Inc (NASDAQ:AAPL).
Futures for the Dow Jones Industrial Average futures added 0.34% in Tuesday pre-market trading, while the broader S&P 500 index gained 0.37% and those for the tech-heavy Nasdaq-100 rose 0.44%.
Facebook fell 4.9% on Monday, recording its worse decline in almost a year, following a global outage for users of its WhatsApp and Instagram social media apps. The social media giant is also under pressure following a series of critical articles in the Wall Street Journal, which come as the big tech companies face broader regulatory scrutiny.
While a rise in the West Texas Intermediate oil price – the US benchmark – to a seven-year high after the Opec+ group kept production unchanged boosted shares of energy companies, it fuelled concerns of stagflation, contributing to Monday’s losses.
“European markets have opened on a positive note despite the losses witnessed in Asia with US futures inching higher, suggesting Wall Street could claw back losses this afternoon,” commented Lukman Otunuga, senior research analyst at FXTM.
“Nevertheless, growing worries about inflation are likely to foster a sense of unease and caution across financial markets. Given how consumer prices are already at multi-year highs, persistent signs of rising inflationary pressures may force central banks to tighten policy sooner than expected.”
The key data for trying to gauge when the Federal Reserve will ease its support for the economy is Friday’s non-farm payroll numbers.
But before that, the latest service sector figures are due later today.
Jeffrey Halley at Oanda said: “A number above or below 54.50 will elicit the usual short-term taper/no-taper market reactions.”
Meanwhile the FTSE 100 remains buoyant, up 46.73 points or 0.67% at 7057.74.
11.26am: Banks lifted by interest rate talk
Banking shares are among the gainers, with the sector likely to benefit from any increase in interest rates.
Signs of the UK economy holding up are also providing support.
So Lloyds Banking Group PLC (LSE:LLOY) is up 1.64%, HSBC PLC (LSE:HSBA) is 1.28% higher, Barclays PLC (LSE:BARC) is 0.78% better and NatWest PLC has climbed 0.76%.
Danni Hewson, financial analyst at AJ Bell., told Reuters: Rate-sensitive banking stocks are enjoying a boost as investors begin to seriously price in rate rises.
“But there are big questions about how the economy is really bouncing back, and cost pressures are taking their toll on businesses and the consumer.”
Markets are shrugging off the doubts at the moment, however.
The FTSE 100 is currently up 50.43 points or 0.72% at 7061.44, its high for the day.
10.26am: Brent crude continues to climb
Oil prices continue to rise as the Opec+ group kept production unchanged despite calls for it to increase its planned output.
Brent crude is at three year highs, up another 0.16% at $81.39 a barrel, which cannot be good news for motorists already struggling to find petrol in the UK.
Neil Wilson at Markets.com said: “Opec+ gave oil bulls a red rag to bid up futures contracts as it stuck to the planned increase in production for November at 400,000 barrels per day. Some had thought it could raise output a little more than the summer plan had set out, or frontload the increase in output in December by bringing into November (ie, 800,000 barrels a day in November), but the cartel stuck to the script…
“It’s not that demand is suddenly forecast to improve, it’s more that Opec+ is keeping such a tight grip on supply and the US rig count just isn’t there to mop up excess demand. So, the market is going to be tight for a while yet – at least until well into 2022.”
BP PLC (LSE:BP.) is benefitting, up 0.73% at 346.85p while Royal Dutch Shell PLC (LSE:RDSB) has seen its A shares add 027% to 1677.14p.
So the FTSE 100 remains positive, up 43.99 points or 0.63% at 7055.
9.56am: Car registrations see worst September since 1998
Earlier, the latest car sale figures backed up the warnings about chip-related delays from industrial group Melrose.
The Society of Motor Manufacturers and Traders said registrations fell by 34.4% in September, the lowest level for that month since 1998.
On the plus side, registrations of battery electric vehicles rose to a record 32,721 last month.
UK September New Car Registrations Report – SMMT
SMMT Monthly Reporthttps://t.co/WUlN5js5qd pic.twitter.com/aiyffzpLfj
— LiveSquawk (@LiveSquawk) October 5, 2021
Mike Hawes, the society’s chief executive, said: “This is a desperately disappointing September and further evidence of the ongoing impact of the COVID-19 pandemic on the sector.
“Despite strong demand for new vehicles over the summer, three successive months have been hit by stalled supply due to reduced semiconductor availability, especially from Asia.”
9.44am: Supply constraints growing
The UK service sector showed slightly stronger growth in September, but supply chain problems did hold things back.
The latest IHS/Markit purchasing managers index came in at 55.4, up from 55 in August which was itself a six month low.
But anyone worried about inflation (ie the Bank of England) will not be happy to hear the comments on pricing pressures.
The report showed severe supply constraints contributed to escalating inflationary pressures and the slowest rise in new orders since the end of the winter lockdown.
Rapid rises in fuel, energy and staff costs were passed on to customers in September, said Markit.
The rate of prices charged inflation accelerated sharply since August and was the fastest since the survey began in 1996.
UK Markit/CIPS Services PMI Sep F: 55.4 (est 54.6; prev 54.6)
UK Markit/CIPS Composite PMI Sep F: 54.9 (est 54.1; prev 54.1)
— LiveSquawk (@LiveSquawk) October 5, 2021
Tim Moore, economics director at IHS Markit, said: “The supply chain crisis put a considerable brake on recovery in the UK service sector during September.
“Survey respondents widely noted that shortages of staff, raw materials and transport had resulted in lost business opportunities. Consequently, new orders expanded at the slowest pace since the end of the winter lockdown, while backlogs of work accumulated as service providers struggled to find candidates to fill vacancies.
Another spike in operating expenses was reported in September, even though this data is yet to fully reflect the inflationary impact of the UK fuel crisis and surging energy prices at the end of the month. Higher wages were also a key reason for increased cost burdens in September.
“Tight constraints on business capacity and rampant supply chain uncertainty meant that service providers have become more willing to pass on higher costs to customers. The latest rise in average prices charged by UK service sector firms was the fastest in over 25 years of data collection, with many businesses reporting more frequent reviews of pricing due to escalating cost increases by suppliers.”
Meanwhile weaker manufacturing means the IHS/Markit composite PMI has edged up marginally, from 54.8 in August to 54.9 in September.
The report has done little for the FTSE 100 either way, which is up 40.57 points or 0.58% at 7051.58, little changed from before its release
8.56am: Computer chip shortage hits automotive group
There are some negative notes amid the positive performance.
Industrial group Melrose PLC is the leading faller, down 1.96% after it warned that its automotive business was being hit by customers delaying orders due to the shortage of computer chips.
It said: “There are well publicised supply constraints in the automotive industry, and this naturally affects the performance of the Automotive and Powder Metallurgy divisions. At present the timing and duration of these constraints is uncertain, but recently the consensus view is that they have lengthened. There are a number of scenarios possible, but it is likely these are below previous expectations.
“The underlying demand from Automotive customers is strong, with the near-term schedules from customers being above 2019 pre-COVID-19 levels. Those schedules are, however, then being heavily constrained by the customers due to their supply chain issues caused by the global shortage of semi-conductors. This is best illustrated by ‘in month cancellations’ from customers rising from a normal rate of around1% each month experienced in the first quarter of this year to a current rate of approximately 20% to 25%.”
Fellow industrial group Meggitt PLC (LSE:MGGT) has slipped 0.46%.
Commodity companies have also dipped on profit taking and a slip in metals prices after recent gains, with Anglo American PLC (LSE:AAL) down 0.33% and Rio Tinto PLC (LSE:RIO) 0.28% lower.
Overall though the FTSE 100 is holding on to its early gains, and is currently up 40.25 points or 0.57% at 7051.26.
8.36am: UK’s leading index grateful for lack of tech firms
The benefits (albeit limited in extent) of NOT being a tech-led index shone through here in the UK as the FTSE 100 opened firmly in the green.
This against a backdrop of chaos precipitated by the worldwide crash of Facebook’s various apps, which knocked the Nasdaq more than 2% lower. Even the Dow Jones, steadfastly old economy, felt the backdraft from Silicon Valley.
A surge in crude oil prices had only a marginal, positive impact on the UK’s blue-chip index, which was led by Flutter Entertainment PLC (LSE:FLTR), up 2.2%. On Monday the group appointed a new chief executive to its FanDuel US business, which could now be back on track for a spin-off or IPO.
Third-quarter results from Greggs PLC (LSE:GRG), like its steak bakes, were ‘no nonsense’, according to Richard Hunter, head of markets at Interactive Investor. The market liked the numbers, marking the shares 2.3% higher.
“The company remains understandably guarded on the outlook, with staffing and supply chain disruption still rampant,” Hunter said.
“At the same time, inflationary pressures are elevated, especially in food, although the fact that the company has been forward buying has given Greggs some short-term protection.”
6.55 am: FTSE 100 called higher
The FTSE 100 should be led higher by its big weighting to commodities stocks on Tuesday, despite US stocks falling to a three month low overnight.
With futures markets for Brent Crude Oil (LSE:BRENT) at three-year highs and West Texas Intermediate near seven-year highs, London’s blue chip index is expected to climb over 20 points, according to spread betting platforms.
This comes after the index dropped 16 points (0.2%) at the start of the week to 7011 and the Nasdaq tumbled over 300 points (2.1%), to lead the Wall Street retreat, with the S&P 500 falling 1.3% and the Dow Jones 0.9%.
Crude prices were sent surging after the OPEC+ oil producers group refused to bow to pressure from the likes of the US and India to pump more oil.
Wall Street’s tumble could be attributed to a number of reasons, said market analyst Jeffrey Halley at Oanda: “A post-OPEC+ spike in oil prices, US fiscal fears, notably the debt ceiling, US political infighting, growth fears, inflation fears, rate fears; take your pick”.
He added: “Technology giants, in particular, took a beating, justified by their sensitivity to potentially higher US interest rates resulting from a Fed taper or a US government debt default. I am more in the camp that the introduction of more two-way pricing risks is a new reality for most investors after a rampant 18-month bull market pumped up unlimited free central bank money.”
The rest of the week looks set to be choppy for financial markets ahead of Friday’s US payrolls report, which is expected to provide some clarity on whether the US Federal Reserve will taper its bond-buying programme.
6.50am: Early Markets – Asia / Australia
Asia-Pacific shares were mostly lower on Tuesday as the Reserve Bank of Australia (RBA) announced its decision to leave interest rates unchanged.
In Japan, the Nikkei 225 slumped 2.33% and South Korea’s Kospi fell 2.11%.
Hong Kong’s Hang Seng index was flat while markets in mainland China remained closed for the holidays.
Australia’s S&P/ASX200 fell 0.41% to 7,248.4 after the RBA determined to keep the Official Cash Rate (OCR) at a record low 0.1% for a 10th consecutive month.