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FTSE 100 closes higher as traders continue 'risk-on' approach

Last updated: 01:48 17 Aug 2022 AEST, First published: 16:00 16 Aug 2022 AEST

markets
  • FTSE 100 closes up almost 27 points
  • Mining stocks rise after strong results from BHP
  • Investor sentiment improves in August - Bank of America

4.50pm: FTSE closes up

FTSE 100 closed in positive territory as traders once again decided on a risk-on approach.

Britain's top share index finished Tuesday ahead by almost 27 points, or 0.36%, at 7,536. 

"The latest jobs data provided grounds for both optimism and concern, with many concentrating on the collapse in real wages that was always a given thanks to a 40-year high for inflation," said Joshua Mahony, senior market analyst at online trading group IG.

"While July saw a record collapse in inflation adjusted wages, that comes off the back of a higher-than-expected average earnings figure that will cause concern at Threadneedle street."

The analyst added: "Thankfully, the UK is yet to see any significant pick-up in unemployment, thus ensuring that the current ‘technical recession’ remains someway off a fully blown recession with widespread job losses."

3.45pm: FTSE in positive territory

FTSE 100 headed to the close in positive territory but off earlier highs after a mixed restart in the US.

At 3.45pm the lead index was trading 29.38 points higher at 7,538.53 although the broader FTSE 250 slipped 56.29 points to 20,326.47.

Michael Hewson chief market analyst at CMC Markets UK said: “European markets have continued to edge higher, with the DAX and FTSE100 both eking out fresh two-month highs.”

“The UK index has been helped by a decent performance from the mining sector, with solid gains from Rio Tinto, Glencore and Anglo American.”

“The catalyst for this has been a bumper set of numbers from Australian miner BHP who reported record attributable profits of $30.9bn, a rise of 173% on last year. This was driven by a strong rebound in its coal operation, which generated over $9bn in profits, compared to a loss last year.”

“There had been some concern that weaker demand for industrial metals like iron ore and copper might have weighed on the results, and indeed iron ore profits were lower due to reduced demand from China, but management were optimistic that this would improve.”

“BHP said they expected Chinese demand to pick up strongly, against a backdrop of rising costs. This seems optimistic given the current economic backdrop and relies on the Chinese government calling time on its zero-covid policy, which to date it has shown little sign of even considering.”

3.15pm: Improvement in investor sentiment

Investors remain bearish according to the Bank of America’s (BoA) monthly survey of global fund managers in August but not “apocalyptically" so on hopes that inflation and interest rates shocks will end in the coming quarters.

BoA, which polled investors overseeing $836bn in assets between August 5th to August 11th, said they had cut back a net underweight position in equities to minus 26%, an improvement on the low of minus 44% in July, a level last seen in the 2008 global financial crisis.

But fears of economic slowdown continued to rise, with 58% of investors anticipating a global economic recession in the next 12 months, up from 47% last month and the highest since May 2020.

The share of uninvested cash in portfolios dropped to 5.7% from 6.1% in July, but remained "very high", BoA said.

BoA said August saw a big rotation into U.S stocks, technology and consumer shares, while investors sold out of defensive stocks such as utilities and consumer staples, as well as UK equities.

2.45pm: FTSE off highs as US makes a mixed restart

Blue chip stocks came off their best levels for the day but remained in positive territory following a mixed restart to trading in the US.

At 2.45pm the FTSE 100 was trading 33.64 points to the good at 7,542.79 with the broader FTSE 250 down 8.93 points at 20,373.83.

Mining stocks provided support in London and offset concerns that inflationary pressures in the UK would lead to higher unemployment and lower growth.

US stocks opened mixed as cautious trading prevailed ahead of key retail sales data due Wednesday.   

Just after the open, the Dow Jones Industrial Average had added 33 points at 33,945 points.

On the flip side, the S&P 500 was down 6 points at 4,291 points and the Nasdaq Composite was down 28 points at 13,099 points.

Shares of Walmart Inc (NYSE:WMT) (Walmart Inc (NYSE:WMT)) were up about 5% after the retailer posted a 2Q earnings beat, with sales growing 8%.

Meanwhile, housing starts plummeted in July, down 9.6% to 1.446 million, far below the analyst consensus expectation of 1.527 million.

Building permits also fell 1.3% to 1.674 million, above the analyst expectation of 1.640 million.

Pantheon Macroeconomics chief economist Ian Shepherdson said the bigger picture here was that homebuilders were responding to a steep drop in demand.

“The downward trend in construction activity will continue for some time yet, given that it lags sales, which lag mortgage applications, which are down 30% from their December peak and still falling,” he said.

“Homebuilders now have far too much inventory, and prices are under pressure. They also face increasing competition from private sellers of existing homes, who are now starting to flood the market after a year on the sidelines, watching prices rise rapidly. We think housing construction will fall across the whole of the second half, hitting bottom in early 2023.”

2.00pm: Ted Baker soars after bid approach

FTSE 100 remained in positive territory, but off session highs, awaiting the restart on Wall Street with US stocks expected to open slightly lower.

Retailer, Ted Baker, was in focus with shares surging 17.29% after it announced an agreed cash offer from Authentic Brands Group valuing the company at £211mln or 110p per share.

Helena Feltham, interim chair of Ted Baker said: "In April 2022, after receiving a number of unsolicited bid proposals and having consulted with our major shareholders, the Ted Baker Board decided to launch a formal sale process to evaluate interest in the business. The process was thorough and attracted global interest.”

She added she believed the offer represents fair value for shareholders.

AJ Bell financial analyst Danni Hewson said “It’s been a torrid time for fashion retailer Ted Baker but beneath all the scandals and sorry trading performance there is clearly some value remaining in the brand.”

“US Authentic Brands Group, which previously purchased Reebok among other names, clearly thinks the brand has something to offer as it has decided to swoop for the business in a cut-price deal.”

12.55pm: Onwards and upwards

FTSE 100 was trading at session highs in early afternoon trading, extending earlier gains, as mining stocks continued to lead the way following strong results from BHP.

At 12.55pm the lead index was trading 52.70 points higher at 7,562.91.

US stock market futures were off earlier lows following better than expected results from Wal-Mart with modest losses expected when US markets open today..

Shares in Power Metal Resources PLC (AIM:POW) soared 14.29% on Tuesday as the exploration company reported significant results from an electromagnetic survey at the Molopo Farms Complex project in southwestern Botswana.

Preliminary survey results from Molopo Farms, which has the potential to be a large-scale nickel-platinum group element project, confirmed one of the drill holes penetrated the edge of a newly identified magnetic conductor.

"Today's exploration news is, in my view, potentially one of the more significant the company has released in its 3-year history as Power Metal,” said chief executive Paul Johnson.

12.00pm: Upbeat FTSE pushes higher

London shares remained in an upbeat mood, and close to session highs, at midday boosted by gains in mining stocks following strong results from BHP today and despite expectations for a subdued restart in the US today.

At 11.50am the FTSE 100 was 41.71 points higher at 7,550.86 with the FTSE 250 up 29.25 points at 20,412.01.

US stocks were expected to open lower on Tuesday with the focus falling on retail sector indicators which will show how consumer spending and demand are faring amid rises in interest rates and elevated inflation.

Key retailers, among them Walmart, are due to release quarterly earnings today while US retail sales data for July are due on Wednesday.

Futures for the Dow Jones Industrial Average were trading 0.1% lower pre-market, while those for the broader S&P 500 index were down 0.2%, and contracts for the tech-laden Nasdaq-100 also lost 0.2%.

Recently, softer inflation data have helped equities, with investors betting that US rate-setters will scale back on interest rate hikes but they are also concerned that global economic activity is waning and that key economies may slip into a recession.

“Given the challenge ahead for the global economy there is an expectation that the US Federal Reserve, in the face of the slowdown, will turn down the dial on interest rate rises,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“Speculation has risen that inflation might have peaked given the pace of price increases eased in July. That has helped lift sentiment towards growth stocks and helps explain why the S&P 500 has been on a winning streak, given that a lower interest rate environment would boost the value of future earnings. Hope is growing that the US may avoid recession, but big risks remain and inflation is still a wild threat yet to be tamed," Streeter said.

Minutes from the US Federal Reserve's last rate-setting meeting are also due on Wednesday and will be scrutinized for direction on future monetary policy.

Elsewhere, oil prices were lower amid fears that softer economic data in China is a sign that global energy demand will weaken.

WTI benchmark crude futures were down 0.5% at $88.97 a barrel while Brent crude futures were down 0.9% at $94.24.

Blue chip stocks extended their gains in London late morning as mining stocks pushed higher following better than expected results from BHP but the broader FTSE 250 fell back as the latest wages growth figures in the UK shows the biggest fall in real terms pay on record.

11.15am: Bid approach lifts Darktrace

At 11.15am the FTSE 100 was trading 42.12 points higher at 7,551.27 while the FTSE 250 was flat around 20,387.25.

Shares in cybersecurity firm Darktrace surged 17.38% to 487.80p after it announced that it is in the early stages of discussions with private equity firm Thoma Bravo about a possible takeover offer.

Responding to media speculation, the company said: "Discussions are at a preliminary stage and there can be no certainty that any offer will be made, nor as to the terms of any such offer."

Victoria Scholar, head of investment at Interactive Investor, said: "Perhaps a privatisation of Darktrace is the best way to avoid the uncertainty of this year's market gyrations, with the potential to float the company once again in the coming years once confidence is restored in equities.”

AJ Bell financial analyst Danni Hewson said: “Though any deal is still in the early stages, the language around this preliminary approach doesn’t suggest huge resistance from Darktrace at this point.”

She added “if it goes through, the acquisition of Darktrace would, yet again, thin the ranks of an already under-represented technology sector in London.”

“The controversy surrounding its co-founder Mike Lynch hasn’t helped Darktrace, as he continues to fight extradition to the US on fraud charges” Hewson said adding “in the context of all these challenges, it is perhaps not that surprising that Darktrace may want to move out of the spotlight.”

 

 

10.15am: BHP spurs rises in London

FTSE 100 remained in positive spirts mid-morning lifted by gains in mining stocks following better than expected results from Anglo-Australian mining group, BHP.

By 10.15am the lead index was trading 28.52 points to the good at 7,537.67 with the broader FTSE 250 index up 33.25 points at 20,416.01.

“The FTSE 100 enjoyed steady gains despite continuing signs of economic turmoil in the UK,” said AJ Bell financial analyst Danni Hewson.

“In a sign of the weaker backdrop, the number of job vacancies fell for the first time in two years, although it is not a clear picture, with serious issues filling roles in certain sectors.

“This makes life difficult for the Bank of England as it looks to bring down rampant inflation without inflicting too much pain on businesses and households.

“The other major takeaway from today’s figures is the biggest real terms pay fall on record.”

“This drop in spending power is bad news for consumer-facing businesses.”

“Inflation is a positive for some though – miner BHP reported record first half profit as the price of commodities soared earlier in 2022.”

“However, these numbers are in the rear-view mirror; of more interest is BHP’s expectation for a big rebound in resource-hungry China. BHP’s excitement about improving Chinese prospects is at odds with the more sober commentary delivered by many of its rivals.”

9.45am: Watches of Switzerland in demand

Shares in luxury goods retailer, Watches of Switzerland, rose 2.71% on Tuesday following a first-quarter update that showed sales growth slowing, even though Shore Capital analyst Eleonora Dani described it as “a solid trading update.”

Group revenues increased by 31% year-on-year to £391mln above Shore’s £357.4mln forecast.

Growth was broad-based, with luxury watches continuing to be strong and up 32% year-on-year and luxury jewellery outperforming (sales +36%) thanks to the continued improvement in range.

UK sales were up 8% to £239mln thanks to the resilient domestic clientele and ongoing improvement in the airport business, with all airport showrooms now reopen.

Brian Duffy, chief executive officer, commented “The first quarter continued with strong momentum throughout, and we carry this positive momentum into the second quarter.”

“Despite the well-publicised concerns about the macro-environment, demand for our products remains robust with client registration of interest lists continuing to extend…We continue to focus on attracting new clients and growing market share in the UK and US.”

Dani noted “the outlook statement highlights that, despite the macroeconomic uncertainties, the group reiterates guidance for full year 2023 on the basis of a continued strong luxury watch market in the UK and US." 

She concluded “demand for luxury watches continues to outstrip supply” and “this is a management team executing its strategy well and adapting to dynamic market conditions.”

8.50am: Mining stocks push London higher

Shares in London made steady progress on Tuesday, boosted by strong results from Anglo Australian mining group, BHP Group Ltd (LSE:BHP, ASX:BHP), which drove others in the sector higher.

A late rally by US stocks overnight also provided support and offset concerns following data in the UK today which showed a record fall in real terms pay according to the Office for National Statistics.

At 8.50am the blue chip index was trading 17.71 points higher at 7,526.86 while the broader FTSE 250 index was 14.35 points to the good at 20,397.11.

Danni Hewson, AJ Bell financial analyst said: “Another month, another chance for inflation to nibble away at the nation’s pay-packets.”

“Whilst wages are rising, they’re no match for red hot prices and in real terms people’s regular pay fell by 3% in the three months between April and June.”

“But there are signs the labour market is loosening up.”

“Vacancies actually fell over the last quarter for the first time since mid-2020 when the first lockdown ended, and life surged back to some kind of normal.”

“Where last month there were more job openings than unemployed people waiting to take them, the number has now equalized.”

BHP Group Limited shares surged 3.84% to 2,323p after posting record profits.

Victoria Scholar, head of investment at interactive investor said “BHP has been a key beneficiary of the surge in commodity prices this year.”

“Coal hit record highs this year following Russia’s invasion of Ukraine.”

“It looks like BHP is keen to deploy its $4bn of cash as it seeks out effective M&A opportunities in the sector.”

“Another higher offer for OZ Minerals, after its first bid was rejected, looks as though it could be on the cards.”

“Looking ahead, the environment looks increasingly challenging with copper prices down 25% since the March high and with concerns about rising global interest rates, labour constraints and an economic slowdown in China.” Scholar concluded.

Ted Baker surged 16.6% after Juicy Couture and Forever 21 owner Authentic Brands agreed to buy the company in a deal worth roughly £211mln.

8.25am FTSE 100 ticks higher

FTSE 100 opened higher on Tuesday following  late rallies by US stocks overnight, strength in mining stocks following record profits from Anglo Australian mining group, BHP, and as investors digested the latest UK jobs and wages growth data.

At 8.20am the blue chip index was trading 30.91 points higher at 7,540.06.

Richard Hunter, head of markets at interactive investor, commented: “amid signs of a flagging Chinese economy, US markets staged a late comeback to record another session of gains.”

“The FTSE100 again showed its mettle in the face of an uncertain economic outlook at home and abroad, and ticked higher in early exchanges to stand ahead by 2% in the year to date.”

“The index has become relatively fashionable in this challenging inflationary environment and remains underpinned by valuations which are still undemanding in relative terms to many global peers.”

“Miners forged ahead as a read across from some strong BHP numbers emanating from Australia, while an acquisition announcement from GlaxoSmithKline kept the pharmaceutical momentum going following the previous positive drug news from AstraZeneca.”

Shares in BHP Group Limited surged 3.91% after the mining group posted its highest ever full-year profit on record commodity prices, and said it will push ahead with growth options on a stronger demand outlook in China.

Underlying EBITDA rose 16% to $40,364mln with underlying earnings per share up 25% to 421.2c.

The results drove others in the sector higher, Rio Tinto PLC (LSE:RIO) (up 1.85%), Glencore PLC (LSE:GLEN) (up 1.66%) and Anglo American (up 1.43%).

GSK PLC (LSE:GSK, NYSE:GSK) rose 1.22% after completing the acquisition of Affinivax,  a clinical-stage biopharmaceutical company based in Cambridge (Boston, Massachusetts).

7.55am: Jobs, wages growth data in focus

Commentating on today's UK jobs and wages figures Samuel Tombs, chief UK economist at Pantheon  Macroeconomics said: “The headline rate of year-over-year growth in average weekly earnings, including bonuses, decreased to 5.1% in June, from 6.4% in May, but exceeded the consensus, 4.5%, while the headline rate excluding bonuses increased to 4.7%, from 4.4%, and also exceeded the consensus, 4.5%."

“For now, wage growth has more momentum than the MPC can tolerate” he said, although he did point out that timelier data suggests that wage growth is more likely to cool than rise further.

He noted that the PAYE measure of median pay merely held steady in July, while the Bank of England’s Decision Maker Panel survey showed that businesses expected in July that year-over-year growth in wages will be 0.3 percentage points lower over the next year than over the last 12 months.  

With regard to the unemployment numbers Tombs said indicators suggest that it will start to rise far sooner than the Bank of England anticipates with a fall in job vacancies of 0.7% reflecting the deterioration in timelier measures of vacancies from Adzuna and LinkedIn, as well as the recent sharp fall in the permanent staff placements balance of the REC Report on Jobs survey. 

On balance Tombs said he thinks "today’s labour market data still leaves the door open to the MPC pivoting back to a 25bp hike in bank rate at its next meeting." 

7.30am: Gains seen in London

Shares in London are expected to make a bright start to trading on Tuesday following gains in the US overnight, strong results from BHP and as investors digested the latest UK unemployment and wage growth data.

Spread betting companies are calling the lead index up by 26 points.

The latest data from the Office for National Statistics (ONS) showed that growth in average total pay (including bonuses) was 5.1%, slightly better than expected, although growth in regular pay (excluding bonuses) was 4.7%, above forecast, among employees in April to June 2022.

But the squeeze on consumers was highlighted by a record fall in real terms regular pay, 3%, between April to June, the ONS said.

The unemployment rate edged higher to 3.8% between April to June, up 0.1 percentage points from the previous three month period, while the UK employment rate was estimated at 75.5%, which is 0.1 percentage points lower than the previous three-month period.

BHP Group, the world’s biggest miner, posted its highest ever full-year profit on record commodity prices, and will push ahead with growth options on a stronger demand outlook in China.

Underlying EBITDA rose 16% to $40,364mln with underlying earnings per share up 25% to 421.2c.

The producer will study plans to expand its top-earning iron ore unit to 330mln tonnes of production a year, and is continuing to assess options to lift volumes in copper and nickel.

A giant new potash mine in Canada remains on track to begin in 2026.

Chief Executive Officer Mike Henry said China’s emergence from the Covid-19 lockdowns would provide a “tailwind” to the global economy, in a counterpoint to jittery sentiment on China following a swath of surprisingly weak data.

“We think that over the next 6-12 months, China, if anything, is going to provide some stability to global growth and will help offset some of the slowing that we see elsewhere,” Henry said.

China typically accounts for more than 60% of BHP’s revenue.

6.55am: FTSE 100 seen higher, jobs data in focus

FTSE 100 seen opening higher on Tuesday following gains in the US overnight but with one eye on the latest UK jobs figures.

Spread betting companies are calling the lead index up by 23 points.

The Dow closed Monday up 152 points, 0.5%, at 33,913, the Nasdaq Composite added 81 points, 0.6%, to 13,128 and the S&P 500 improved 17 points, 0.4%, to 4,297.

In London, Tuesday brings the UK’s latest jobs figures, with wage growth again the key number to watch.

Wage growth reached 6.2% in May, or 4.3% excluding bonuses, and is forecast to ease to 5.2% and 4.4% respectively in June.

As consumer price inflation in June surged to its highest level in 40 years of 9.4%, this means real wages will have continued to fall

Unemployment is seen remaining at 3.8% for the three months to June. In May job vacancies stood at 1.3mln and the employment rate was 75.9%, a fraction below the pre-pandemic peaks.

Results are also due from BHP.

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