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London open: Stocks fall as investors eye payrolls
London stocks fell in early trade on Friday amid rate hike concerns, as investors mulled the latest UK house price data and awaited the release of the US non-farm payrolls report.
At 0850 BST, the FTSE 100 was down 0.5% at 7,244.95.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “The sell-off has been triggered by data showing the private sector in the US added around double the number of jobs economists expected last month. The addition of just under half a million roles has heaped fuel on the interest rate fire, with such strong data an indication that the economy will need a heavier hand if inflation is to be brought under control.
“Minutes from the latest Federal Reserve meeting also showed that policymakers are more likely to resume interest rate increases, after the decision to pause most recently. There’s growing evidence that interest rate increases up until this point have been more about playing catch up, rather than creating meaningfully tighter conditions, meaning hikes are likely to be coming down the line.
“There has been a suggestion that interest rates in the UK are heading towards 7%, which led to the FTSE 100 having its worst trading day of the year so far. Futures currently suggest a rate of 6.5% by February.
“Attention now turns to the official non-farm payrolls data in the US, due later today. This could slightly contradict the private sector numbers, with economists predicting that the US added 200,000 jobs last month, down from 339,000 in May. Should this be the case, it would still be indicative of a tight market, and median estimates have underestimated the monthly data for over a year. Early trading indicators show US investors are braced for challenging news.”
The payrolls report is due at 1330 BST, along with the unemployment rate and average earnings.
On home shores, figures from Halifax showed that house prices fell in June at the steepest annual pace in 12 years as the mortgage crisis took its toll.
Prices declined by 2.6% following a 1.1% fall in May. This was the worst drop since June 2011 and leaves the average price of a UK home at £285,932, versus a peak of £293,992 last August.
On the month, prices were down 0.1% in June following a 0.2% decline the month before.
Kim Kinnaird, director, Halifax Mortgages, said: “Concerns about persistent inflation have led to a significant increase in the cost of funding. Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month.
“The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer. While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year.”
She continued: “How deep or persistent the downturn in house prices will be remains hard to predict. Consumer price inflation is likely to come down in the near term as energy and food prices look set to reverse their steep rises, but core inflation is clearly proving stickier than originally expected. With markets now forecasting a peak in Bank Rate of over 6%, the likelihood is that mortgage rates will remain higher for longer, and the squeeze on household finances will continue to put downward pressure on house prices over the coming year.”
Elsewhere, industry research showed that UK retail footfall fell in June as the heatwave kept shoppers at home.
According to the latest BRC-Sensormatic IQ Footfall Monitor, total UK footfall fell by 1.9% in the five weeks to 1 July, although that was an improvement on May’s 2.8% decline.
Within that, high street footfall edged up 0.6% year-on-year. But it fell 2.6% in retail parks and by 4.2% in shopping centres.
Helen Dickinson, chief executive of the British Retail Consortium, said: “Footfall was down as the hot weather meant people opted to enjoy the outdoors.”
In equity markets, utilities were on the back foot after a strong session on Thursday, with Severn Trent, United Utilities and National Grid all lower.
OSB Group tanked after it warned late on Thursday that it expects an adverse effective interest rate adjustment of around £160 to £180m in the first half of 2023 on an underlying basis. It said this was due to “a reduction in the expected time spent on the reversion rate by Precise Mortgages customers”.
Canaccord Genuity said: “We estimate this will result in an approximately 30% hit to consensus profit before tax in FY23 and circa 8% hit to NAV.”
Paragon and Virgin Money also lost ground.
Shell ticked lower after the oil giant said it expects second-quarter gas trading results to be “significantly lower” than in the previous quarter.
On the upside, Coca-Cola HBC rallied as it upgraded full-year earnings guidance after a stronger-than-anticipated finish to the first half of the year.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Coca-cola Hbc Ag | +3.72% | +84.00 | 2,341.00 |
| 2 |  |
Ocado Group Plc | +2.68% | +14.80 | 568.00 |
| 3 |  |
Kingfisher Plc | +2.20% | +4.80 | 222.90 |
| 4 |  |
Marks And Spencer Group Plc | +1.94% | +3.60 | 189.45 |
| 5 |  |
Anglo American Plc | +1.91% | +41.50 | 2,210.00 |
| 6 |  |
International Consolidated Airlines Group S.a. | +1.84% | +2.85 | 157.75 |
| 7 |  |
Carnival Plc | +1.73% | +22.50 | 1,325.00 |
| 8 |  |
Glencore Plc | +1.59% | +6.90 | 439.65 |
| 9 |  |
Barclays Plc | +1.55% | +2.28 | 148.98 |
| 10 |  |
Antofagasta Plc | +1.51% | +21.00 | 1,412.50 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
United Utilities Group Plc | -1.73% | -16.40 | 930.80 |
| 2 |  |
Relx Plc | -1.54% | -39.00 | 2,498.00 |
| 3 |  |
Severn Trent Plc | -1.51% | -37.00 | 2,414.00 |
| 4 |  |
National Grid Plc | -1.37% | -14.00 | 1,006.00 |
| 5 |  |
Sse Plc | -1.31% | -23.00 | 1,738.00 |
| 6 |  |
Bae Systems Plc | -1.09% | -9.80 | 888.40 |
| 7 |  |
Diageo Plc | -1.06% | -35.00 | 3,282.00 |
| 8 |  |
Intertek Group Plc | -1.02% | -42.00 | 4,058.00 |
| 9 |  |
Tesco Plc | -1.00% | -2.50 | 246.80 |
| 10 |  |
Experian Plc | -1.00% | -29.00 | 2,875.00 |
US close: Stocks fall on mountain of jobs data
Wall Street closed in negative territory on Thursday, with major indices registering losses in response to stronger-than-expected economic data.
The Dow Jones Industrial Average fell 1.07%, closing at 33,922.26 points, and the broader S&P 500 ended the session 0.79% lower at 4,411.59 points.
The tech-heavy Nasdaq Composite index was not immune to the trend, registering a decline of 0.82% to settle at 13,679.04 points.
On the foreign exchange market, the dollar strengthened slightly against the pound and the euro, by 0.08% and 0.03% to last trade at 78.55p and 91.87 euro cents, respectively.
Against the yen, however, the greenback declined 0.05% to change hands at JPY 144.00.
“Equities were already under heavy pressure coming into Thursday’s session following hawkish Fed minutes, but a remarkably robust ADP payroll report has put the boot in,” said IG chief market analyst Chris Beauchamp earlier.
“The stage seems set for the two additional rate hikes that the Fed alluded to at the June decision, as the US economy continues to show remarkable resilience.”
US jobless claims rise as hiring surges, job cuts slow down
On the economic front, US jobless claims experienced an uptick last week, aligning with economists’ expectations.
The Department of Labor disclosed that initial unemployment claims, on a seasonally adjusted basis, surged by 12,000, registering at 248,000 for the week ended 1 July.
The increase marginally exceeded the anticipated rise of 245,000.
Nevertheless, the tally from the preceding week was revised downwards by 3,000 to a total of 236,000 claims.
Meanwhile, the less-volatile four-week moving average decreased by 3,500 from the preceding week, standing at 253,250.
Furthermore, secondary unemployment claims, those not being filed for the first time for the week ending on June 24, observed a drop by 13,000, registering at 1.720 million.
Amid that, the labour market also witnessed some dynamic activity.
There was a noticeable decline in job vacancies across US businesses in May, yet it seemed employees were confident enough to consider job changes.
Job openings, in seasonally adjusted terms, plunged by 4.8% month-on-month, hitting 9.824 million.
Conversely, hiring saw an uptick of 1.8% from April, with 6.208 million people securing jobs.
The rate of voluntary job resignations, also referred to as “quits,” saw a significant rise of 6.6% to 4.015 million, pushing the quits rate up to 2.6%.
Elsewhere, June witnessed a surge in private sector hiring.
According to consultancy firm ADP, the number of new hires in June swelled by 497,000, more than double the anticipated increase of 220,000.
Moreover, job cuts announced by US companies in June saw a considerable drop, particularly within the automotive, entertainment, and technology sectors.
As per a survey by Challenger, Gray, & Christmas, firms declared 40,709 job cuts last month, marking a substantial 49% decline from the previous month.
The sharp drop led the global outplacement firm to speculate whether the ‘Tech Purge’ had finally ended.
“It’s possible that the deep job losses due to inflation and interest rates might not materialise, especially if the Federal Reserve keeps rates steady,” observed Andrew Challenger, senior vice-president at the staffing firm.
Exxon Mobil, Meta Platforms decline; Spirit Airlines ascends
In equities, oil giant Exxon Mobil tumbled 3.7% as the company warned that its second-quarter earnings could be negatively impacted by lower natural gas prices.
Tech heavyweight Meta Platforms, the firm behind Facebook, also fell out of favour, sliding 0.8% during the session.
The move followed the company’s unexpected early launch of Threads, a new platform designed to compete with Twitter.
On the brighter side, Spirit Airlines saw its stock rise by 1.1%.
The increase came in the wake of the announcement by JetBlue Airways that it would be dissolving its joint venture with American Airlines Group in the northeast US, with the intention of prioritising its merger with Spirit.
However, the announcement did not bode well for JetBlue and American Airlines, which both closed lower.
Friday newspaper round-up: Twitter, Gatwick, banks
Twitter has threatened to sue Meta over its new Threads app, which Mark Zuckerberg has openly billed as a rival, claiming the company has violated Twitter’s “intellectual property rights”. In a letter to CEO Mark Zuckerberg, first published by the news outlet Semafor, a lawyer for Twitter said the company “has serious concerns that Meta Platforms (Meta) has engaged in systematic, willful and unlawful misappropriation of Twitter’s trade secrets and other intellectual property”. – Guardian
London Gatwick has formally submitted plans for a £2.2bn second runway, as the airport looks to double its passenger numbers to 75 million a year. Gatwick said the planned runway would generate 14,000 jobs and bring a £1bn annual boost to the region. Campaigners said the additional flights would significantly worsen noise and air pollution, as well as carbon emissions, from the airport. – Guardian
Almost 390,000 people who took early retirement during the onset of the pandemic have fallen into poverty, according to a leading think-tank. The Institute for Fiscal Studies (IFS) said around half of those aged 50 to 70 who left the workforce in 2020-21 ended up living in “relative poverty” because of “labour market disruptions or health concerns”. – Telegraph
The financial regulator called on banks to move faster to raise savings rates for consumers after calling in the bosses of high street banks yesterday. The Financial Conduct Authority said that the banks recognised they “needed to do more to help their consumers access the best rates” and urged them to accelerate recent increases. – Telegraph
The quality of work produced by Britain’s auditors is improving, although some of the challenger firms looking to break the stranglehold of the Big Four have been scolded again for their “unacceptable” performances. BDO, the UK’s fifth-largest accountant, and Mazars, the seventh-largest, were admonished last year by the Financial Reporting Council, the industry regulator, for “growing too fast”. – The Times
