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London open: Stocks dip as UK economy contracts more than expected
London stocks dipped in early trade on Wednesday as investors mulled weaker-than-expected UK GDP data and looked ahead to the latest US inflation reading.
At 0820 BST, the FTSE 100 was 0.1% lower at 7,517.17, while sterling was down 0.3% against the dollar at 1.2459.
Figures released earlier by the Office for National Statistics showed the economy contracted more than expected in July as strikes and poor weather took their toll.
GDP shrank 0.5% following 0.5% growth in June, and versus consensus expectations of a 0.2% decline.
Services output fell 0.5% following 0.2% growth in June, and was the main contributor to the fall in GDP in July.
Meanwhile, production output was down 0.7% in July following 1.8% growth the month before, and output in the construction sector declined 0.5% after growth of 1.6% in June.
ONS director of economic statistics Darren Morgan said: “In July, industrial action by healthcare workers and teachers negatively impacted services and it was a weaker month for construction and retail due to the poor weather.
“Manufacturing also fell back following its rebound from the effect of May’s extra Bank Holiday.
“A busy schedule of sporting events and increased theme park visits provided a slight boost.”
Paul Dales, chief UK economist at Capital Economics, said: “The 0.5% m/m fall in real GDP in July…could possibly mean that the mild recession we have been expecting has begun. Even so, with wage growth still uncomfortably strong, we suspect the Bank of England will still raise interest rates one final time next week, from 5.25% to 5.50%.”
Market participants were also looking ahead to the US consumer price index for August, due out at 1330 BST.
Richard Hunter, head of markets at Interactive Investor, said investors were “on edge in anticipating the latest US inflation reading”.
“Complicating the inflationary and therefore interest rate issue was a further hike in oil prices, which have now risen by over 7% in the year so far. The latest development saw OPEC maintaining a strong demand forecast in the immediate future, while traders tried to estimate whether the floods in Libya would have any meaningful effects on disrupting supply,” he said.
“The more recent strength in energy prices is likely to have had an effect on the key inflation data expected this week, with the consumer price index reading today and the producer price index tomorrow. There seems little doubt that the general downward trajectory of inflation is slowly being achieved, but the oil price rises could cloud the issue and, at worst, steer the Federal Reserve towards considering that its interest rate hiking cycle has further to go.”
In equity markets, BP was trading down as it announced late on Tuesday that chief executive Bernard Looney has resigned after failing to fully disclose details of past relationships with colleagues.
Insurer Aviva was the standout gainer on the FTSE 100 after agreeing to sell its 25.9% stake in Singapore Life Holdings (Singlife), together with two debt instruments, to Sumitomo Life for £800m in cash.
Housebuilder Redrow was little changed as it said weekly sales over the summer had almost halved due to rising mortgage costs amid a “challenging” market and revealed a fall in full year profits.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Persimmon Plc | +2.98% | +30.50 | 1,053.50 |
| 2 |  |
Aviva Plc | +2.18% | +8.20 | 384.50 |
| 3 |  |
Hsbc Holdings Plc | +1.82% | +10.90 | 608.20 |
| 4 |  |
Taylor Wimpey Plc | +1.82% | +2.10 | 117.25 |
| 5 |  |
Berkeley Group Holdings (the) Plc | +1.62% | +65.00 | 4,066.00 |
| 6 |  |
Barratt Developments Plc | +1.49% | +6.50 | 443.30 |
| 7 |  |
Vodafone Group Plc | +1.37% | +1.06 | 78.44 |
| 8 |  |
Fresnillo Plc | +1.34% | +7.80 | 588.00 |
| 9 |  |
Barclays Plc | +1.24% | +1.90 | 155.48 |
| 10 |  |
Pearson Plc | +1.09% | +9.60 | 886.60 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ocado Group Plc | -3.39% | -27.20 | 774.40 |
| 2 |  |
Halma Plc | -2.50% | -54.00 | 2,110.00 |
| 3 |  |
Croda International Plc | -1.89% | -95.00 | 4,935.00 |
| 4 |  |
Flutter Entertainment Plc | -1.87% | -265.00 | 13,910.00 |
| 5 |  |
Coca-cola Hbc Ag | -1.49% | -34.00 | 2,246.00 |
| 6 |  |
Antofagasta Plc | -1.38% | -20.00 | 1,429.00 |
| 7 |  |
Severn Trent Plc | -1.32% | -32.00 | 2,391.00 |
| 8 |  |
Smurfit Kappa Group Plc | -1.30% | -36.00 | 2,732.00 |
| 9 |  |
Ashtead Group Plc | -1.29% | -66.00 | 5,046.00 |
| 10 |  |
Ferguson Plc | -1.28% | -160.00 | 12,300.00 |
US close: Stocks in the red as tech plays lead losses
US stocks closed lower on Tuesday, with Apple in focus on the announcement of its iPhone 15, while investors also closed their wallets ahead of August’s consumer price index data, scheduled for Wednesday.
At the close, the Dow Jones Industrial Average was down 0.05% at 34,645.99, while the S&P 500 faced a sharper decline of 0.57%, ending the day at 4,461.90.
The tech-heavy Nasdaq Composite was the most affected, shedding 1.04% to close at 13,773.61.
In currency trading, the dollar was last down 0.01% on sterling at 80.05p, while it decreased 0.01% as well against the common currency, trading at 92.98 euro cents.
The greenback meanwhile remained stable on the yen, last changing hands at JPY 147.08.
“Stock indices gave back some of Monday’s gains as the tech sector slid,” said IG senior market analyst Axel Rudolph earlier.
“Oracle shares led the way down with an almost 12% drop as the company saw its revenue below estimates as cloud spending sputters.
“WestRock added about 6% after agreeing to merge with Smurfit Kappa to create the world’s largest listed paper and packaging company.”
Small business sentiment dips; inflation projections in focus
On the economic front, the National Federation of Independent Business (NFIB) unveiled its latest findings on small business sentiment for August, revealing a slight decline.
The NFIB‘s index recorded a dip to 91.3, down from 91.9 in July, slightly missing the anticipated consensus of 91.5.
“The details of the August NFIB survey suggest the economy is continuing to expand at a gradual pace, though the rebound in selling price intentions points to inflation rebounding back to 4% over the coming months,” said analysts at Oxford Economics.
“That shouldn’t worry the Fed unduly, with the labour market details still pointing to a gradual easing in wage and underlying price inflation ahead.”
All eyes were now on the forthcoming US consumer price index data, scheduled for release on Wednesday.
Early projections hinted at a 0.5% rise in prices for August, marking an uptick from the 0.2% gain observed in July.
However, core inflation looked set to remain steady, with experts forecasting it to maintain its July rate of 0.2% month-on-month.
The economic advisory committee of the American Bankers Association said the Fed had likely concluded its rate-rising cycle.
Additionally, they predicted a deceleration in GDP growth for the coming year, expecting it to cool down to 1.2% from the 2% observed in 2023.
“Shifting rate expectations over recent weeks have added greater uncertainty for markets, and this rumour of an impending pause does help lift sentiment as market pricing adjusts accordingly,” noted Joshua Mahony at Scope Markets.
Apple and Tesla dip, WestRock rises on merger news
In equities, tech giant Apple declined 1.71% as it unveiled an array of new products during its annual marketing event.
Among those were the iPhone 15, the latest Apple Watch, and new versions of its AirPods earphones.
In a significant pricing move, Apple announced an increase in the price of its premium iPhone, which could raise the average spend on an Apple smartphone beyond the $1,000 mark.
The starting price for the new iPhone Pro Max was set to jump by $100, reaching $1,199.
Tesla meanwhile saw a 2.23% drop in its shares, in the wake of a 10% spike the previous day, which was fuelled by Morgan Stanley‘s upgrade to ‘overweight’.
The financial institution emphasised the potential of Tesla’s Dojo, a custom supercomputing product that’s been under development for half a decade.
Morgan Stanley predicted that Dojo could add as much as $500bn to Tesla’s enterprise value, and subsequently increased its stock target price from $250 to $400.
Tech investors in general looked to be exercising some caution on Tuesday, in light of Arm’s impending high-profile listing on the NYSE.
The UK chip group’s IPO, valued at over $50bn, was reported to be 10 times oversubscribed.
On the upside, WestRock was boosted 2.76% on news of its planned merger with paper and packaging peer Smurfit Kappa.
The merger was set to establish an entity boasting combined revenues amounting to $34bn, and a commanding 20% market share across Europe and North America.
Wednesday newspaper round-up: Pensions, Apple, interest rates
Treasury officials are discussing a one-off break from the pensions triple lock that could save £1bn by preventing a bumper 8.5% increase in the state pension next year. The government is considering stripping out public sector bonuses that were awarded to workers to prevent strikes over the summer from the calculation that determines the annual rise in pensions. – Guardian
Apple will stop using leather across all of its accessories in an effort to “protect the planet” and meet its net zero targets by 2030. The US tech giant said it would stop using leather in its watch straps and phone cases and replace it with a material called “FineWoven”, which is made using 68pc recycled textiles and other artificial fibres. – Telegraph
Andrew Bailey and his colleagues at the Bank of England all agree that inflation must be crushed. Unfortunately, they don’t agree on the best way to do it: policymakers are split on whether to hold interest rates at their current level of 5.25pc or raise it higher at next week’s Monetary Policy Committee (MPC) meeting. – Telegraph
Lawyers for the US government claimed yesterday that Google did not play by the rules in its efforts to keep its dominance in online search, paying billions of dollars to ensure that smaller rivals failed to get traction. “This case is about the future of the internet,” Kenneth Dintzer said, arguing for the Department of Justice that Google had begun in 2010 to illegally maintain its monopoly. – The Times
The Barclay family did not enjoy a big windfall from selling the Ritz, despite achieving a price of about £750 million for the hotel, it has emerged. The 117-year-old Ritz was the crown jewel of the Barclays’ business empire, but the sale of the London landmark caused a family feud that culminated in a legal battle and allegations of secretly bugged conversations. – The Times
