FTSE 100 Turns South As Retail Sales Numbers Raise Prospect Of A November Rate Hike

 

FTSE 100 joined global stocks and saw red today, with the premier UK share index closing around 45 points lower at 7,387.

The FTSE 250 also fell, dropping over 86 points at 19,773.

The price of Brent crude, conversely, was heading the other direction, up 0.75% to $51 a barrel at the time of writing.

In currencies, the pound added 0.25% against the Euro and was flat against the US dollar.

Top loser was B&Q owner Kingfisher plc (LON:KGF), which lost 4.10% to 294.80p - the shares are at their  lowest level since November 2014 after the company reported a 1.9% drop in like-for-like (LFL) sales for the second-quarter.

On the winning front, precious metal major Fresnillo (LON:FRES) gained 3.85% to 1,566p, boosted by a rise in silver and gold prices, the latter adding 0.19% to $1,272.75 an ounce.

Banks were still on the back foot, including Standard Chartered (LON:STAN), which shed 2.72% to 755p after the Federal Reserve’s policy meeting minutes yesterday appeared to indicate that an interest rate hike was unlikely this year.

3.40pm: FTSE takes another dive 

The FTSE 100 has headed further south, falling 48 points to 7,385, as investors continue to weigh UK retail sales figures.

While retail sales rose slightly more than expected in July on the month it was down against expectations when compared to the same time a year ago.

“Although the volume of goods sold in July printed above expectations, the total growth was relatively soft and highlighted how the gap between inflation and wages continues to squeeze household finances,” said FXTM research analyst, Lukman Otunuga.

Providing a drag on the FTSE company-wise, Kingfisher was the biggest faller after reporting a 1.9% drop in second quarter like-for-like sales.

Banks were still on the back foot, including Royal Bank of England, Standard Chartered and HSBC, after the Federal Reserve’s policy meeting minutes released last night was seen to indicate that an interest rate hike was unlikely this year.

Ex-dividend stocks also weighed, including Legal & General and British American Tobacco.

More positively, miners Fresnillo and Randgold Resources were lifted by a rise in the price of gold and silver.

In currencies, the pound weakened against the dollar, falling 0.10% to US$1.2878, as economists said the uninspiring UK retail sales figures add weight to expectations that the Bank of England will refrain from raising interest rates this year.  Sterling was 0.33% higher versus the euro at €1.0991, as the European Central Bank’s latest policy meeting minutes showed policymakers were concerned about the recent bounce in the euro.

 

2.50pm: ING says its 'optimistic' for 3% growth in third quarter US GDP 

ING Research's chief international economist, James Knightley, said while the Federal Reserve's manufacturing output figures were a "little disappointing", he sees this as a temporary dip as employment is rising strongly and the ISM manufacturing data set remains firmly in growth territory. 

He also noted the growth in mining, rising 0.5% on the month in July. "The recent strengthening of the oil price will continue to support shale oil output here," Knightley said.

"Overall, the outlook for the sector remains positive and with consumer spending looking in good shape too. We remain optimistic on the prospect for a 3%+ GDP figure for 3Q17."

 

2.20pm: US initial jobless claims fall by more than expected

US weekly jobless claims fell to a near six-month low last week, according to data from the Labor Department.

Initial jobless claims dropped by 12,000 to a seasonally adjusted 232,000 in the week to 12 August from 244,000 the previous week. Economists had expected 240,000 claims.

The four-week moving average of continuing claims fell by 500 to 240,500 last week.

In separate US data released by the Federal Reserve, industrial production rose 0.2% in July from the previous month following a 0.2% gain in June and missing expectations for a 0.3% rise.

Manufacturing production fell 0.1% in July, compared to a 0.2% increase the prior month and expectations for 0.2% growth. 

2.00pm: Banking stocks slump after Fed minutes

Banking shares, including Royal Bank of Scotland, Lloyds, HSBC and Standard Chartered, are among the biggest fallers on the FTSE following dovish remarks from the Federal Reserve.

The Fed’s policy meeting minutes last night were seen to reduce odds for an interest rate hike this year. Higher interest rates mean bigger profits for lenders.

“The minutes highlighted the growing divide that is appearing within the Federal Reserve with respect to interest rates,” said Oanda’s Craig Erlam.

“The debate on the third interest rate of the year has been happening for some time outside of the Fed, which is why markets have never priced it in as much as the other two. The fact that it’s now happening within the Fed won’t improve those odds.”

Meanwhile, ex-dividend stocks also provided a drag with Legal & General Group, British American Tobacco, Schroders, Reckitt Benckiser Group and Segro.

 

1.10pm: ECB concerned about euro's recent bounce

European Central Bank policymakers are worried about the euro's recent strength and its impact on exports and on inflation, according to the minutes of the July policy meeting.

A stronger euro has made the eurozone's exports less attractive and imports cheaper. The minutes of the ECB meeting showed rate-setters were aware of the risks the currency's recent bounce poses to efforts to revive inflation.

"Concerns were Expressed about a possible overshooting in the repricing by financial markets, notably the foreign exchange markets, in the future," the ECB said in the accounts.

The remarks pushed the euro down by more than 0.8% versus the dollar to its weakest since 27 July.

 

12.30pm: Investor confidence improves in August, bets for interest rate increase falls

Investor confidence has risen this month and expectations for a UK interest rate hike have fallen, according to a survey by Hargreaves Lansdown.

The Hargreaves Lansdown Investor Confidence Index climbed 7 points to 76 in August from a reading of 69 in July, though it is below the long-term average of 99 points.

Confidence is highest in the Asia Pacific region while sentiment in the US is positive but waning. The UK had the lowest confidence score amid political and economic uncertainty.

Expectations of an interest rate rise edged lower, with 20% of respondents expecting a rate hike in the next 6 months, compared to 45% in July.

 “Investors are more positive towards overseas markets than the UK right now, which may reflect concerns over Brexit and the weaker economic data we have seen in the first half of this year,” said Laith Khalaf, senior analyst at Hargreaves.

“Last month’s spike in expectations of an interest rate rise has been firmly quashed, with inflation falling back, economic growth faltering, and the Monetary Policy Committee proving more dovish. This certainly isn’t the first time that hopes of an interest rate rise have been dashed, and it probably won’t be the last.”

 

12.00pm: FTSE 100 falls, led by Kingfisher

The FTSE 100 dropped 26 points to 7,406 in midday trading traders digested uninspiring UK retail sales data.

UK sales rose 0.3% month-on-month in July in line with the previous month’s increase and slightly ahead of market forecasts for a 0.2% rise. On the year, retail sales rose 1.3%, compared to June’s 2.8% gain and forecasts for 1.4% growth.

Economists believe the lacklustre retail figures give the Bank of England more reason to hold off on raising interest rates.

The pound fell 0.23% versus the dollar to US$1.2861 after some brief respite in early trading but against the euro it rose 0.32% to €1.0990.

On the company front, Kingfisher’s shares are under pressure after reporting a 9% drop in like-for-like sales in the second quarter, hit by persistently weak trading in France and a poor performance at is B&Q stores.

Hikma Pharmaceuticals slumped after the company lowered guidance for sales of generic products and warned of an “increasingly challenging environment”.

Rank Group PLC (LON:RNK), owner of the Mecca Bingo and Grosvenor Casino chains, saw its shares drop after reporting a 7% full year profits decline.

On the upside, gold producers were lifted by a rebound in the price of the yellow metal with Randgold Resources and Fresnillo in the black.

Marshalls gained after the paving specialist reported a 16% rise in pre-tax profit in the first half and a 8% increase in revenue, adding that it remains confident of achieving its expectations in 2017.

Looking ahead to the afternoon, the European Central Bank publishes an account of its latest policy meeting at 12.30pm and the US sees the release of initial jobless claims figures and data on industrial production. 

 

11.20am: Eurozone inflation holds steady, trade surplus widens

Eurozone inflation held steady at an annual rate of 1.3% in July, as expected by analysts, Eurostat confirmed in its second estimate.

Core inflation, excluding energy and unprocessed food, was also confirmed at 1.3%, up from 1.2% in June and above analysts’ estimates of 1.2%.

Euro area annual inflation confirmed stable at 1.3% in July 2017 #Eurostat https://t.co/lmkS0XrAsI pic.twitter.com/MP5l9K6Uup

— EU_Eurostat (@EU_Eurostat) 17 August 2017

Other economic data showed the eurozone’s trade surplus came in at €26.6bn in June, compared to €21.4bn a month earlier and analysts’ forecasts of €25.0bn. 

Euro area trade in goods surplus €27 bn in June 2017, €7 bn surplus for EU #Eurostathttps://t.co/xJrbZD6Vg1 pic.twitter.com/GsuuG85wdq

— EU_Eurostat (@EU_Eurostat) 17 August 2017

10.50am: Outlook for consumers looks challenging, says EY ITEM Club

The outlook for consumers looks set to be highly challenging over the latter months of the year despite inflation easing back to 2.6% from a near four-year high of 2.9% in May, according to Howard Archer, chief economic advisor to the EY ITEM Club. 

“Real income growth is currently negative, and it looks likely to remain so through the rest of 2017," he said, citing yesterday's ONS data showing a 0.5% fall in real wages. 

"Inflation will likely be close to 3% through the latter months of 2017, while earnings growth seems set to hover around 2%."

“Furthermore, consumer confidence is brittle and caution over making major purchases appears to have been reinforced by heightened economic, political and Brexit uncertainties."

#UK #retail #sales #deflator stable at 2.7% in July, down from May peak of 3.2%. Some relief for #consumers but still above #earnings growth

— Howard Archer (@HowardArcherUK) 17 August 2017

Archer thinks the squeeze on consumers should progressively ease in 2018 due to inflation falling back markedly, as the impact of sterling's slump eases. However, earnings growth is likley to remain weak, he said.

"There is some support for consumer sending coming from current ongoing decent employment growth, but it is questionable if this can continue in the face of weakened UK economic activity, increasing business uncertainty and concerns over the UK’s economic and political outlook."

 

10.15am: Decline in real wages hits retail sales

While inflation data came in lower than expected on Tuesday, wages are still falling in real terms, putting a squeeze on household budgets. This has had a knock on effect to retail sales, according to Ben Brettell, senior economist at Hargreaves Lansdown.

However, he said the UK consumer is “extraordinarily resilient”.

“Spending has defied expectations of a slowdown since the Brexit referendum, and currently seems to be holding up despite weak wage growth and above-target inflation,” he said.

“This could bode well for economic growth – the UK economy is heavily reliant on the consumer, and economists had expected falling real incomes to eventually translate into weak retail sales.

“If this fails to materialise the economy could see a stronger second half to the year – though there are also growing concerns over the level of household debt, which is fuelling continued consumption in the absence of rising real wages.”

10.00am: UK retail sales on a weakening trend, Bank of England likely to hold off on rate hike

Chris Williamson, chief business economist at IHS Markit, said July’s retail sales figures signals a weak start to the third quarter and suggests sales are on a weakening trend.

“Subdued retail sales growth in July reflected an ongoing deterioration in household finances, linked in turn to low pay, rising prices and concern about the outlook,” he said.

“The data add weight to calls for the Bank of England to hold off with higher interest rates, as increased borrowing costs will add further pressure to family budgets.” 

The pound has climbed 0.02% versus the dollar to US$1.2893 and gained 0.29% against the euro to €1.0987. 

9.30am: UK retail sales slow in July

UK retail sales rose by 1.3% year-on-year in July, slowing from a 2.8% increase in June and missing expectations for a 1.4% gain, the Office for National Statistics revealed. 

On a month-on-month comparison, retail sales climbed 0.3%, slightly ahead of forecasts for a 0.2% increase. June's monthly figures were revised down from 0.6% growth to 0.3%.

0.3% increase in UK retail sales volume in July compared with June https://t.co/AGwmygKz7F

— ONS (@ONS) 17 August 2017

The ONS said sales in all sectors apart from food and household goods stores, declined.

"The underlying trend at the beginning of 2017 showed a relatively subdued picture in retail sales," said Ole Black, senior statistician at the ONS. 

"Strong food sales have been responsible for the growth of 0.3% in July compared with June, as all other main sectors have shown a decrease. Whilst the overall growth is the same as in June, trends in growth in different sectors are proving quite volatile."

8.50am: FTSE opens in subdued fashion

The FTSE 100 opened its account Thursday in subdued fashion with the index of blue-chip shares drifting eight points lower to 7,424.58.

The big corporate news of the day emanated from the finance department of B&Q owner Kingfisher (LON:KGF).

The retailer’s second-quarter trading figures really didn’t pass muster with the City, meaning the shares were marked down 3.1% early on.

“More of the same from Kingfisher with a massive outperformance by Screwfix trying gamely to mask an otherwise pretty ropey set of numbers from the rest of the group,” said Neil Wilson, senior market analyst for the spread betting firm ETX Capital.

He thinks it’s time to “unscrew Screwfix” from the ailing mothership.

“As previously suggested, Kingfisher could be well advised to spin-off its French division,” said Wilson.

“But as plenty of others have talked about, it may also be time to start considering whether Screwfix is better off going it alone.

“Common sourcing savings (targeted at £500mln a year by 2021) may be the reason not to go down this route.”

Stepping down a division to the FTSE 250, Hikma Pharma’s interim results really failed to pass muster as the stock tumbled almost 9%.

Proactive news headlines:

88 Energy Limited (LON:88E, ASX:88E) said it is ready re-start flow testing its latest well on Alaska’s North Slope as it confirmed it had increased its landholding in the area. Work on the Icewine-2 well was suspended for six weeks to allow pressure to build and imbibition (soaking) to occur.

Victoria Oil & Gas plc (LON:VOG) gas well on the outskirts of Cameroon’s second city of Douala is expected to be a “significant” producer, according to the company’s chief executive Ahmet Dik. His comments accompanied a drilling update in which it was confirmed La-107 had successfully reached its target depth of 3,180 metres.

Greatland Gold plc (LON:GGP) announced that regional targeting across its Paterson project area in Western Australia has highlighted the potential for a new iron oxide copper gold ore (ICOG) district. In a statement, the AIM-listed firm said approximately fifty IOCG targets have been identified by the company in the broader region, with around half located in ground held by Greatland.

Wolf Minerals PLC (LON:WLFE, ASX:WLF) is making progress in its ambition not to be a noisy neighbour down in Devon. In an operational update on its Hemerdon tungsten and tin project, the company said it is making progress on the implementation of a turnaround plan, designed to achieve a sustainable production platform by the final quarter of the year.

A sharp rise in revenues helped Capital Drilling Ltd (LON:CAPD) to return to profitability in the first half of the year. The AIM-listed drilling solutions firm saw revenues for the six months ended 30 June jump 49% to US$62.3mln (H1 2016: US$41.7mln). That helped it swing to a post-tax profit of US$2.6mln (H1 2016: Loss of US$0.8mln).

Driver fatigue monitoring technology firm Seeing Machines Limited (LON:SEE) is to hook-up with car safety specialist Autoliv in the field of autonomous vehicles.

Medical services and software company Flying Brands Ltd (LON:FBDU) expects to receive the first prototype for its Stone Checker kidney stones medical imaging software next month. Once Flying Brands has successfully evaluated the product, it will make a start on the necessary regulatory work in order to get CE mark and FDA approval for Stone Checker.

Shares in Kromek Group PLC (LON:KMK) opened 3.6% higher after the radiation technology company announced a new five-year contract from an existing customer.

Clinigen Group PLC (LON:CLIN) has confirmed it is in talks with fellow AIM-listed speciality pharma Quantum Pharma PLC (LON:QP.) regarding a potential takeover offer. Like Quantum said yesterday, Clinigen told investors that the ‘indicative proposal’ is non-binding and is subject to “material preconditions” including customary due diligence.

VinaCapital Vietnam Opportunity Fund Limited (LON:VOF) has announced that, following consultations with the major shareholders and advisers, it has decided to amend its dividend policy and, with immediate effect, intends that to pay a dividend twice per year. The AIM-listed group said that normally the dividend payout will be declared in March and October, although exceptionally today it made a separate announcement declaring its first interim dividend of 4.8 US cents per share.

Thor Mining PLC (LON:THR) (ASX:THR) has announced “very positive” preliminary results over 27.4 metres from the first drill hole at the Good Hope deposit at the company's wholly-owned Pilot Mountain tungsten project in Nevada.

6.45am...dull start predicted 

Generally speaking, the FTSE 100 has enjoyed a solid week so far with the weak pound playing a key role in that.

Sterling received a boost last night though after the Fed minutes revealed a surprise split among policymakers across the pond. That prompted a sell-off in the dollar allowing cable to creep back up towards US$1.29.

A stronger pound is generally bad news for the blue chips as it makes their overseas earnings worth less when converted back into pounds and makes their exports more expensive to foreign buyers.

As a result, the FTSE 100 is set to open 7 points in the red at 7,420 with ex-divs weighing as well.

“The activity on futures market suggest a softer open in London, due to a firmer pound and failed recovery in oil prices despite the biggest contraction in the US stockpiles since last September,” said LCG senior market analyst Ipek Ozkardeskaya.

Despite the softer dollar, the US markets finished higher once again. The Dow Jones finshed 25.9 points higher at 22,024.9, the Nasdaq Composite added 12.1 points to 6,345.1 and the S&P 500 closed 3.5 points in the black at 2,468.1.

The Asian markets are mixed as they head towards close. The Hang Seng Index is 85 points in the red at 27,323, the Nikkei 225 is 25.8 points off at 19,703, but the Shanghai Composite is currently bucking the trend, up 12.2 points to 3,258.6.

Coming up today, the ONS will release the latest UK retail sales figures – a key indicator for the health of the economy. There will also be results from B&Q-owner Kingfisher PLC (LON:KGF).

Thursday’s agenda

Trading update: Kingfisher PLC (LON:KGF)

Interims: Allied Minds PLC (LON:ALM), Capital Drilling Ltd (LON:CAPD), Gem Diamonds Ltd (LON:GEMD), Hikma Pharmaceuticals PLC (LON:HIK), Kaz Minerals PLC (LON:KAZ), Oxford Biomedica PLC (LON:OXB)

Finals: Rank Group PLC (LON:RNK)

Business headlines

The Times

US launches US$400 billion Libor case

Apple sights on Netflix throne with US$1 billion budget

Argos shamed for failing to pay minimum wage

ECB will reject ‘empty shell’ banks

Fed chief attacks plans to change bank stress tests

Eurozone economy growing by twice the pace of Britain’s

Rough turns up heat on fears over gas storage

Islands are getting into deep water

Melbourne in seventh heaven after top award

The Independent

PwC hit with record £5.1 million fine for ‘extensive’ misconduct in RSM Tenon

Uber banned from the Philippines after it flouts new rules

Bitcoin surges up as it targets people without internet access

Belgian brewers take a risk on the UK beer market

Shareholders flex their muscles in 2017 AGM season to reduce executive pay

Energy customers overcharged by £102 million because of company errors

Number of EU citizens working in UK hits record high despite leave vote

Donald Trump wipes US$5.7 billion off the value of Amazon with single tweet

The Daily Telegraph

Wage growth closes the gap with inflation but sterling fails to hold gains

UK shale industry is ‘overhyped’ and unlikely to deliver, geologists warn

Niche drug-maker Quantum in takeover talks with rival Clinigen

EU demand for Apple to pay €13 billion taxes unjustified, says Ireland

Topshop and Topman bosses shown the door in latest Arcadia shake-up

Weak pound pushes salad-maker under with loss of 260 jobs

The Guardian

Trump disbands business councils as CEOs flee after Charlottesville remarks

Lack of diversity in UK’s top firms could hamper post-Brexit trade deals

UK car buyers turn to second-hand vehicles

UK pay growth picks up as unemployment rate falls again

Nokia 8 hopes to beat Apple and Samsung with ‘bothie’, a new version of the selfie

UK to seek Irish border waivers on customs and food safety after Brexit

Welsh port fears post-Brexit customs delays

Daily Mail

Choppy trading at Legoland owner Merlin on rumours it has US theme park Busch Gardens in its sights

Oxford United owner could face a grilling over LearnDirect fiasco

Vulture US hedge fund calls a three-month truce in battle for Dulux owner Akzo Nobel

Music mogul plans £100 million float of Electric Jukebox business to take on Apple, Amazon and Spotify

Ryanair brands German government’s rescue plan for Air Berlin a ‘conspiracy’ to let Lufthansa acquire its assets but not its debt

Monarch airlines crippled as terrorism threat and drop in number of Britons taking holidays leads to £300 million loss

Daily Express

Now Asia eyes up City after Brexit despite EU attempts to snatch business

China’s dangerous debt mountain could spark huge global collapse, the IMF warns

Ice Kitchen seeks £100k to expand as its lavish lollies win over cool girls and the Finns

City AM

Union summons Royal Mail head honchos to the negotiating table in hope of averting crippling postal walk out

Zinc prices climb to highest in a decade on rising demand in China

Danish shipping giant Maersk says June’s cyber attack will cost it up to US$300 million


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