- FTSE 100 down 20 points to 8205
- GSK tumbles on US vaccine restriction
- DS Smith tops risers as takeover confidence grows
11.34am: Why are markets down?
Stocks are struggling for direction this week, says Kathleen Brooks, research director at XTB, with the FTSE 100 down 0.8% over five days, the S&P 500 down 0.16%, the Nasdaq is lower by 0.32% and the Eurostoxx 60 index down 0.3%.
"For now, the sell off is mild, but there is a sense of lethargy in global stock markets right now," says Brooks, adding that the bond market was driving sentiment as global sovereign bonds sold off, pushing up bond yields.
The sell off has continued into Thursday, with UK 10-year Gilt yields up 3 basis points today, French yields up 2 basis points and the US 10-year Treasury yield up by 1 basis point.
"The 10-year UK Gilt yield is higher by 13 basis points so far this week. While it may not sound like a lot, this is a big move for the bond market, and it can have a ripple effect on other markets," Brooks says.
There is a strong positive correlation between the UK 10-year Gilt yield and the US 10-year Treasury yield, which have moved together nearly 80% of the time so far this year.
"This means that when US Treasury yields are moving, the chances are UK Gilt yields will follow, since the Treasury market is the most important bond market in the world.
As the 10-year Gilt yield also has a mildly negative correlation with the FTSE 100 and the 10-year Treasury yield also has a negative relationship with the S&P 500, it means "when bond yields rise, stocks tend to sell off".
European markets have been "somewhat indecisive" today, says market analyst Joshua Mahony at Scope Markets.
The FTSE is down 0.25%, while the benchmarks of France, Spain and Italy are down 0.5-0.7%, while the early gains for the German DAX are now erased
"While we saw early gains for French stocks, the fact that we are seeing them fade once again comes as no surprise as we approach the weekend election," says Mahony, with yesterday seeing another poll point towards gains for the far-right National Rally party.
A Bloomberg poll of polls has NR and its allies at 36% of the vote, which remains well below the 50% marker, highlighting the fact that we will likely have to wait until a week on Sunday to find out the result.
"With that in mind, traders should expect a jittery period ahead, with the fears of a fresh surge in borrowing costs and financial instability driving potential CAC and euro weakness," he says.
Today the US economy comes into focus again, with the final GDP and core durable goods orders data released ahead of tomorrow’s crucial core PCE inflation release.
"Signs of weakness in the jobs market have started to spread through alternate areas of the economy, with yesterday’s new home sales figure falling to a 2024 low.
"While the Fed will be concerned that we are seeing tentative signs of distress across parts of the US economy, the question over at which point it influences to Fed to react remains key," says Mahony.
11am: DS Smith tops leaderboard after suitor situation clears
DS Smith is up over 6%, topping the FTSE 100, after news filtered through that makes its takeover by International Paper Co (NYSE:IP, ETR:INP) more likely.
Brazilian pulp maker Suzano said it had ended talks to buy IP as the US paper and packaging group had not been interested in the highest price it was willing to pay.
Suzano said it had raised its offer to "the maximum price" for the transaction to generate value, but this had been "without engagement from the other party".
"Therefore, in observance of its commitment to capital discipline, Suzano formalizes that it will not pursue a transaction involving the acquisition of International Paper," it said.
DS Smith agreed to a takeover by IP for £5.8 billion in April.
10.56am: Is 'Swiftonomics' a lie?
Taylor Swift is on the European leg of her world tour, with her performances in venues like Wembley Stadium and Anfield touted by some to generate £1 billion for the UK economy.
The tour's popularity is so large that it has been placed on par with the Olympic Games in France and the Euros in Germany as the key events expected to help boost European economies at a time when a recession is close in the rear-view mirror.
However, not everyone is convinced that "Swifonomics" is real.
Looking at her performances in Stockholm over three dates in May, the artist was able to sell around 180,000 tickets, generating some US$81 million for the city.
However, when zooming out and looking at Sweden's overall economy, the concert makes very little impact on the country's US$623 billion annual output.
Carl Bergkvist, chief economist at Stockholm's chamber of commerce, told Reuters: “This extra turnover is a great weekend boost for Stockholm and in particular, its tourism sector.
"But it’s just that — a weekend, with no visible or significant impact on overall economic growth.”
Carsten Brzeski, an economist at ING, echoed similar thoughts, calling the Swift effect "extremely small and temporary, at best".
"There is copious research in the run-up to big events outlining the economic benefits but after the fact you need a magnifying glass to find these so-called benefits in the numbers," he said.
10.27am: UK car manufacturers pile pressure on incoming government
Car manufacturers in Britain are placing more pressure on the incoming government after it demanded support, days after Vauxhall's owner Stellantis threatened to shut its production factories in the UK.
The Society of Motor Manufacturers and Traders (SMMT) has urged the next government to "back British manufacturing" by offering tax cuts and changes to regulation, which is expected to help with the adoption of EVs.
"Maintaining the status quo is not an option,” the lobby group said, claiming that the UK was at risk of being "outcompeted" by the US, China, and the European Union.
Mike Hawes, chief executive of the SMMT, said: “Massive change is underway in the UK’s car factories as manufacturers retool for new electric models.
“Amid strong international competition for green automotive investment, however, the UK needs to ensure it has the most attractive conditions for manufacturing businesses and a compelling offer for existing and new investors."
Earlier this week, Stellantis UK boss Maria Grazia Davino warned the company could stop making vans in the UK due to the government's targets for EVs.
She claimed government sales mandates for zero-emission vehicles "could be very damaging" for its operations.
10.05am: Bunzl shares move higher as margin increases grow earnings
Bunzl shares are up close to 1% after it upgraded its guidance for the year based on improved margin performance in the first half of the year and previous acquisitions.
Analysts at Shore Capital said the increase in margins is expected to add 2% to 3% to its earnings.
Revenue growth in 2024 is expected to be "robust", while the group's operating profit margin is now expected to be "slightly above" 2023 levels.
For the first half of the year, sales are expected to be down 3-4%, with underlying revenue falling 5%.
"Whilst the current half is set to see revenue challenges, we look for a return to positive organic development metrics in H2," said Robin Speakman at Shore Capital.
"A strong balance sheet remains a feature of Bunzl supporting the acquisitive growth strategy.
"Cash generation continues to deliver asset allocation options and... Bunzl retains material firepower to further its acquisitive and organic development strategy as a ‘cash compounder’."
9.44am: Global inflation nerves won't stop rate cuts, says analyst
Analysts do not believe the unexpected rise in inflation in Canada or Australian CPI hitting six-month highs will affect the UK's chances of rate cuts this summer.
Following Canada's inflation surprise a month after its central bank cut rates, economists are now readying for a 45% chance of another in July, down from a 70% likelihood earlier this week.
Meanwhile, there is a 50/50 chance Australia will hike interest rates by 0.25% by September.
Yet, analysts at UBS aren't convinced these two issues will affect the global rate cutting cyle.
"Noisy inflation data may be sufficient to keep policymakers cautious in their moves, but the global disinflationary process is well established, in our view," analysts at the Swiss bank said.
"Easing price pressures and other economic considerations should encourage central banks to start or continue cutting rates.
"In the US, while Federal Reserve Governor Michelle Bowman this week said keeping policy on hold for some time is likely necessary, we believe incoming data on inflation, growth, and the labour market will justify a first cut in September.
"Across the Atlantic, a growing number of policymakers at the Bank of England highlighted that their decision to remain on hold last week was finely balanced, and we expect the European Central Bank to ramp up policy easing in the coming months."
9.31am: Halfords shares rise as investors shrug off profit slide
Halfords Group PLC (LSE:HFD) shares have jumped 5% as the car parts and cycle retailer revealed its full-year sales ticked close to 8% higher reaching £1.70 billion.
However, the group’s underlying profit before tax stood at £36.1 million, down 8%, as it faced external headwinds affecting the consumer tyres and cycling markets.
Its strategically important Services business has now become the largest revenue segment, accounting for over half of the business's total revenue.
Halfords reported achieving market share gains in all four of its core markets. The gross margin saw a slight decline to 48.5%, down 40 basis points from the previous year.
Cost efficiency was a major highlight, with the Group delivering cost savings of over £35 million, exceeding its original target of £30 million. This brings the total cumulative savings to approximately £70 million over the last three years.
CEO Graham Stapleton said: "This has been a year of strong strategic and operational progress for Halfords, and we are pleased to have delivered a resilient financial performance against challenging core markets.
"We have continued to invest in our strategically important Services business, which for the first time now represents over half of our total revenues."
As of the end of the fiscal year, Halfords managed to reduce its retail inventory by £24 million, maintaining a strong balance sheet with net debt, excluding leases, at £8.2 million.
9.17am: Cooling jobs market fuels rate cut talks
Hopes that the Bank of England will cut rates this summer are growing after fresh data indicated that the jobs market is cooling.
Job openings fell by a fifth in the last year, a sharp turn from the post-pandemic boom in offerings, new research from Indeed found.
For the first time since the end of lockdown in Spring 2021, the amount of job openings on the online platform has dropped to below its pre-pandemic level.
A tight labour market may indicate to the BoE that it is fuelling persistent inflation, and could open up the Monetary Policy Committee to cut rates at its next meeting in August.
Markets are currently predicting a two-in-three chance that interest rates will fall from its 16-year-high of 5.25%.
8.57am: H&M shares topple as sales suffer due to bad weather
In mainland Europe, one of the world's leading fashion retailers saw its share price fall more than 13% after it warned bad weather would be affecting its sales.
H&M posted a 50% increase in operating profits to SKr7.1 billion ($672.5 million) from March to May, however, investors appeared to be more interested in what comes next for the Swedish retailer.
In June, sales are predicted to decrease by 6% year-on-year because of poor weather.
“The situation in the world around us remains uncertain and households continue to have high living costs," said newly appointed boss Daniel Erver.
He also noted that external factors such as rising material costs and fluctuating foreign currency rates are expected to negatively impact purchasing costs more than previously anticipated. “
This will have a more negative impact than we expected in the second half of the year,” Erver added.
H&M has been under pressure for over a decade, losing its position as the world's largest fashion retailer to Zara owner Inditex and facing competition from new low-cost retailers like Shein and Temu.
Despite these challenges, the company reported a rise in its gross margin to 56.3% in the second quarter from 52.7% in the same period last year, which Ervér described as “our best results for many years.”
8.41am: GSK falls on RSV vaccine ruling
GSK PLC (LSE:GSK, NYSE:GSK) shares are down 6% this morning, which seems to be on the back of US authorities recommending a restriction on doses of any respiratory syncytial virus (RSV) vaccine.
The Centers for Disease Control and Prevention's (CDC) advisory committee on immunization practices (ACIP) unanimously voted to restrict RSV vaccine recommendation to defined at-risk 60-74s, whilst expanding use for all 75 and older.
These decisions may cut 2024-25 addressable US market from around 80 million people aged 60-plus as well as circa 13 million at-risk aged 50-59, to perhaps circa 55 million, said analysts at Jefferies, with around 10 million dosed last season.
"Longer-term we are confident use expands," the analysts said, but predicted GSK stock would be likely to fall 2-4% on the "sales risk" to its Arexvy vaccine.
8.27am: BP pauses new offshore wind
Shares in BP PLC (LSE:BP.) are up after boss Murray Auchincloss implemented a hiring freeze and paused new offshore wind projects to focus more on oil and gas.
This is apparently amid investor concerns over its energy transition strategy, according to Reuters, citing sources close to the oil giant.
This shift contrasts with former CEO Bernard Looney's approach, which prioritised moving away from fossil fuels, but mirrors moves made at larger rival Shell.
Despite BP's gains, the FTSE has shifted lower, down 15 points at 8210.
8.14am: FTSE flat at open
The FTSE 100 has opened in an indecisive manner, first rising a little, then falling a little.
After these opening fluctuations, the London benchmark is now flat at 8225.
Top of the leaderboard is DS Smith PLC (LSE:SMDS) after suitor International Paper Co (NYSE:IP, ETR:INP) said it is forging ahead with its proposed acquisition of its UK packaging rival, with overtures from Brazil's Suzano reported to be ended.
Another riser is Bunzl PLC (LSE:BNZL) after upgrading its guidance for the year based on improved margin performance and acquisitions.
GSK is the biggest faller, down 6%, not sure why yet.
7.52am: Currys profits up, down at Watches of Switzerland
Currys PLC (LSE:CURY) issued results with a confident tone, with underlying profit in line with forecasts and trading in the first few weeks of its new year continuing on a similar track.
With its cash position improving, the electrical goods retailer said it intends to reinstate its dividend or share buybacks during the next 12 months.
Adjusted profit before tax came in at £118 million in the year to 27 April, up 10% on the prior year, versus guidance if between £115 million and £120 million
Elsewhere in the retail sector, Watches of Switzerland Group PLC confirmed that profit profits fell 40% last year but the UK market is stabilising and growth in the US means it will soon represent half of group sales.
The luxury watch and jewellery retailer reiterated its “cautiously optimistic” guidance for revenue growth to return in this new year, saying the industry as a whole is on a more conservative footing, slowing production amid a slowdown in the wider luxury market, while prices rose sharply.
For the past year, statutory profit before tax fell 40% to £92 million, while underlying profit on an adjusted EBIT basis came in at £135 million, down 18% year-on-year, but within the £133-136 million recent guidance from last month.
7.28am: FTSE 100 set for flat start
London’s blue chips are set for a flat start after a mixed night in Asia and in the US with the strength of the dollar unsettling the mood.
Financial spread betters have pencilled in Footsie to open around five points higher after yesterday’s modest gains.
Overnight Asian markets were as China’s economic struggles were underlined by sharply reducing industrial profits in May.
Expectations that Japan’s central bank will step in and prop up the yen added to the uneasy mood.
In the UK, BP has announced a hiring freeze and a further retrenchment of its green plans, which looks curiously timed with the election a week away and Labour targeting the oil and gas sector.
Currys' final results showed underlying profit in line with forecasts with a comment that trading in the first few weeks of its new year has continued on a similar track.
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2024-06-27 09:56:00Z
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