Evidence of strength and price pressure in the UK services sector convinced investors that another interest rate hike is all but certain next month, sending share prices lower on Friday but doing nothing for the pound.
The FTSE 100 index was up 8.85 points, or 0.1%, at 7,911.46 midday Friday. The FTSE 250 was up 3.52 points at 19,139.39, and the AIM All-Share was down 1.35 points, or 0.2%, at 827.88.
The Cboe UK 100 was up 0.1% at 791.28, the Cboe UK 250 was down 0.1% at 16,750.64, and the Cboe Small Companies was up 0.1% at 13,802.06.
The UK private sector in April saw the fastest rate of expansion in 12 months, survey results from S&P Global showed, but growth was primarily driven by the service sector.
The headline seasonally adjusted S&P Global flash UK composite output index read 53.9 points in April, up from 52.2 in March.
Rising further above the 50-point mark that separates contraction from expansion, it shows growth in private sector strengthened in April for the third consecutive month.
S&P Global noted the reading was the strongest rate of output growth since April last year. It was also better than the 52.5-point print expected by markets, according to FXStreet.
However, there were divergent trends by sector as strong growth in the service economy contrasted with another fall in manufacturing production.
The UK flash services purchasing managers’ index stood at 54.9 points in April, up from 52.9 in March, while the flash manufacturing PMI slipped further into contraction at 46.6 points, down from 47.9 in March.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that inflationary pressures have continued to cool in manufacturing, but said price pressures have picked up in services following the resurgence of demand.
‘This combination of faster growth and elevated price pressures put a 12th rate hike by the Bank of England an increasingly done deal when it next meets on May 11, and will add to speculation that further hikes may be needed,’ he said.
The pound was quoted at $1.2388 at midday on Friday in London, lower compared to $1.2449 at the close on Thursday.
The pound’s decline likely has more to do with a stronger US dollar than any fundamental sterling weakness as a result of disappointing UK economic data, however.
UK retail sales declined by more than expected in March, according to data from the Office for National Statistics on Friday.
Retail sales volume is estimated to have fallen 0.9% in March from the month before, following a 1.1% rise in February. February’s monthly rise was revised down from an increase of 1.2%, the ONS said. Markets expected retail sales volume to fall 0.5% in March on a monthly basis, according to FXStreet-cited consensus.
The euro stood at $1.0965 at midday Friday, lower against $1.0971 late Thursday. Against the yen, the dollar was trading at JP¥133.80, lower compared to JP¥134.04.
‘While the recent gains in the dollar are not surprising given the current backdrop, they should not be seen as a signal of further advances. In the medium to long term, the outlook for the greenback is bearish as other central banks, such as the ECB, look set to continue to tighten monetary policy after the Fed’s anticipated pause in May,’ said Ricardo Evangelista, senior analyst at ActivTrades.
In London, miners remained the worst blue-chip performers at midday as commodity prices continued their decline.
Brent oil was quoted at $80.66 a barrel at midday in London on Friday, down from $81.29 late Thursday. Gold was quoted at $1,989.10 an ounce, sharply lower against $2,002.90.
Rio Tinto fell 4.7%, Anglo American 3.4%, Antofagasta 1.7%, and Endeavour Mining 1.2%.
Glencore lost 1.3%. The miner and commodities trader said production in the first quarter of 2023 was ‘broadly’ in-line with its expectations, accounting for portfolio changes and operational conditions, including the disposals and closures of some zinc and lead mines in the Americas during 2022.
New London listing Dowlais was the top performer in the FTSE 100, up 6.5%.
On Thursday, Melrose Industries completed the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses from the company into Dowlais. The shares had a poor debut, closing down 20%.
In January, Melrose said the combined DemergerCo businesses recorded £5.20 billion in revenue in 2022, up 6% at constant currency rates. Operating profit was between £320 million and £330 million, up 21%.
Shares in Melrose were down 2.0% to 405.10p. The stock closed at 413.45p on Thursday versus 163.13p on Wednesday. Prior to the Dowlais demerger, Melrose undertook a three-for-one consolidation of its own shares.
Russ Mould, investment director at AJ Bell, said Dowlais shares were ‘chugging higher’ as investors react to the potential opportunities provided by the transition to electric vehicles in the industry it serves.
In the FTSE 250, Network International surged 9.5% to 394.20p as confirmed it has received an 400 pence per share takeover offer from Brookfield Asset Management.
The Brookfield offer follows another potential offer for the payments provider from CVC Advisers and Francisco Partners Management at a price of 387p per share.
Network said it is currently evaluating the Brookfield offer with its financial advisers and said a further statement will be made in due course.
Elsewhere in London, Sureserve rocketed 37% to 123.46p, after it said it reached an agreement with Cap10 4NetZero Bidco, a company indirectly owned by Cap10 Partners, on an all-cash takeover for the energy services provider.
Cap10 will pay 125p for each Sureserve share, a 39% premium to its closing price of 90p on Thursday. The company said this values it at around £214.1 million.
The Sureserve board said it considers the terms of the acquisition to be ‘fair and reasonable’ and intends to unanimously recommend the acquisition at a general meeting, expected to be held in June.
Chair Nick Winks said: ‘Under Bidco’s private ownership, without the costs and regulation of a listed company, Sureserve should be able to pursue its strategy more productively and thereby sooner achieve leadership in helping our customers transition from traditional heating fuels to renewable alternatives.’
In European equities on Friday, the CAC 40 in Paris was flat, while the DAX 40 in Frankfurt was 0.3% lower.
The gulf between the eurozone’s manufacturing and services sectors also widened in April, according to preliminary survey data.
The flash eurozone services PMI from Hamburg Commercial Bank rose to a 12-month high of 56.6 points in April, from 55.0 in March. The reading was higher than FXStreet-cited market consensus of 54.5.
‘Growth became increasingly uneven in April,’ HCOB noted, with manufacturing output seeing its sharpest rate of deterioration since December, after two months of marginal growth.
The overall flash manufacturing PMI fell to a 35-month low of 45.5 from 47.3, indicating the downturn in the sector worsened. This was below market consensus of 48.0.
The flash composite PMI - which weighs the services and manufacturing indices - rose to 54.4 from 53.7 - an 11-month high.
Stocks in New York were pointed to open flat, with the Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite all called marginally lower.
In the US on Thursday, Wall Street ended lower as concerns over the health of the US economy and disappointing earnings from the likes of Tesla and AT&T weighed on equities.
Expectations that US interest rates will remain higher for longer also weighed on sentiment after Philadelphia Fed President Patrick Harker said ‘some additional tightening may be needed to ensure policy is restrictive enough.’
‘Once we reach that point, which should happen this year, I expect that we will hold rates in place and let monetary policy do its work,’ he said in a speech in Pennsylvania, according to prepared remarks.
Still to come on Friday’s economic calendar, there is a flash purchasing managers’ index reading from the US at 1445 BST.
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