It was a morning of recovery for most European stock market benchmarks on Friday, though not for the FTSE 100, as it extended its decline following Thursday’s brutal sell-off.
London’s blue-chip index could fall further as the afternoon progresses, if the latest US nonfarm payrolls come in hotter-than-expected.
A strong nonfarm payrolls reading is typically bullish for equities but the reverse could be true this time. Government bond yields spiked markedly in the wake of a more robust than expected ADP jobs report, a precursor to the nonfarms. A similarly strong official payrolls report could signal more Federal Reserve hikes are needed.
Among individual stocks in London, Coca-Cola HBC impressed, while OSB Group slumped.
The FTSE 100 index was down 21.26 points, or 0.3%, at 7,259.24. The blue-chip index sunk as low as 7,229.57 points, its worst level since March 20. It has fallen more than 3.5% so far this week.
The FTSE 250 was up 11.30 points, or 0.1%, at 17,927.76, though the AIM All-Share was down 1.13 points, or 0.2%, at 739.73.
The Cboe UK 100 was down 0.2% at 724.18, the Cboe UK 250 was down 0.4% at 15,678.18, though the Cboe Small Companies was up 0.2% at 13,578.65.
In European equities on Friday, the CAC 40 in Paris was up 0.5%, while the DAX 40 in Frankfurt added 0.4%.
Share price gains for carmaker Stellantis, rising 1.6% and luxury goods firm LVMH, up 1.1%, helped boost the CAC. Chemicals firms BASF and Covestro rose 4.0% and 2.1% in Frankfurt.
‘After yesterday’s miserable day on the markets when investors gave a knee-jerk reaction to the Federal Reserve’s meeting minutes and partial US employment figures, there was still a sense of nervousness in the air on Friday, even if equities avoided another major sell-off,’ AJ Bell analyst Russ Mould commented.
‘It was widely accepted that interest rates would keep having to go up to combat inflation. Yet signals about further hikes from the Fed, followed up by an unexpectedly large increase in private sector jobs, still seemed to catch the market off-guard, pulling down equities and pushing up bond yields. US payroll data released later today will be watched closely by investors.’
Growth in US nonfarm payrolls is expected to have slowed to 225,000 last month, from 339,000 in May, according to FXStreet cited consensus. The unemployment rate is expected to fall to 3.6% from 3.7%.
‘If these forecasts are correct, it would reinforce the impression of an ongoing tight labour market and give the Federal Reserve a solid reason to keep pushing up rates.’
The jobs data is reported at 1330 BST.
US stocks are called to open lower on Friday. The Dow Jones Industrial Average is called a touch lower and the S&P 500 and Nasdaq Composite down 0.1% and 0.2%.
In London, utility stocks were weaker. United Utilities lost 2.1%. The stock had risen 1.5% on Thursday, a day when blue-chip gains were at a premium. Shares are down around 8% this month, however, in a negative read across amid woes at Thames Water.
On the up, Coca-Cola HBC added 4.7%. After a stronger-than-expected finish to the first half of the year, the drinks bottler upgraded its earnings expectations for the full year.
The company now expects organic earnings before interest and tax growth of between 9% to 12% for 2023. Previously, Coca-Cola HBC had expected Ebit growth of up to 3% or a decline of up to 3%.
Elementis was among the best mid-cap performers, adding 4.8% after JPMorgan raised the specialty chemicals company to ’overweight’ from ’neutral’.
OSB Group tumbled 27% as it said it will take as much as a £180 million hit to first-half results, because customers are acting more quickly than expected to refinance their mortgages at favourable rates.
OSB, which stands for OneSavings Bank, said that as its mortgage customers reach the end of their initial fixed term, they are choosing to refinance earlier than expected and therefore spend less time on the higher reversion rate. This rate is linked to the Bank of England’s bank base rate and has been rising over the past year as the central bank hikes UK interest rates.
‘As the first half of 2023 progressed, the group observed a step change in the behaviour of Precise Mortgages owner-occupied and buy-to-let customers reaching the end of their initial fixed term,’ OSB explained.
OSB said it now expects customers to spend an average of five months on the higher reversion rate, which it said it is a reduction from its previous expectation without saying what that had been. As result of the reduced time spent at the higher rates, OSB said it will make a negative effective interest rate adjustment of £160 million to £180 million on an underlying basis against first-half results.
MJ Gleeson shares traded 1.8% lower. The housebuilder said higher interest rates and a downturn in the wider UK economy had a negative impact on the number of sales made in the financial year ended June 30.
The company completed the sale of 1,723 homes in the year, down from 2,000 homes the year prior. MJ Gleeson said the decrease reflected a downturn in the wider economy and the impact of higher interest rates on buyer confidence.
‘Even activity among lower-priced homes has taken a wobble. MJ Gleeson builds properties for the ’affordable housing’ market, typically selling to young, first-time buyers. But even this company is not immune to market weakness,’ AJ Bell’s Mould added.
There could be more pain ahead of mortgage holders, as Bank of England interest rate expectations have picked up. Overnight index swaps are pricing in a 6.50% terminal bank rate. The benchmark rate currently stands at 5.00%.
‘Markets have continued to ramp up bets in favour of higher Bank of England interest rates in the past few days, which has once again kept GBP well bid. Swap rates now see a terminal BoE base rate of 6.5% by mid-2023 - a total of 150 additional basis points of hikes. While we see this as somewhat of a stretch, the MPC looks dead set to be the most active central bank in the G10 during the remainder of the year, which we view as a clear bullish signal for sterling - the best performing major currency so far this year,’ Ebury analyst Matthew Ryan commented.
Sterling was quoted at $1.2764 early Friday afternoon, firming from $1.2690 at the London equities close on Thursday. The euro traded at $1.0895, higher than $1.0858. Against the yen, the dollar was quoted at JP¥143.12, down versus JP¥144.23.
Gold was quoted at $1,916.17 an ounce midday Friday, higher than $1,909.01 on Thursday. Brent oil was trading at $76.74 a barrel, higher than $75.23.
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