• FTSE 100 ends 47 points lower

  • US stocks backtrack after firm opening

  • US ISM manufacturing new exports orders index declines

5.10pm: Glum finish in London   

The FTSE 100 index closed firmly in the red on Tuesday, having been higher earlier, as a shocking manufacturing report from the US sent global markets into a tail-spin.

The UK blue chip index closed the day down 47.89 points at 7,360.32, while the FTSE 250 also fell, losing 62.10 points at 19,874.57.

“Traders had gotten used to the idea that manufacturing in Europe is weak, but the disappointing US ISM manufacturing report sent the message home it is a worldwide problem,” noted market analyst David Madden at CMC Markets.

Just after Wall Street opened, the ISM manufacturing report came out and the reading was 47.8, while economists were expecting 50.1. It was the worst reading for a decade and sent US stocks reeling lower.

Around London’s close, the Dow Jones Industrial Index had dropped by around 213 points to 26,703 and the S&P 500 fell 21 points to 2,955.

“Manufacturing in China has been weak recently, so it is clear the US-China trade spat is hurting the global economy. In Europe, Spain, Italy, Germany plus the UK all posted readings that showed negative growth,” Madden added.

Financial stocks were among the biggest laggards in London, with Hargreaves Lansdown (LON:HL.), the top FTSE 100 loser, shedding 3.5% to 2,006p. Heavyweight banking group Credit Suisse kicked off coverage of the stock with an ‘underperform’ stance and a 1,740p price target.

Credit Suisse noted that HL missed its performance targets for fund flows, new clients and profit before tax in full year 2019.

4pm: Footsie sinks 

The Footsie’s mid-afternoon revival proved relatively short-lived as US benchmarks plunged following grim manufacturing data from the US.

The leading shares index was down 41 points (0.6%) at 7,367.

Wealth management firms were dragging the index lower, with Hargreaves Lansdown Plc (LON:HL.), down 3.4%, the biggest Footsie faller, as pundits pontificated on what the latest macro data means for the prospects of the world’s largest economy.

“The ISM manufacturing new exports orders index declined by 2.3pts to 41.0, the lowest level since March 2009,” reported Mickey Levy at German bank, Berenberg.

“According to the ISM report ‘Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth’,” he added.

“An easing of US-China trade tensions would remove the cloud of uncertainty, potentially lower barriers to trade and unclog supply chains, but the global industrial slowdown will persist as long as China’s domestic economy fails to respond to its stimulus initiatives,” Levy suggested.

Other asset management firms taking a bath as a result of increased fears of a global slowdown included St James’s Place PLC (LON:STJ) and Schroders PLC (LON:SDR), both of which were down 2.1%.

Talking of baths, a 4.5% rise for plumbing and heating products seller, Ferguson PLC (LON:FERG) after its results statement this morning helped take the edge off the Footsie’s fall.

“Given the level of challenges, some of which are of its own making, Ferguson is generally making solid progress,” said Richard Hunter, the head of markets at interactive investor.

“The US business in particular, which accounts for 84% of group revenues, saw sales increase by 10%, sweeping aside any previous concerns for the moment on wage inflation, lessening demand in this core market or, indeed, the possibility of a slowdown in the broader US economy. Meanwhile, the company’s strong cash generation has not only enabled the $500 million share buyback as previously announced, but also a 10% hike to the dividend, both of which are supportive to the share price as well,” he observed.

2.45pm: London attempts a rally

It is back to square one for the Footsie, as the pound takes a tumble against the dollar.

London’s index of blue-chip shares has scraped into the black, rising a point (0.0%) to 7,409 as sterling lost almost three-quarters of a cent against the greenback to trade at US$1.2221.

A strong start by indices in the US has also boosted sentiment. The Dow Jones was up 110 points (0.4%) at 27,026 while the S&P 500 was 13 points (0.4%) to the good at 2,990.

With the Conservative Party’s annual conference in full swing, Brexit has predictably been high on the agenda.

James Duddridge, the Brexit minister, has been left behind in Westminster where has told MPs that the EU will get formal proposals from the UK for an alternative to the Irish backstop agreement before the end of the week.

He assured the House of Commons that the government’s proposal would not include proposing physical checks at the border between Northern Ireland the Republic of Ireland.

“There is no intention to have physical checks at the border. I’m not choosing my words carefully there – there are no plans to do that, I can reassure him,” he told Labour MP, Hilary Benn.

 

12.20pm: US stocks tipped to open higher

The Footsie’s losses were lengthening heading into the afternoon session, despite expectations of a solid start on Wall Street.

London’s index of heavyweight shares was down 28 points (0.4%) at 7,380.

Across the pond, spread betting quotes suggest the Dow Jones will open around 40 points higher at 26,988 while the S&P 500 is seen climbing 5 points to around 2,982.

British Airways owner, International Consolidated Airlines (LON:IAG) defied the trend, rising 0.9% to 479.1p, after Morgan Stanley said gloom on the European sector has been overdone.

Our analysis suggests European airlines are priced for an outright Euro area recession, which we think is unlikely,” the US investment bank said.

“Airlines’ 30% underperformance since the start of the year has been the sharpest and most prolonged underperformance over the past 15 years – and the most significant undershoot relative to the fair value implied by our analysis, based on the PMI and the oil price,” it added.

The broker note was also sweet music to the ears of shareholders in low-cost airlines, Wizz Air PLC (LON:WIZZ) and easyJet PLC (LON:EZJ), which were up 2.0% and 1.1% respectively,

Housebuilders were mostly firmer following the release this morning of the Nationwide house price index.

Nationwide’s seasonally adjusted measure of house prices fell by 0.2% month-on-month in September. Year-on-year growth slowed to 0.2%, from 0.6% in August, compared to the consensus forecast of growth of 0.5%.

“Uncertainty about Brexit has greatly dampened house prices, though a sustained period of falling prices likely doesn’t lie ahead, provided a no-deal Brexit is avoided,” suggested Samuel Tombs, the chief UK economist at Pantheon Macroeconomics.

“The near-term trend in prices looks no better than flat; asking prices rose by a mere 0.2% year-over-year in September, according to Rightmove. In addition, the Building Society Association’s Property Tracker survey shows that the proportion of households expecting house prices to fall exceeds that expecting them to rise for only the second time in the last decade, implying that buyers will attempt to negotiate big discounts. Nonetheless, affordability will continue to be supported by falling mortgage rates,” he added.

Howard Archer, the chief economic advisor to the EY ITEM Club, said it should be borne in mind that there have been appreciable differences in house price performances across the regions with the overall national performance dragged down by London and the South East.

“Indeed, a regional breakdown of the third quarter data by the Nationwide show that at the top end there were year-on-year gains in Northern Ireland (3.4%), Wales (2.9%), North West (2.5%), West Midlands (2.1%) and the North (2.0%),” he noted.

“With the economy largely struggling and the outlook highly uncertain, we suspect that house prices will remain soft in the near term at least. Consequently, we expect house prices to only rise around 1.0% on most measures over 2019. House price inflation on the Nationwide’s measure looks highly likely to be less than 1% over 2019 and may struggle to be any more than 0.5%,” Archer predicted.

Despite that, Persimmon PLC (LON:PSN), Taylor Wimpey PLC (LON:TW.) and Berkeley Group Holdings PLC (LON:BKG) were up by between 0.7% and 1.2%, although Barratt Developments PLC (LON:BDEV) was down 0.2%.

Elsewhere in the sector, Countryside Properties PLC (LON:CSP) was lifted by a ‘buy’ note from Deutsche Bank in which the German bank increased its price target to 371p from 353p. The stock currently trades at 340.6p, up 1.4%.

11.00am: Upon further review, September’s PMI data still seems a bit duff

The Footsie has dipped a bit further as economists try to get a handle on this morning’s manufacturing purchasing managers’ index (PMI) data.

The FTSE 100 was down 13 points (0.2%) at 7,395.

“UK manufacturing continues to struggle against the global headwind, a further symptom that the UK economy is stalling,” said Phil Smeaton, the chief investment officer at wealth management firm, Sanlam UK, commenting on this morning’s PMI reading.

“Uncertainty around Brexit means it’s often hard to distinguish the signal from the noise, but it is increasingly clear that rate cuts will be necessary regardless of where the UK stands on November 1st. As well as boosting investment, this will provide the government with the required space for a fiscal stimulus to help the UK navigate through the choppy waters ahead and out the other side,” Smeaton said.

James Smith, an economist at ING covering developed markets, said the latest PMI signals that UK manufacturing is being partially boosted by pre-Brexit stock building, although he notes that high inventory levels and lack of warehousing space mean this effect will be much smaller than before the original Brexit deadline, which was the end of March.

“Remember back in the first quarter, firms initiated significant stockpiling ahead of the original exit date and while much of this by definition involved higher European imports, this gave associated UK manufacturing a boost too. It’s unlikely, however, any boost will be on the same scale this time around. Inventory levels are still perceived to be fairly high, but also warehousing space is becoming more constrained given the close proximity to Black Friday and Christmas.

“While we suspect the recent negativity in the manufacturing data has been to some extent exaggerated by the post-March 31 correction in production, output is also unlikely to meaningfully rebound in the near-term. Alongside all the Brexit uncertainty, the global growth story is also weighing on demand, particularly from the eurozone,” Smith said.

Howard Archer, the chief economic advisor to the EY ITEM Club, said a further delay to the UK’s exit from the EU could risk prolonging uncertainty.

There are only limited signs of stock-building, Archer surmised.

“There were signs of renewed stock-building ahead of the 31 October Brexit deadline with stocks of purchases and input buying rising for the first time in recent months. Pre-production stocks rose for the first time in five months.

“September saw a modest pick-up [in] finished goods stocks. Input stocks were reported to be little changed in July after being run down recently after the sharp first-quarter build-up. While some companies were still running down their stocks after the substantial first-quarter build-up, there were some reports that others were beginning to re-build them ahead of the end-October Brexit deadline,” he added.

9.50am: Stocks largely unmoved by slight recovery in the UK manufacturing PMI

The UK manufacturing Purchasing Managers’ Index for September hit a four-month high of 48.3 in September.

The reading was up from August’s 47.4, which was a six-and-a-half-year low, but below the 50 point level that marks the crossover from contraction to expansion.

The headline index has now remained below the neutral 50.0 mark for five successive months, its longest sequence below that mark since mid-2009, reported the index compiler, IHS Markit/CIPS.

“Manufacturing production continued to contract in September, as companies cut back output in response to a further reduction in new order intakes. The investment goods sector was by far the weakest performer, seeing the steepest drops in both output and new business. This reflected, at least in part, a reluctance among clients to commit to capital expenditure due to ongoing market uncertainties (economic, political and Brexit related),” according to Markit Economics.

“The consumer goods sector was the only category to see output rise in September, as production in the intermediate goods industry stagnated. The outlook for both sectors remained lacklustre, however, as intakes of new work decreased in both during September,” it added.

The FTSE 100 showed little reaction to the data and continued to loiter just above the 7,400 level, at 7,403 – down 6 points (0.1%).

9.30am: Leading shares head slowly south

After a half-hearted attempt at a firm start, London’s blue-chip shares are now slightly lower on balance.

The FTSE 100 was down 9 points (0.1%) at 7,400.

“Strength in sterling, as markets await the publication of UK plans for Brexit, weighs on the index,” according to Russ Mould, the investment director at AJ Bell.

That comment was issued half an hour or so ago, since when sterling has fallen back more or less to its overnight level against the dollar.

Shares in marketing giant WPP PLC (LON:WPP) have been recovering over the last month and received a further boost today from news that John Rogers, the boss of Sainsbury’s Argos business, is jumping ship to become WPP’s primo bean counter.

“This a blow as he’s been a real strong performer at the retailer. Mr Rogers had been tipped as the strongest candidate to take over from Mike Coupe. Indeed, it suggests Mike Coupe has dug his heels in and won’t be going anywhere for a while despite the botched Asda merger, horrible LFL [like-for-like] sales, continued market share loss to discounters and the rather lacklustre strategy update last week,” said Neil Wilson at markets.com.

Shares in WPP were up 1.4% at 1,032p, while shares in J Sainsbury PLC (LON:SBRY) were also higher, up 1.0% at 222p.

8.40am: Muted start for the Footsie

The FTSE 100 made a muted start to proceedings, nudging just 10 points higher to 7,418.53, as traders opted to keep their powder dry ahead of the latest monthly manufacturing data.

A weaker than anticipated read-out from the Purchasing Managers’ Index, following on from Monday’s lacklustre GDP number, could give rise to a further bout of the recessionary jitters.

Boris Johnson, meanwhile, in rather ‘Trumpesque’ fashion, is ready to unveil his Brexit masterplan, though his Irish border solution has already been dismissed as a “non-starter” by sources in Dublin.

Neil Wilson, of Markets.com, has dusted off the crystal ball to tell us what the new month has in store.

“Usually October can be pretty rocky,” he said.

“I blame the shorter days staring to affect traders’ moods. Watch for volatility to spike in the coming days, particularly as markets approach these October 10 trade talks with more optimism than they deserve.”

Thanks, Septic Peg.

On the market, the US-focused builders’ merchant Ferguson (LON:FERG) advanced 3.5% after a better than expected full-year results .

Turning to the FTSE 250 and some bottom fishers looking to cover off short positions weighed in for Sirius Minerals (LON:SXX), which was up 4%.

7.10am: FTSE 100 set to open flat 

The FTSE 100 is heading for a flat start on Tuesday as October begins with a new round of macroeconomic data. 

London stocks were being called one point lower to 7,423.9 on the IG spread-betting platform.

After holding its ground above 7,400 the day before, despite the weak GDP figures, the Footsie could however be vulnerable to the release of bad data on Tuesday.

With manufacturing PMI data out at 9.30am, this could point at a faster contraction in activity and send the FTSE lower despite the pound remaining under pressure from Brexit.

Boris Johnson’s government has, according to media reports, finalised the legal text of a proposed Brexit deal, which will be presented to the EU on Thursday, with the Irish border the most intricate part of the puzzle.

“With the risks comfortably tilted to the downside, a further fall in pound is almost inevitable,” said Ipek Ozkardeskaya, senior market analyst at LCG.

If the FTSE starts flat it would mean the index fails to hang onto the shirt-tails of Wall Street or Asian equities, which were both firmly in the green.

US stocks enjoyed a modestly positive session, with the Dow Jones finishing around 97 points or 0.4% higher at 26,916.83, while the S&P 500 added 0.5% and the tech-laden Nasdaq Composite did the best of the lot with a 0.75% increase. 

Asia-Pacific equities were also on the front foot, although China and Hong Kong markets are closed due to the Chinese Communist Party’s 70th anniversary celebrations.

The Nikkei was up 0.7% and Australia’s ASX was up 0.8% after the country’s central bank cut its benchmark interest to a new record low of 0.75% in an effort to boost its flagging economy. 

This was the third cut since June by the Reserve Bank of Australia, having not moved interest rates in almost three years.

Greggs faces high bar

In company news, there is an update expected from Greggs, which has been the taste of the City this year, with its shares up almost 60% this year on the back of the positive reception for its new vegan sausage roll.

Last time we heard from bakery chain, in July, it had beaten the high street gloom with a 10.5% jump in like-for-like sales of its pasties, sending the shares sizzling up to an all-time high of almost £25.

Analysts at UBS were still bullish on Greggs last month, reckoning the baker still had plenty of room to grow, and could increase the number of branches by half, to a total of 3,000 in the UK.

The bar is set high for its third-quarter trading update due on Tuesday, 1 October, and shares may crumble a bit if expectations are missed.

Investors will be looking to see whether Greggs has sustained its tasty LFL sales growth, which broker Peel Hunt expects will simmer down to a modest 6% in the second half of the year.

Analysts expect sales to stay strong, but warns the main concern for Gregg’s forecast will be the price of pork, which has been rising after African swine fever hit Chinese farms.

All about the US for Ferguson as UK demerges

Having announced in early September that it will be spinning out its UK operation into a separate business, as well as replacing its chief executive, there could be some extra pressure for Ferguson’s US business to deliver in its full-year results on Tuesday.

The group is planning to detach its British operation, Wolseley, and list it as a separate business, with the remaining parts of the company to potentially re-list on the US market.

Peel Hunt is expecting the firm’s American operation to keep growing its market share, mostly through bolt-on acquisitions and organic growth, however, it may be too early for any further news on the UK demerger or a review of its stock market listing.

Meanwhile, a mixed picture for the US economy, amplified by a recent interest rate cut from the Federal Reserve, may prove a concern for some given the pivot towards North America.

For the figures themselves, UBS is predicting the firm will report sales of US$21bn, 5.3% growth in like-for-like (LFL) sales year-on-year and an underlying pre-tax profit of US$1.5bn.

For the US business, the Swiss bank expects fourth-quarter LFL sales growth of 4%, up from 3.5% in the third quarter.

Major news for Tuesday 1 October:

Finals: Ferguson PLC (LON:FERG), James Halstead PLC (LON:JHD), Scs Group PLC (LON:SCS)

Trading statements: Greggs PLC (LON:GRG)

Economic data: Manufacturing PMIs from China, UK, EU and US, Aus rate decision, EU inflation