The week started with a major global sell-off, as investors worried about a US recession, valuations in the technology sector and the implications of a sharply strengthening yen on the Japanese economy. However, these fears eased as the week progressed, with some supportive US jobs data released on Thursday, but volatility is expected to continue through the second-quarter reporting season.
Over the week, the blue-chip FTSE 100 index was up 0.1% by mid-session on Friday, with the more UK-focused FTSE 250 down 0.8%.
- The accelerating rise of the robots
- Are the UK’s energy targets achievable?
- How to invest in property
- Can UK pension funds boost UK investment?
US recession fears
Falls in global stock markets have been caused by fears of a US recession, which we think has been exaggerated, and a correction in technology stocks, which we think is healthy. Market fears that the US central bank had held interest rates too high for too long were sparked by some negative economic news, but we believe there are reasons to believe that certain one-off factors were behind this. We do not believe there is evidence of a broader systemic issue in the country that has dramatically altered the outlook. Indeed, latest jobless claims data released on Thursday supported the view that recent pessimism may have been overdone. Figures from the US Labor Department showed first-time claims for unemployment benefits in the US had fallen more than expected to 233,000 last week, prompting a rally in markets.
Economics
Warm weather lifted UK retail sales in July, but shoppers held back on large purchases. UK total retail sales increased by 0.5% year on year in July, according to the British Retail Consortium, a recovery from June’s washout. Spending increased on summer clothes and health and beauty products, but consumers cut back on purchases of furniture and household appliances.
Activity in the UK construction sector grew in July at the fastest pace in 26 months, according to a survey released on Tuesday. The headline S&P Global UK construction purchasing managers’ index rose to 55.3 from 52.2 in June. This marked the fastest rate of expansion since May 2022. A reading above 50.0 indicates growth, while a reading below signals contraction. Are UK housing targets achievable?
Geopolitics
The Bank of Japan’s (BoJ’s) surprise rate hike from 0.1% to 0.25% in the prior week had a dramatic impact on the yen, which has rallied sharply against most major currencies. This resulted in a sharp fall in Japanese stocks on Monday. The interest rate hike brutally did the job the Ministry of Finance has been trying to do in defending the currency from weakening further. The combination of efforts also had a dramatic impact on Japanese stocks, which are down about 20% since the tightening. Japanese equities have attracted significant inflows over the last 12 months, thanks to moves from the Tokyo Stock Exchange to promote greater shareholder benefits by pushing companies to be more effective with their balance sheets. The regulators are also looking to reduce cross shareholding in finance and insurance companies to alleviate stagnation in the sector. Some of these flows are likely to exit the region, given the sharp moves, and the likelihood that the BoJ will continue tightening.
Kamala Harris chose Minnesota Governor Tim Walz as her vice-presidential nominee. Ms Harris wrote on social media that he stood out from the competition because "his convictions on fighting for middle class families run deep". the Trump campaign said Mr Walz, a member of Congress and former teacher, was a "dangerously liberal extremist". He is viewed as somebody who can win over rural and working-class voters, particularly in crucial Midwestern US states.
Companies
Alphabet’s Google violated antitrust laws as it built its internet search empire, a US federal judge ruled. Judge Amit Mehta found that Google violated section 2 of the Sherman Act, a US antitrust law. “After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” the ruling said.
Share price in oil services company John Wood Group plunged after its Dubai-based suitor pulled out of a takeover amid the global market turmoil. Engineering company Sidara said it had pulled out of a bid for Wood “in light of rising geopolitical risks and financial market uncertainty”.
Money-manager Abrdn has reported improved flows into its funds in the first half of 2024 and highlighted progress on its cost-saving efforts. The results were ahead of market expectations. The company has seen outflows of cash from its funds in recent years but reported net inflows of £800m in the first half, a significant turnaround from £5.2bn of net outflows seen in the equivalent period of 2023. Its assets under management and administration rose to £505.9bn from £494.9bn.
Travis Perkins issued its second profit warning in a year, citing weak demand across its end markets. The news came alongside its interim report, which showed a drop in first-half profit. The builders’ merchant said its full year, adjusted operating profit was now projected to be about £150m, approximately 6% below the market consensus. Outgoing chief executive Nick Roberts said trading conditions “remained challenging” and he recognised that “a persistently lower volume environment means that we have to deliver a simpler, more efficient business”.
Danish pharmaceutical group Novo Nordisk reported lower-than-expected net profit for the second quarter and lowered operating profit guidance for the full year. Operating is now expected to grow between 20% and 28% in 2024, down from previous guidance of 22% to 30%. Despite the trimmed profit outlook, Novo Nordisk raised its sales growth expectations. Its Wegovy weight loss drug missed expectations in the second quarter, but diabetes care performed strongly, with almost all insulin drugs outperforming consensus expectations by large margins.
Spirent Communications said that it swung to a loss in the first half of the year as revenue fell amid challenging trading conditions. Spirent said the industry-wide slowdown continued in 2024, particularly in the telecommunications sector, where customer spending remained constrained. The company is subject to a bid and shares continue to trade close to the acquisition price offered by suitor Keysight – and management continues to expect the acquisition becomes effective before April 2025.
The Competition and Markets Authority (CMA) found that housebuilder Barratt Developments’ £2.5 billion buyout of Redrow raised local competition concerns in Whitchurch, Shropshire, where it said the two companies hold a high share of the land. The regulator said it has concerns over the roughly 11-mile area, but that it is not concerned on a national level. Barratt and Redrow can now submit proposals which address the CMA’s concerns in the local area to avoid the probe moving to a more in-depth review.
Persimmon says it will build about 10,500 homes this year, at the top end of previous forecasts. The housebuilder said it finished 4,445 new homes in the six months to June 30, up by 5% against the same period last year. It also marked a turnaround from the first quarter, when new home completions were down 10% year-on-year.
Lloyds of London insurer Beazley doubled pre-tax profits in the first half of the year.
Lloyds of London insurer Beazley doubled pre-tax profits in the first half of the year after a strong underwriting performance. The insurer improved its combined ratio — a measure of claims and expenses as a proportion of premiums — from 88% to 81% and said this measure would be better than previously expected for the full year.
WPP, the world's largest advertising company, reported flat revenues in the first half of the year. They cited macroeconomic pressures and challenges in key markets such as China resulting in a cut in full-year guidance. The company expects full-year revenues will now decline.
Siemens’ third quarter results broadly met expectations despite a challenging economic environment. The company reaffirmed its full-year guidance, but now expects revenue growth at the lower end of the 4-8% range. Management expects a slower demand recovery than previously forecast, particularly in China where destocking at automation distributors continues and positive impacts from monetary policy have yet to materialise.
Hargreaves Lansdown posted record assets under administration and a big increase in net new business for the full year. A consortium comprised of CVC Private equity funds, Nordic Capital XI Delta GP and Platinum Ivy tabled a final offer for Hargreaves Lansdown on Friday for a cash consideration of 1,140p per share and the board said it would recommend the offer to shareholders.
Spirax Group shares fell as the steam valve specialist confirmed flat first-half sales with only a modest recovery expected for the remainder of the year. Management lowered full-year revenue and operating margin guidance. Profits rose on fewer restructuring charges but were down 10% on an adjusted basis as the core steam arm struggled.
Walt Disney’s third-quarter results beat market expectations and management raised earnings guidance for the full year. Its combined streaming service was profitable – and this profitability is expected to improve in the current quarter following price rises. Disney’s studio business performed well, with Inside out 2 and Kingdom of the Planet of the Apes both being high grossing films. A slowdown at its iconic theme parks following a surge after the Covid-19 pandemic is likely to continue for the next few quarters, with income expected to decline year on year in the fourth quarter.
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