London close: Weak US manufacturing numbers hit shares
October got off to a weak start following the release of a weaker than expected reading on US manufacturing that economists said showed how the US-China trade war was "wreaking havoc".
"Central banks are cutting rates, and are it seems keen to cut more, while data continues to point towards economic weakness. That is perhaps the over-riding message from today, as Europe woke up to an Aussie rate cut, then confronted poorer eurozone PMI figures, and then, as the US joined the fray, faced a surprisingly-negative ISM manufacturing figure from the US," said IG's Chris Beauchamp.
"The first day of October has shattered hopes that the year-end rally will start immediately."
Earlier, the ISM institute's factory sector Purchasing Managers' Index for the US surprised traders with a print of 47.8 for September after August's reading of 49.1, coming in below forecasts for 50.1.
Commenting on the ISM survey results, Pantheon Macroeconomics's Ian Shepherdson said they weren't consistent with an economic recession although the "warning signs were clear enough".
"The trade war is wreaking havoc, to the point where the incipient upturn in manufacturing in China is not transmitting, at all, to the U.S. This means that if consumers’ confidence seriously falters, the U.S. could tip into the first recession ever caused directly by the actions of the President rather than the action of tight monetary policy on an overstretched private sector," Shepherdson added.
Against that backdrop, the FTSE 100 was 0.65% lower at 7,360.32, while sterling was 0.1% higher against the US dollar to 1.2299 but off by 0.26% versus the euro at 1.1247, as Prime Minister Boris Johnson said he will be making "formal proposals" for a Brexit deal to the EU "soon".
The FTSE 250 fared slightly better, shedding 0.32% to 19,872.82.
Speaking to BBC Breakfast, Johnson rejected leaked claims overnight that the government had proposed "customs clearance zones" in Northern Ireland and the Irish Republic. Johnson said he was "not going to be producing now what we are going to be tabling" to the EU and that the proposals reported in the press were "confused".
Investors were also mulling the latest survey from IHS Markit CIPS, which showed the UK manufacturing sector rallied slightly in September as Brexit preparations once again got underway, although the underlying outlook remained resolutely downbeat.
The manufacturing purchasing managers' index came in at a four-month high of 48.3, up from the six-year low of 47.4 reached in August. The figure was ahead of expectations for a reading of 47.0.
Stocks of purchases and input buying volumes rose for the time in recent months, as survey respondents reported restarting Brexit preparations. At the start of 2019, manufacturing activity surged as companies stockpiled goods and materials ahead of the first deadline for leaving the European Union.
However, the index remained below the 50 mark that separates contraction from expansion, where it has been for five months now, marking the longest sequence below that level since mid-2009.
IHS Markit said: "Although the contraction was shallower than the prior survey month, levels of output, new orders, new export business and employment nonetheless fell further."
Thomas Pugh, UK economist at Capital Economics, said that despite the rebound in the manufacturing PMI, it remains at a low level and suggests the industrial sector contracted in the third quarter.
"The big picture is that manufacturing is on track to contract for a second consecutive quarter, and a meaningful recovery is unlikely given the ongoing struggles of global manufacturing," he said.
Earlier, a survey from Nationwide showed that UK house prices fell in September as Brexit uncertainty took its toll.
House prices fell 0.2% month-on-month in September compared to a flat reading in August and expectations of a 0.1% uptick. On the year, house prices rose 0.2%, down from 0.6% growth in August and below consensus expectations of a 0.5% increase.
In equity markets, Hargreaves Lansdown was the worst performer on the top-flight index after an initiation at ‘underperform’ by Credit Suisse.
Shares of High Street baker Greggs were pummelled even after it said that third-quarter total sales rose 12.4%, as company-managed shop like-for-like sales grew 7.4% for the 13 weeks to September 28, which was down from 10.5% growth in the first half of the year.
JD Sports Fashion reversed an early drop triggered by the Competition and Markets Authority announcement that it has referred the retailer’s acquisition of Footasylum to an in-depth investigation after it failed to offer any remedies. The watchdog said it had made the decision on the basis that the deal could result in a substantial lessening of competition.
Going the other way, plumbing and heating products specialist Ferguson gained ground as it reported annual profit growth of 7%.
Stock in British Airways and Iberia parent International Consolidated Airlines Group ended the day just about where it had started off even after an initiation at ‘buy’ from Bank of America Merrill Lynch.
Polypipe was in the green as it announced the acquisition of stormwater tank maker Alderburgh Group for £14m in cash.
Market Movers
FTSE 100 (UKX) 7,360.32 -0.65%
FTSE 250 (MCX) 19,872.82 -0.32%
techMARK (TASX) 3,868.21 -0.46%
FTSE 100 - Risers
Ferguson (FERG) 6,186.00p 4.07%
Next (NXT) 6,320.00p 2.17%
Imperial Brands (IMB) 1,860.00p 1.74%
Pearson (PSON) 750.00p 1.63%
Rightmove (RMV) 558.60p 1.45%
TUI AG Reg Shs (DI) (TUI) 958.60p 1.35%
Mondi (MNDI) 1,579.00p 1.35%
Kingfisher (KGF) 209.20p 1.16%
Ocado Group (OCDO) 1,337.00p 1.10%
Auto Trader Group (AUTO) 515.40p 1.06%
FTSE 100 - Fallers
Hargreaves Lansdown (HL.) 2,006.00p -3.51%
Burberry Group (BRBY) 2,109.00p -2.99%
Royal Bank of Scotland Group (RBS) 201.50p -2.94%
Glencore (GLEN) 238.00p -2.76%
St James's Place (STJ) 953.60p -2.63%
Standard Chartered (STAN) 666.80p -2.54%
Johnson Matthey (JMAT) 2,980.00p -2.52%
Hikma Pharmaceuticals (HIK) 2,148.00p -2.36%
Evraz (EVR) 457.00p -2.27%
Experian (EXPN) 2,541.00p -2.23%
FTSE 250 - Risers
Pets at Home Group (PETS) 216.00p 3.75%
Bakkavor Group (BAKK) 114.60p 2.84%
Telecom Plus (TEP) 1,256.00p 2.11%
Ultra Electronics Holdings (ULE) 2,064.00p 2.08%
Howden Joinery Group (HWDN) 572.00p 2.07%
Ferrexpo (FXPO) 164.30p 1.95%
Cranswick (CWK) 3,004.00p 1.90%
Sophos Group (SOPH) 407.40p 1.87%
Diploma (DPLM) 1,694.00p 1.86%
Marks & Spencer Group (MKS) 187.75p 1.79%
FTSE 250 - Fallers
Greggs (GRG) 1,828.00p -12.54%
TBC Bank Group (TBCG) 1,160.00p -6.15%
Sirius Minerals (SXX) 3.84p -5.87%
IntegraFin Holding (IHP) 375.50p -5.18%
Sirius Real Estate Ltd. (SRE) 72.60p -4.62%
Airtel Africa (AAF) 48.76p -4.02%
AJ Bell (AJB) 399.00p -3.51%
Kaz Minerals (KAZ) 418.80p -3.35%
Aston Martin Lagonda Global Holdings (AML) 509.40p -3.19%
Jupiter Fund Management (JUP) 344.40p -3.10%