Sector movers: Utilities rebound, tech stocks hit by China
Utilities were the most noticeable climbers on Monday, led by the electricity sector and with water companies joining in.
SSE had sparked a renewed bout of selling with its profit warning last Wednesday, which had dragged down its peers, with most analysts noting that the issues were non-controllable and weather-driven and are likely to be specific to the current financial year, with potential negative readacross for Centrica.
After falling for three days, SSE appeared to find a floor on Monday and rebounded, taking Centrica with it, along with the rest of the utilities sector.
Defensives were doing well on the whole on Monday despite their usual inverse relationship to yields taking effect as the payback on a US 10-year Treasury note hit its highest level in five months, topping 3.02% on the back of growing expectations around a Federal Reserve interest rate hike ahead of next week's meeting.
Some in the City were growing "increasingly concerned" about the probability of Labour government taking power as early as this year, with implications for public policy over utilities ownership. Analysts at Keefe, Bruyette & Woods reported a jump in the chances of the government collapsing after failing to win support for a Brexit deal, which could lead to a snap election and victory for Jeremy Corbyn's party.
Meanwhile, tech stocks were down on Monday afternoon, mirroring a slump on Wall Street.
One issue worrying investors was President Donald Trump's continued threat to impose tariffs on $200bn worth of China-made goods, which has led officials in Beijing strike back with "export restraints" on US supply chains, which traders said could hit tech companies. This could see China restrict export of goods, raw materials and components core to US manufacturing supply chains, former finance minister Lou Jiwei said, according to a Reuters report.
China was, according to a report in the state-run Global Times, "looking forward to a more beautiful counter-attack and will keep increasing the pain felt by the US."
US tech giants dropped ahead of changes to the S&P sector index classifications, which Russ Mould at AJ Bell said could have "profound consequences and possibly of the unintended type”.
S&P has announced it is altering the make-up of the telecommunications sector in the S&P 500 index, changing the name to Communications Services, adding 13 consumer discretionary firms including Walt Disney, News Corp, CBS and Netflix, and six technology stocks, notably Alphabet, Facebook and Twitter, as well as three video game software developers.
“Such changes could create more ripples than many realise for three reasons," said Mould, including changes to index composition possibly driving flows into and out of the S&P 500 sectors and specific stocks.
He suggested the flow of funds "could check the seemingly relentless rise of technology stocks, at least in the near term".
“Investors of a nervous disposition could therefore be forgiven for fearing that S&P and the index compilers may be unintentionally ‘calling the top’ in the stocks it is transferring to the Communications Sector in its efforts to better reflects potential winners in the industry – even if the profits and cash flows generated by those firms will ultimately dictate how their shares perform over the long run.
"Shareholders in Disney, Twitter, Alphabet, Facebook and Netflix in particular might like to take note.”
Top performing sectors so far today
Electricity 6,838.21 +2.68%
Industrial Metals & Mining 4,412.64 +1.89%
Oil Equipment, Services & Distribution 15,070.22 +1.51
Gas, Water & Multiutilities 4,786.25 +0.98%
Fixed Line Telecommunications 2,644.11 +0.91%
Bottom performing sectors so far today
Software & Computer Services 1,793.76 -0.98%
Beverages 21,286.45 -0.79%
Support Services 8,347.56 -0.73%
Equity Investment Instruments 10,013.72 -0.67%
Industrial Engineering 12,567.34 -0.67%