FTSE 100 closes higher
Weak China data sparks Asian slide
Wall Street shares turn positive
UK manufacturing PMI improves in December
FTSE 100 closed marginally higher on the first day’s trading of 2019 as global uncertainty persisted and the pound weakened.
The UK blue-chip benchmark closed up around six points at 6,734, while the more UK company focused index FTSE 250 added over 84 points at 17,586.
Fiona Cincotta, senior analyst at City Index, said: “Weak manufacturing data in Europe and from China set the markets off on the wrong foot at the start of the new year.”
She noted there was actually “nothing new” about the issues concerning the markets.
“As traders returned to their desks, fears of a global economic slowdown wasted no time in showing up; risk off dominated and flows into safe havens increased.”
With Brexit uncertainties dominating and a deceptive UK manufacturing headline read, the pound dived over 1% lower, the analyst also noted.
On Wall Street, benchmarks are also positive after a weak start. The Dow Jones Industrial Average is up around 57 points at the time of writing, while the S&P 500 added around eight points.
3.50pm: Tesla price cut is concerning, says analyst
Nicholas Hyett, equity analyst at Hargreaves Lansdown, thinks Tesla’s decision to cut prices by US$2,000s is concerning.
“Longer term we think the price cut is more concerning – it suggests Tesla customers are perhaps a bit more price sensitive than you might have thought,” he said.
“If the group continues to deliver cars at the rate it did last quarter, $2,000 off each and every vehicle would mean $700m in lost revenue in 2019.
“Not all those sales are in the US of course, but it’s far from ideal for a company which has only just made it into cash positive territory.”
Tesla reported an 8% increase in deliveries for the fourth quarter to 90,700 but that was below market expectations of 92,000.
Shares are down 7.5% in early US trading.
3.10pm: US manufacturing PMI falls to 15-month low in December
US manufacturing activity expanded in December, albeit at a slower pace than the previous month.
The Markit purchasing managers’ index fell to a 15-month-low of 53.8, down from 55.3 in November.
Economists had expected a reading of 53.9.
A level of 50 indicates expansion in sector activity while a reading below that signals a contraction.
Chris Williamson, chief economist at IHS Markit, said: “Manufacturers reported a weakened pace of expansion at the end of 2018, and grew less upbeat about prospects for 2019.
“Output and order books grew at the slowest rates for over a year and optimism about the outlook slumped to its gloomiest for over two years.
“The month rounds of a fourth quarter in which manufacturing production is indicated to have risen at only a modest annualised rate of about 1%.”
He said some of the weakness is due to capacity constraints, with producers reporting widespread difficulties in finding suitable staff and sourcing sufficient quantities of inputs.
However, he noted that the survey revealed signs of slower demand growth from customers, as well as rising concerns over the impact of tariffs.
“Just over two thirds of manufacturers reporting higher costs attributed the rise in prices to tariffs,” he said.
2.40pm: US stocks open lower
US stocks have opened lower on the first day of 2019 trading after weak Chinese manufacturing data fuelled worries about a slowdown in the world’s second largest economy.
The Dow Jones Industrial Average fell 345 points to 22,972, the S&P 500 dropped 35 points to 2,471 and the Nasdaq declined 108 points to 6,527.
Wall Street is tracking declines in Asia after the China Caixin manufacturing PMI fell to 49.7 in December, marking the first time the sector has been in contraction since May 2017.
2.20pm: Twitter users weigh in on Greggs vegan sausage roll
Greggs PLC (LON:GRG) is doing its part for Veganuary with the launch of a vegan sausage roll this week.
The sausage roll will include layers of puff pastry made with vegetable oil and a “bespoke” Quorn filling.
Comedian and vegetarian Ricky Gervais was among a bevvy of Twitter users to weigh in on the announcement:
I heard that staff at Greggs are holding fat people down and forcing them to eat lettuce. It’s PC gone mad.
— Ricky Gervais (@rickygervais) 2 January 2019
actually laughing at how many ppl, mainly meat eaters, are offended by a vegan greggs sausage roll. Its literally 2019. btw its called a sausage cos sausage is A SHAPE. So fed up of ppl judging people’s lifestyle choices honestly grow up
— ????Rachel Harvey???? (@IfYouSee_Rachel) 2 January 2019
I came into your shop to check out the vegan sausage roll and I saw a gingerbread man. I’d just like to say this isn’t very gender inclusive and is very offensive.
When will you rename them gingerbread people?#Greggs @GreggsOfficial
— Michael Bruce Snow (@MBruceS46290) 2 January 2019
If you’re vegan for moral reasons, fine. But if you’re vegan for health reasons then this is just fast food shite…
— Andrew Leunig (@aleunig) 2 January 2019
Not a veggie or vegan but can’t believe how worked up some people are getting about Greggs doing vegan sausage roll. There’s a lot of veggies and vegans in the world, so from it makes complete sense to cater for all.
— Jake Ferguson (@JakeFerg314) 2 January 2019
Everyday we stray further from God’s light https://t.co/kumdDPFQS6
— Rod Kelly (@rodkelly50) 2 January 2019
2.00pm: Tesla deliveries miss expectations
Tesla Inc (NASDAQ:TSLA) shares have fallen 7.5% in US pre-market trading after reporting fourth quarter deliveries that missed expectations and announcing a US$2,000 price cut.
Deliveries increased 8% from a year ago to 90,700, below the market forecasts of 92,000.
The group produced 61,394 of Model 3s — the electric car maker’s first mass-market vehicle — in the period, up 15%. Analysts had expected 64,900 Model 3 deliveries.
There were 25,161 Model S and Model X deliveries, which was below the combined expectation of 27,800.
Overall in 2018, Tesla delivered 245,240 vehicles, including 145,846 Model 3s and 99,394 Model S and X.
Tesla said it would cut prices to “partially absorb” the reduction of the federal tax credit for electric vehicles, which dropped from US$7,500 to US$3,750 on January 1.
1.10pm: Next shares jump ahead of Christmas trading update
Next PLC (LON:NXT) is one of the top risers on the FTSE 100 ahead of its Christmas trading update tomorrow.
Shares were up 3.2% to 4,120p at the time of writing.
The company will be the first UK retail to post its Christmas trading figures. UBS expects Next will post a 1% increase in sales for the fourth quarter, which includes the holiday season.
“If this is the full price sales outturn, we would not expect much change to full-year pre-tax profit guidance, currently standing at £727mln (UBS estimates £727mln), “ UBS said.
“There could be modest upside risk in that Next is likely to have assumed higher clearance costs for the second half as well as in the first half, although the actual first half outturn was an improvement.
“Next’s last comments were that they expected less stock into the post-Christmas sale than last year, which could also help clearance rates.”
12.40pm: US stocks set to start 2019 on the back foot
US stock futures fell, tracking declines in Asia amid concerns about China’s economic growth.
Dow Jones Industrial Average futures dropped 341 points to 22,927, S&P 500 futures fell 37 points to 2,468 and Nasdaq futures slipped 135 points to 6,197.
Chinese manufacturing data showed a decline in activity in December, fuelling worries about a slowdown in the economy.
The Caixin manufacturing purchasing managers’ index fell to 49.7 in December from 50.2 a month earlier. A level below 50 signals a contraction in sector activity.
Asian markets closed in the red with the Shanghai Composite down 28 points to 2,465, the Hang Seng down 715 points to 25,130 and the Nikkei down 62 points to 20,014.
“2019 has started on the back foot with global equities under pressure after disappointing Chinese data overnight has ruined investors hopes for an upbeat start to the New Year – safe havens including gold, Euro bonds and the yen have benefited in early trading,” said Oanda’s Craig Erlam.
12:20pm: FTSE 100 recovers some of the early losses as jitters clear
By lunchtime, London’s New Year share sale had eased somewhat as traders settled after a volatile start.
The FTSE 100 was down just 34 points, or 0.51%, changing hands at 6,693.
Evidently the morning’s earlier jitters are clearing, though the index still remains someway short of positivity.
11:45am: State Street shows drop in institutional investor confidence
The assertion that investor confidence took a dent in December probably doesn’t need a number, nevertheless, financial services firm State Street has one to give.
State Street’s Global Investor Confidence Index – which is informed by tracking transactions of institutional investors – decreased by 2.8 points to 79.8 points, the US group said.
“Differences between the Fed and market observers over the importance of quantitative tightening exacerbated the anxiety for markets already on edge from trade disputes, Chinese growth and a slowdown in corporate earnings growth,” said State Street’s Kenneth Froot.
Rajeev Bhargava, Froot’s colleague and State Street’s head of Investor Behavior Research, added: “Global markets have faced sharp declines in the fourth quarter of 2018, continuing to dent investor confidence, and as we head into 2019, institutional investors will likely have a keen eye on global growth concerns and potential geopolitical headwinds.”
10:45am: FTSE 100 stays lower as China concerns outweigh Brexit-boosted manufacturing stats
This morning’s UK Manufacturing PMI snapshot for December did little to divert market sentiment, with traders evidently unimpressed by a ‘near record’ uptick in activity during December.
London’s FTSE 100 remained on the back foot, down 60 points or 0.9% at 6,664, as attention remained on bigger picture economics – namely, indications of a slowdown in China and continued uncertainty over the American government’s budget.
The UK manufacturing reading was perhaps shrugged off for good reason. It might be unfair to say that the pick-up was superficial, nevertheless, it is not obvious that the improvement was organic or sustainable.
“The higher print is seemingly due to firms building stocks at a near-record pace due to concerns about a no-deal Brexit,” said David Cheetham, analyst at online broker XTB.
“Likewise, order books were clearly buoyed by customers taking preemptive measures and preparing for supply disruptions in the event of the UK leaving the EU without a deal.”
The analyst added: “The pound remains fairly well supported and above the $1.27 handle with the rate back around the same levels it traded at the start of last month before Brexit developments caused a push lower.”
Elsewhere, City Index analyst Fiona Cincotta noted that market volumes would likely be higher today, the first day of 2019.
“It’s the first day back at the office for many big traders and fund managers and this will mean higher volumes and a re-positioning of portfolios, leading to some potential big swings in asset prices,” Cincotta said in a note.
Whilst UK manufacturing may be a sideshow, China is very much centre stage for traders.
“The Caixin survey of Chinese manufacturing fell to 49.7, its first contraction in 19 months. China has been slowing down for years, and the announcement hammered home the point that the second-largest economy in the world is cooling,” said David Madden, analyst at CMC Markets.
“Trade tensions between the US and China are ongoing and that adds to the negative view that traders hold about the state of the global economy.
“In recent weeks there have been heightened fears of a global slowdown, and the latest figures from China overnight have added to those concerns.”
As producers of raw materials London’s blue-chip resource stocks are, of course, inextricably tied to Chinese growth (or lack thereof) and, naturally, such stocks were among Wednesday’s fallers.
Mining giants BHP Group Plc (LON BHP) and Rio Tinto Plc (LON:RIO) shed 4% and 3%, to trade at 1,585p and 3,618p respectively, while oilers BP Plc (LON:BP) and Royal Dutch Shell Plc (LON:RDSB) both lost around 1%.
10.15am: Dortmund shares lifted by €64mln Pulisic sale
Shares in Frankfurt-listed Borussia Dortmund have jumped this morning after the German football club confirmed the sale of Christian Pulisic to Chelsea for €64mln (£57.6mln).
Speculation had been rife in recent weeks that the 20-year-old American would be on his way to the Premier League, with Arsenal and Liverpool also rumoured to be interested.
Dortmund is currently top of the Bundesliga and Pulisic, who has scored three goals so far this year, will remain with the team until the end of the June before joining up with his new teammates in London ahead of the 2019/20 season.
Given the hefty transfer fee, Dortmund now expects this year’s net profit to be in the “double-digit million Euro amount” for the current financial year, up from its previous guidance of a “low single-digit million annual net profit”.
That helped to boost the club’s share price, which is up almost 3% to €8.18 in Frankfurt.
Liebe Borussen ???????? (????????????????) pic.twitter.com/nAKgF1sHdI
— Christian Pulisic (@cpulisic_10) January 2, 2019
9:50am: Brexit prep sees UK manufacturing improve in December
The UK Manufacturing PMI stats for December showed a ‘modest’ improvement, but, it didn’t entirely obscure what was otherwise a poor quarter.
At 54.2, the mark for December was a six-month high, but, the average reading for the fourth quarter was the weakest since Q3 2016 (the Brexit referendum quarter).
The December improvement wasn’t exactly organic either, rather economists believe it reflects Brexit preparation activities.
“Stocks of purchases and finished goods both rose at near survey-record rates, while stock-piling by customers at home and abroad took new orders growth to a ten-month high,” IHS Markit’s Rob Dobson said in a note.
“Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete.
Dobson added: “The trend in production volumes remained lacklustre despite the safety stock-building, with the latest survey consistent with a mild decrease in the official measure of manufacturing output over the final quarter.
“Uncertainties regarding Brexit disruption on supply chains and the exchange rate are also weighing on business confidence.”
9:25am: FTSE 100 continues to struggle its way into the New Year
The FTSE 100 remained lower, down 74 points or 1.10% at 6,653, as the market continued to struggle into the New Year.
“Stock markets didn’t get the memo that we’re supposed to start the New Year with a positive attitude towards being fit and healthy,” said Russ Mould, investment director at AJ Bell.
“A slowdown in China’s manufacturing sector hurt stocks in Asia and also added to investor concerns about a global economic slowdown in 2019, leading to weakness across European markets.
He added: “Weak oil prices were also to blame for stock market jitters.”
As crude prices weakened, Royal Dutch Shell Plc (LON:RDSB) dropped 1.22% to 2,312p while BP Plc (LON:BP) was 1.1% lower at 490.45p.
Brent crude was down 1.58% to US$52.96 per barrel, and, West Texas Intermediary was off 1.52% at US$44.73.
8.40am: New Year, old year drop
The new trading year started with more of a clatter than a bang as the FTSE 100 lost more than 100 points early in its first session of 2019.
The driver for the negative sentiment was some rather dour manufacturing data from China, which sparked an Asia-wide sell-off.
The index of blue-chip shares followed suit, falling 122 points to 6,605.83.
“On the whole, there is little to cheer about, unless you’re viewing this as a chance to snap up some bargains,” said Neil Wilson, analyst at Markets.com.
“Following the worst year in a decade for global equities, it’s little surprise to see a tentative start to 2019 and this does create opportunities, but investors should be prepared for more volatility ahead.
“Oil was lower on the first trading day as signs of a global slowdown in economic activity were clearly in evidence. In addition to the weaker Chinese data, factory output was seen falling across Asia last month.
“Shrinking factory activity in the likes of South Korea, Taiwan and Malaysia is a sign that Chinese weakness and the wider trade threat is having an effect on growth.”
At the time of writing, there were only two risers: fag maker Imperial Brands (LON:IMB), up 2% and presumably sought after for its defensive qualities, and Next (LON:NXT) ahead of Thursday’s trading update.
The miners, whose fortunes rise and fall with those of the People’s Republic, were on offer early on with BHP Billiton (LON:BHP) leading the losers’ list having been marked down 4%.
Asia-focused bank Standard Chartered (LON:STAN) was also in the mix as its stock receded 3.7%.
Among the smaller-caps, there was a bright spot in the oil sector as Amerisur Resources (LON:AMER) spiked 10% after its latest Colombia drilling results.
Proactive news headlines:
ECR Minerals PLC (LON:ECR) has submitted nine new exploration licence applications covering 523 square kilometres of potentially gold-rich land in the Yilgarn region of Western Australia.
Highlands Natural Resources PLC (LON:HNR) has told investors that it has successfully concluded well completion operations for the six recently drilled wells at the East Denver project in Colorado. Flowback has so far commenced in three of the six wells and is expected in the remainder over the next two weeks.
Victoria Oil & Gas PLC (LON:VOG) confirmed it has now formally secured its 75% ownership stake in the Matanda PSC, which lies adjacent to the company’s flagship Logbaba concession.
Richland Resources Ltd (LON:RLD) has extended the maturity date for its convertible loan facility as the gemstones developer continued discussions over the Capricorn sapphire mine in Queensland.
Avacta Group PLC (LON:AVCT), the developer of Affimer® biotherapeutics and reagents, said its chief financial officer, Tony Gardiner, on 31 December 2018, purchased 8,196 ordinary shares in the company at a price of 30.5p each. Following this transaction, the group said, Gardiner’s total beneficial interest in the company is 8,196 ordinary shares, representing less than 0.1% of Avacta’s issued share capital.
Base Resources Limited (LON:BSE) (ASX:BSE) has advised that 61,425,061 options with an exercise price of A$0.40 per share lapsed unexercised following their expiry on 31 December 2018.
Caledonia Mining Corporation PLC (LON:CMCL) announced that it has declared a quarterly dividend of US$0.06875 on each of the company’s common shares.
hVIVO PLC (LON:HVO) confirmed that, as previously announced, Graham Yeatman ceased to be a Director of the company with effect from 31 December 2018.
6.45am: China woes set to hobble FTSE 100
The FTSE 100 index is expected to start the first session of the New Year as it left the old year, in cautious fashion, dropping back in spite of strong end-2018 gains on Wall Street as Asian markets took an early 2019 tumble weighed by further weak data from China.
Spread betting firm IG expects the blue-chip index to open 2019 trading around 48 points lower at 6,680 having finished its half-day New Year’s Eve session down 5.84 points at 6,728.13, reversing some of a strong post-Christmas rally on worries over possible weakness on Wall Street.
The Dow Jones Industrials Average did start lower on Monday but recovered swiftly to close 265 points, or 1.1% higher at 23,327.46, albeit at the end of the worst year for US stocks since 2008.
Wall Street had been lifted by renewed hopes for a resolution to the US-China trade dispute after President Trump indicated on Twitter that progress had been made toward a potential settlement of the tensions.
China manufacturing weak
However, Asian markets tumbled today in spite of that optimism, with Shanghai’s blue-chip losing 1.2% and Hong Kong’s Hang Seng index plunging 2.5% after China’s private Caixin/Markit manufacturing purchasing managers index (PMI) reading fell to 49.7 in December, down from November’s 50.2 reading, the first fall in 19 months and following on from a weak official report on industrial output last week.
Economists at ING commented: “Even more eye-catching was that ‘new orders’ in both PMIs fell from expansion in November to contraction in November.”
They added: “This confirms our view that the economy is weak and that stimulus needs to arrive quickly.”
Brexit to impact UK PMIs
On currency markets, sterling stayed fairly dull against both the US dollar and the euro awaiting the latest UK PMI surveys amid continuing Brexit deal uncertainty.
With just over three months left until the UK is due to exit the EU and no withdrawal deal in place, the uncertainty looks to be taking its toll on economic activity, and this week’s January PMIs – kicking off with the manufacturing report today – are likely to remain volatile.
The surprise improvement in the manufacturing PMI last month was tempered by complier IHS/Markit reporting that there was some evidence firms were stock-building to guard against the possibility of supply chain disruption in the event of a cliff-edge Brexit.
In a preview, economists at RBC Capital said the prospect for the latest UK manufacturing PMI is, therefore, a little more difficult to judge, though their central scenario is for a deterioration in the latest reading to 52.5.
Retail the corporate focus
There is nothing scheduled on the corporate diary for the first session of 2019 so traders will be focused ahead to January’s splurge of trading updates, notably from the general and food retail sectors, which kick off with Next PLC’s (LON:NXT) pronouncements tomorrow.
However, with footfall at the Boxing Day sales showing another decline and the collapse of music and movies retailer HMV into administration for a second time last week, investors will also be keeping a watch out for any unseasonal early profit warnings from the sector.
Significant announcements expected on Wednesday:
Economic data: UK manufacturing PMI
Around the markets:
Sterling: US$1.2762, up 0.1%
Gold: US$1,286 an ounce, up 7.7%
Brent crude: US$53.15 a barrel, down 0.7%
Royal Dutch Shell is considering bidding for rights to develop offshore wind farms in British waters as the Anglo-Dutch oil major seeks to re-enter the UK sector after a ten-year absence – Financial Times
Superdry founder Julian Dunkerton is set to pocket £1.4mln in a dividend bonanza – despite a disastrous year for the company – Daily Mail
Microsoft became the world’s most valuable company for the first time in 16 years when markets closed for 2018 with a value of £605 billion, after overtaking Apple in November – Daily Mail
Netflix has hired Spencer Neumann as its new chief financial officer, recruiting the veteran executive from gaming company Activision Blizzard – Daily Telegraph
Martin Bandier, chief executive of the largest music publisher Sony/ATV, has said that music industry is ripe for consolidation – Financial Times
HM Revenue & Customs has accused Iceland Foods of breaching minimum wage rules over a Christmas savings scheme offered to its staff and threatened it with a bill of at least £21mln to put right – The Times
Greenwoods Menswear, which was rescued from administration less than 18 months ago, has gone into liquidation – The Times
Erik Prince, the founder of private security company Blackwater, is launching a fund to capitalise on the scramble for battery metals across Africa and Asia – Financial Times
UK rail passengers will stage protests at railway stations around the country on Wednesday as fares rise by 3.1% despite a year of strike action, widespread cancellations and the worst punctuality in a decade – The Guardian
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