FTSE 100 slides, Virgin Money up 2%
A turbulent half year is ending with investors nursing more big losses after the FTSE 100 index fell 1.5%.
Hargreaves Lansdown senior analyst Susannah Streeter said: “A sense of foreboding is again gripping financial markets, with anxiety rising that by attacking inflation, central banks risk severely weakening economies.”
The FTSE 100 index fell 121.44 points to 7190.88, leaving the top flight down by more than 5% for June amid the deteriorating outlook.
London’s premier index is still one of this year’s best performers, aided by energy and defensive-leaning stocks as well as its robust dividend yield.
The 2.5% decline compares with bear market territory on Wall Street, where the tech-focused Nasdaq has slid 29% and the S&P 500 is 20% lower in its worst first half performance since 1970.
The S&P closed last night at 3818, with 72% of respondents in a survey of 475 market professionals by Deutsche Bank seeing 3300 as the more likely next stop than 4500.
About 90% expect a US recession by the end of 2023 or considerably earlier, a view reflected in the selling mood across the London market today as Burberry shares fell 5% and British Airways owner IAG dropped 3%.
Housebuilders were also under pressure amid slowing house price growth, with Persimmon down 4% or 73.5p to 1841.5p.
Outsourcing firm Bunzl provided some shelter for investors, lifting 9p to 2680p after a robust trading update showed its “resilience” with sales growth of 16%.
The FTSE 250 index, which has tumbled 20% this year, fell 304.70 points to 18,734.09, with Aston Martin Lagonda among stocks most under pressure following a 9% reverse.
Virgin Money rallied 2% or 3.6p to 131.85p after it launched a £75 million share buyback plan and benefited from a new 220p target price from analysts at Goldman Sachs.
City Comment: The future for the City
In the longer run the City of London and the people who work in it will thrive – they always do.
Brexit doesn’t seem to have done it (m)any favours but perhaps that’s secondary to wider global malaise – war and inflation.
In the short term the Square Mile is rocky. There are (at least) two ways it could go from here.
The best-case scenario is that revenues for investment banking work done six months ago land about now (that’s how it works)., giving a fillip to balance sheets and to confidence.
Private equity firms with billions of cash that need a home find one – deals get done, wheels are greased.
Central banks properly get a grip on inflation faster than we expect. And the upcoming corporate earnings season is decent. That tells the stock market that it is fretting without need and should take a chill pill.
Relief follows. The best champagne – ok, M&S Prosecco – gets cracked.
The alternative is that private equity decides it quite likes the cash it has on hand, inflation be damned. That fund managers so torched by recent turbulence no longer “buy the dips” and won’t go anywhere near an IPO.
Everyone sits there waiting for someone else to Do Something.
Big banks report lousy figures for the second half of the year and finance directors speed up the drive for cost cuts.
Melancholy sets in and HR departments get busy figuring out who it is most expedient to fire.
It could go either way.
For our story today we asked at least a dozen market participants for their view of the situation. Their conclusion: feels chilly out there.
City braces for summer jobs cull
Bankers are bracing themselves for a summer jobs cull as business dries up and financial firms cut back after over-hiring in a race for talent in the last two years.
The market for new stock flotations, buoyant last year, has almost entirely dried up.
Fund managers are suffering massive outflows of cash as people pull money out of the market. Brokers say they can’t even get finance for the most promising new tech firm floats.
While there has been no big job cuts announcements in the City so far, insiders say there is a drip-drip of redundancies and fears of thousands more to follow unless there is a turnaround in markets.
Berenberg has already cut jobs in London and New York. Credit Suisse, Numis, RBC Capital are among those said by City insider to be at least pondering laying people off.
Numis had no comment. Morgan Stanley has insisted it will “keep hiring good people”, taken as code for job cuts in the City.
FTSE 100 ends half year sharply lower
Today’s performance by European stock markets is in keeping with the first half of the year after the FTSE 100 index tumbled 1.8% or 131 points to 7180. Benchmarks in Paris and Frankfurt dropped by more than 2%.
Richard Hunter, head of markets at Interactive Investor, said the absence of any immediate positive catalysts and the circumspect outlook comments from central bankers in Portugal yesterday contributed to the selling pressure.
He said: “The losses are broad-based, with particular weakness feeding through to the retailers and the miners, while the housebuilders are under further pressure given the challenges facing the UK economy.”
The FTSE 100 index is down by more than 2.5% at the end of the half year, but this compares favourably with markets elsewhere. The Nasdaq is off by almost 29% in the year to date, while the S&P 500 is heading for its worst first half performance since 1970.
Nationwide reports slower house price growth
The price of a typical UK home climbed to a new record high of £271,613 in June, with Nationwide reporting that the average prices increased by over £26,000 in the past year.
There are tentative signs of a slowdown, however, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels and surveyors reporting some softening in new buyer enquiries. Average prices rose by 0.3% month-on-month in June, compared with 0.9% in May, and annual growth reduced from 11.2% to 10.7%.
Overall, Nationwide chief economist Robert Gardner said the housing market has retained a surprising amount of momentum given the mounting pressure on household budgets from high inflation.
He said: “Part of the resilience is likely to reflect the current strength of the labour market, where the number of job vacancies has exceeded the number of unemployed people in recent months.
“Furthermore, the unemployment rate remains close to 50-year lows. At the same time, the stock of homes on the market has remained low, which has helped to keep upward pressure on house prices.”
Downward move for markets, Bitcoin below $20,000
A turbulent first half of the year is ending with European stock markets under pressure, as IG Index predicts the FTSE 100 index will open 61 points lower.
The downward trend follows a lacklustre session in New York, where the S&P 500 index is heading for its worst first half of the year since 1970.
The benchmark was slightly lower last night after a gathering of central bank leaders, including Federal Reserve chair Jerome Powell and Bank of England governor Andrew Bailey, failed to provide fresh guidance about the pace of future interest rate rises.
Oil prices were also little changed this morning as the latest meeting of Opec ministers looks set to conclude with little prospect of an increase in production quotas to ease price pressure. Brent crude is up by about 50% so far this year at $116 a barrel.
As interest rates and recession fears rise, the downward move for cryptocurrencies has continued with Bitcoin today trading below $20,000.
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