London stocks remained in the red by lunchtime on Tuesday, as investors digested the latest data on both the services and manufacturing sectors, with the latter unexpectedly falling into contraction.
At midday, the FTSE 100 was down 0.43% at 7,501.14, and the FTSE 250 was 0.53% weaker at 19,396.60.
Sterling was in a mixed state, last trading down 0.07% on the dollar at $1.1759, while it strengthened 0.08% against the euro to €1.1843.
“A renewed spike in energy prices in Europe and a report which suggested the possibility of a horrific spike of 18% inflation in the UK contributed to deteriorating sentiment, with the FTSE 100 opening in negative territory,” said Interactive Investor head of markets Richard Hunter.
“Amid a general markdown, housebuilders were under renewed pressure given the likelihood of further aggressive tightening by the Bank of England and a deteriorating consumer environment.”
Hunter noted that the top-flight index remained ahead by 1.6% for the year-to-date, underpinned more recently by sterling weakness.
“This does not reflect prospects for the UK economy, however, as evidenced by the rather more domestically focussed FTSE 250, which is now down by 17% so far this year.”
On the economic front, the UK manufacturing sector surprised to the downside in August, with the latest data showing it moved into contraction territory.
The S&P/CIPS flash manufacturing purchasing managers’ index (PMI) came in at 46.0, well below expectations for a reading of 51.1 and down from the 52.1 print in July.
A PMI reading below 50 denotes contraction, while those above 50 signal expansion for a sector.
The flash UK services PMI from the same source, meanwhile, was slightly above forecasts, coming in at 52.5 for August, compared to the 52.0 markets had pencilled in.
It was a slight decline, however, from the 52.6 reading in July.
The composite PMI dropped to 50.9 in August from 52.1 in July, slightly below consensus expectations for 51.0.
“The latest flash PMI surveys for August suggest the economic recovery has come to a standstill,” said Gabriella Dickens at Pantheon Macroeconomics.
“The composite PMI dropped to its lowest level since February 2021 – when the U.K. still was in a full lockdown – largely due to a developing recession in the manufacturing sector.
“Indeed, the manufacturing output index collapsed to a 27-month low of 42.4, from 48.9 in July, while the new orders index plunged to 42.2, from 46.9.”
Dickens noted that the orders-to-inventory ratio also continued to fall, suggesting that the output index would likely remain weak in the coming months.
“As a result, manufacturers’ demand for labour has plunged – the employment balance, which previously had been holding up well, dropped to 48.7, from 55.9, its lowest level since November 2020.
“The services PMI and its underlying components have held up much better, perhaps due to the additional support to incomes provided by the government in July.
“As a result, the composite PMI still is slightly above the 50.0 mark which in theory separates expansion from contraction.”
The PMI, according to Dickens, had often overstated growth when CPI inflation remained well above the 2% target, as firms mistakenly reported changes in nominal turnover rather than volumes.
“In addition, the composite PMI does not include the public sector, which will be a slight further drag on quarter-on-quarter growth in GDP in the third quarter.
“The big picture, therefore, is that the economy has essentially stagnated, though quarter-on-quarter GDP growth in this quarter likely will be slightly positive, as the hit from June’s extra public holiday unwinds.”
In equity markets, Wood Group tumbled almost 3% after it posted a decline in first-half operating profit as revenue dipped.
In the six months ended 30 June, operating profit before exceptional items fell 8.9% to $41m, with revenue down 0.4% to $2.6bn.
The consulting division saw revenues rise 2% thanks to increased demand for the company’s energy solutions, while the operations segment saw revenues grow 18%, supported by an improved market for oil and gas.
However, as expected, revenue in the projects arm fell 15% as Wood Group continued to see the impact from its move away from large-scale projects and as customer investment was yet to fully pick up.
On the upside, BT Group was around 1% higher after it said the UK government would not take any action over French billionaire and Altice owner Patrick Drahi’s stake in the telecoms group.
Drahi increased his stake in BT in November 2021 last year to 18% from 12.1% through Altice, making him the biggest shareholder.
That prompted the UK government to review the investment on the grounds of national security.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk.
Market Movers
FTSE 100 (UKX) 7,510.38 -0.31%
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FTSE 100 – Risers
Harbour Energy (HBR) 420.70p 3.62%
Anglo American (AAL) 2,943.00p 3.12%
Haleon (HLN) 268.85p 2.11%
Shell (SHEL) 2,289.50p 2.03%
BP (BP.) 456.80p 1.74%
Prudential (PRU) 956.60p 1.64%
Glencore (GLEN) 499.55p 1.49%
BT Group (BT.A) 158.20p 1.22%
Antofagasta (ANTO) 1,137.00p 1.07%
Barclays (BARC) 164.48p 0.86%
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Informa (INF) 548.60p -3.35%
Smiths Group (SMIN) 1,526.00p -2.62%
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FTSE 250 – Risers
Energean (ENOG) 1,349.00p 3.21%
Wizz Air Holdings (WIZZ) 2,165.00p 3.10%
TUI AG Reg Shs (DI) (TUI) 132.85p 2.94%
Hammerson (HMSO) 23.18p 2.89%
Provident Financial (PFG) 189.60p 2.71%
National Express Group (NEX) 183.50p 2.51%
Petrofac Ltd. (PFC) 121.50p 2.10%
Synthomer (SYNT) 201.40p 1.97%
Tullow Oil (TLW) 49.56p 1.89%
TP Icap Group (TCAP) 158.10p 1.74%
FTSE 250 – Fallers
Frasers Group (FRAS) 816.50p -4.56%
Dr. Martens (DOCS) 238.20p -4.11%
888 Holdings (DI) (888) 134.10p -3.59%
Wood Group (John) (WG.) 145.15p -3.23%
Watches of Switzerland Group (WOSG) 803.00p -3.02%
Finsbury Growth & Income Trust (FGT) 848.00p -2.75%
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Convatec Group (CTEC) 227.80p -2.48%
Premier Foods (PFD) 109.80p -2.31%
Morgan Advanced Materials (MGAM) 278.50p -2.28%
