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FTSE 100 lower on China fears, FDM surges 12% in FTSE 250
Concerns over China’s property sector have fed into a weaker session for the London market, with the FTSE 100 index down 0.6% or 45.60 at 7573.
Prudential lost 10.5p to 1028p and mining stocks also came under pressure after the Shanghai Composite fell 2% and the Hang Seng weakened 0.7%.
BT Group shares led the risers board, but the improvement was a modest 0.7p to 115.95p.
The FTSE 250 index fell 45.91 point to 18,947.90, driven by falls in the oil and gas sector after North Sea explorers Harbour Energy and Ithaca Energy weakened 2%.
IT-focused professional services firm FDM Holdings jumped 12% or 61p to 579p after its half-year results showed a 34% rise in pre-tax profits to £29.8 million.
Key market data
Take a look at our key market data as the FTSE 100 fell by 0.5% in early trading.
Some of yesterday’s big fallers, such as Entain and Spirax-Sarco, continued their declines today.
‘Unusual’ manufacturing surge drove GDP growth
James Smith, developed markets economist at ING, said the positive GDP surprise could mostly be put down to ‘unusual’ levels of manufacturing growth.
“The UK economy grew faster than expected in June, helped by a surge in manufacturing production,” he said. “Monthly GDP rose by 0.5% on the month, though the 2.4% increase in manufacturing between May and June is extremely unusual (at least outside of the Covid-19 period). The result is that overall second-quarter economic growth came in at 0.2%, a bit higher than expected.
“The ONS puts this down to pharmaceuticals and car production. And while the latter can probably be partly explained by the ongoing improvement in supply conditions (production is up 15% since last summer’s low), it’s hard to explain why so much of this growth fell in June specifically. The impact of May’s bank holiday appears to have been fairly minimal in comparison to past royal events.
“Still, while much of the positive surprise can be explained by those manufacturing sectors, the rest of the economy looks fairly resilient too. That was helped by better weather in June which seems to have boosted the likes of hospitality and retail.”
May bank holidays ‘make the economy look stronger than it really is’
The growth in GDP was not enough to make Ruth Gregory, deputy chief UK Economist at Capital Economics, optimistic. She still predicts a recession this year, and said the June numbers look better than the reality because they are being compared to a month with three bank holidays.
“The 0.5% m/m rise in real GDP in June and 0.2% q/q increase in Q2 confirmed that a recession has so far been avoided,” she said. “But with much of the drag from higher interest rates still to come, we are sticking to our below-consensus forecast that the UK is heading for a mild recession later this year.
“On the face of it, June’s 0.5% m/m rise looks encouraging. It was stronger than we and the consensus had forecast (0.3% m/m) and left the level of GDP in June 0.8% above its pre-pandemic February 2020 level. However, as the rise was mostly due to the return to the normal number of working days in June after May’s bank holiday for the King’s Coronation, it makes the economy look stronger than it really is.
“The ONS didn’t provide an estimate of the impact of the extra bank holiday. But it did note that it explains some of the 1.8% m/m gain in industrial production as well as some of the 0.2% m/m in services output. If the net effect was similar to the extra bank holiday for the Queen’s funeral last September, then it might have boosted GDP growth by 0.3ppts.”
Heathrow passenger numbers climb to 7.7 million in July
Passenger numbers at Heathrow airport soared to 7.7 million in July, up 21.4% from last year as Brits sought to escape the bad weather back home.
While the growth was strong, the numbers are still below pre-pandemic levels.
Traffic to Turkey was at record highs, while there were near-record numbers of passengers going to Portugal, Gibraltar and Italy.
New York remains the most popular destination.
Heathrow CEO John Holland-Kaye said: “It’s great to see so many passengers getting away to grab some summer sun. We’ve got a great range of popular destinations and our teams are delivering excellent service which will ensure your travels get off to the best start.”
Holland-Kaye will leave later this year, but the date hasn’t been announced yet.
Economy “flickering to life”
Matthew Fell, director of competitiveness at BusinessLDN, said that while the latest GDP growth was good news,, it was still far from where the economy should be.
“These figures show that the economy is flickering into life, but the UK is stuck in a low-growth rut. There are several low-cost measures where the Government could provide a much-needed boost to growth, including reversing the decision to end VAT-free shopping for international shoppers,” he said.
“Powering up productivity is also essential to move out of the economic slow lane and remedy the ongoing cost of living crisis. The Government should unleash innovation with a deal on Horizon Europe and boost digital skills capabilities to take advantage of AI and emerging technologies.”
Inflation warning cools US shares, FTSE 100 seen lower
A warning by a Federal Reserve official of “more work to do” in the fight against inflation meant US markets surrendered initial gains to finish broadly flat last night.
The Dow Jones Industrial Average opened 350 points higher after the annual rate of consumer prices rose by less than expected in July to 3.2%, a figure that fuelled expectations that the central bank won’t need to continue hiking interest rates.
However, the mood changed after the comments by San Francisco Fed President Mary Daly as the Dow finished just 0.15% or 53 points higher.
The FTSE 100 index closed up 0.4% yesterday but CMC Markets expects the top flight to open 42 points lower at 7576 following the Wall Street sell-off.
Asia markets ended the week in the red, with the Hang Seng in Hong Kong down 0.8% and the Shanghai Composite off 1.5%.
Could GDP rise mean higher interest rates?
Joseph Calnan, corporate FX dealing manager at Moneycorp, said the better-than-expected GDP figures might be a “positive plot twist”, but they also increase the xchance of higher interest rates.“June’s stronger-than-expected growth feels like the first positive surprise in a long run of economic plot twists,” Calnan said. “However, both GDP and inflation are still off where they need to be, with the Bank of England and government policymakers clearly struggling to deliver on their respective remits.
“The thornier question is what this will mean for interest rates. What the BoE has been looking for in its relentless campaign of back-to-back interest rate hikes is a meaningful slowdown in the economy, and this doesn’t hit that brief.
“Despite the backdrop of spiralling wage growth and a hot labour market; it’s possible the 25 bps rate rise forecast at the next MPC meeting will remain. But, as the past few months have shown us, you can never be sure which way the next set of economic indicators will go.”
UK economy unexpectedly grows
UK GDP was up by 0.2% in the second quarter of the year, defying expectations of stagnation.
The economy grew by a stronger-than-expected 0.5% in June as good weather boosted many sectors.
That helped the quarterly figure also rise, staving off fears of a recession, which is typically defined as two consecutive quarters of contraction.
ONS Director of Economic Statistics Darren Morgan said: “The economy bounced back from the effects of May’s extra bank holiday to record strong growth in June. Manufacturing saw a particularly strong month with both cars and the often-erratic pharmaceutical industry seeing particularly buoyant growth.
“Services also had a strong month with publishing and car sales and legal services all doing well, though this was partially offset by falls in health, which was hit by further strike action.
“Construction also grew strongly, as did pubs and restaurants, with both aided by the hot weather.
“Across the quarter as a whole, GDP grew a little with widespread growth across manufacturing – aided by falling raw material prices – computer programming and hospitality.”
Morning refresh: What you need to know to start the day
Good morning from the City desk of the Evening Standard.
High street chain Wilko yesterday collapsed into administration, putting 12,000 jobs at risk. The 93-year-old retailer has been unable to find emergency investment to save its 400 shops across the UK. Boss Mark Jackson said: “We left no stone unturned when it came to preserving this incredible business but must concede that with regret, we’ve no choice but to take the difficult decision.”
Like many businesses, Wilko has been hit by inflationary pressures supply chain challenges as well as fierce price competition among budget retailers. It is the first major high street chain to fall victim to the tough trading environment — but it may not be the last.
City eyes are on UK GDP figures to be released this morning. Monthly real gross domestic product (GDP) is estimated to have fallen by 0.1% in May 2023 after growth of 0.2% in April 2023. Will that economic contraction have persisted into June?
Here’s a summary of our other headlines from yesterday:
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