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London stocks ended lower on Friday, as disappointing US jobs data weighed on investor sentiment.
The FTSE 100 index dropped 0.73%, closing at 8,181.47 points, while the FTSE 250 saw a sharper decline of 1.29%, finishing at 20,494.00 points.
In currency markets, sterling was down 0.36% on the dollar to trade at $1.3132, and it eased 0.13% against the euro to trade at €1.1847.
On the week the FTSE was down 2.33% and this was also the theme in Europe. The STOXX Europe 600 Index ended 3.52% lower with France’s CAC 40 Index dropping 3.65%, Germany’s DAX declining 3.20%, and Italy’s FTSE MIB lost 3.15%. Eurozone and UK government bond yields broadly fell.
In the UK the economic data released was all pretty good. House prices edged up to a two-year high in August as confidence picked up amid easing interest rates, according to figures released by Halifax on Friday.
Prices rose 0.3% on the month following a 0.9% increase in July.
On the year, house prices rose 4.3% in August following a 2.4% gain the month before. This marked the strongest rate since November 2022, but Halifax pointed out that this was due in large part to the comparison with weaker growth this time last year.
Retail sales rose 0.8% on a like-for-like basis in August 2024 from a year ago, accelerating from a 0.3% gain in July to the highest level in five months as warm weather boosted purchases of summer clothing and food for barbecues, according to the latest BRC retail sales monitor.
The S&P Global UK Manufacturing PMI also rose to 52.5 in August of 2024 from 52.1 in the previous month, in line with preliminary estimates and firmly higher than the initial market consensus of 52.1 to record the fourth consecutive expansion for the UK factory activity, at the fastest pace in over two years, according to a flash estimate.
The S&P Global UK Services PMI rose to 53.7 in August of 2024 from 52.5 in the previous month, revised higher from 53.3, and well above the initial market consensus of 52.8, to extend the strong momentum for British service providers. It marked the tenth consecutive expansion in British services activity, at the sharpest pace since April. Inflows of new business expanded sharply, with survey respondents linking the higher demand with the improving economic backdrop, the prospect of lower borrowing costs, and lower political uncertainty following July’s general election.
Europe
European Central Bank Governing Council member Gediminas Simkus told Econostream Media that he saw a “clear case” for an interest rate cut in September but regarded the potential for another one in October was “quite unlikely.” In his view, it was appropriate to ease policy, given a clearly disinflationary trend and structurally “sluggish” growth, but “by how much and in exactly which month, time will tell.” His colleague, Martins Kazaks, told Latvian TV that policymakers could take the next step to decrease rates in September while adding that policy should only ease gradually.
Executive Board member Piero Cipollone told France’s Le Monde newspaper that recent economic data so far had confirmed that inflation was slowing, giving scope for the ECB to lower borrowing costs. “There is a real risk that our stance could become too restrictive and harm the economy,” he said. However, Bundesbank’s Joachim Nagel continued to warn about premature easing, given elevated wage growth and services inflation, in an interview with the Faz newspaper.
German manufacturing orders in July unexpectedly increased 2.9% sequentially after seasonal and calendar adjustments, following an upward revision of June’s result to 4.6%. However, when large orders for transportation equipment were stripped out, factory orders dropped 0.4%.
U.S.
The S&P 500 Index suffered its worst weekly drop in 18 months, as worries over an economic slowdown appeared to weigh on sentiment. Information technology shares led the declines, driven in part by a drop in NVIDIA following rumours that it may be the subject of a Justice Department antitrust investigation, which led to a roughly $300 billion drop in the chip giant’s market capitalization.
Since peaking on June 18, when it became the world's most valuable company beating Apple and Microsoft, Nvidia’s shares have lost roughly 20% equating to around $600 billion.
Energy shares were also especially weak on the back of a decline in oil prices. Conversely, the typically defensive utilities, consumer staples, and real estate sectors held up better.
The week’s heavy economic calendar generally surprised on the downside, raising fears that the Federal Reserve had waited too long to ease monetary policy. On Tuesday, the Institute for Supply Management reported that its gauge of U.S. manufacturing activity remained firmly in contraction territory in August, with new orders falling for the third consecutive month.
Asia
Japan’s stock markets fell over the week, with the Nikkei 225 Index down 5.8% and the broader TOPIX Index registering a 4.2% loss. The markets slumped midweek, with semiconductor stocks tracking a U.S.-led sell-off, and yen strength posing a headwind for Japan’s export-oriented companies.
The yen appreciated to the JPY mid-142 range against the USD, from around JPY 145 at the end of the previous week, on expectations of narrowing Japan-U.S. interest rate differentials. Market participants anticipate that the Bank of Japan (BoJ) will raise interest rates further this year, while the U.S. Federal Reserve looks set to cut rates in September.
Chinese equities retreated as investors digested weak corporate earnings and economic data. The Shanghai Composite Index declined 2.69%, while the blue-chip CSI 300 lost 2.71%. In Hong Kong, the benchmark Hang Seng Index gave up 3.03%, according to FactSet.
China’s official manufacturing purchasing managers’ index (PMI) slipped to a lower-than-expected 49.1 in August from 49.4 in July as production and new order declines deepened, the National Bureau of Statistics reported. The gauge has hovered below the 50-mark threshold, separating growth from contraction for all but three months since April 2023, according to Bloomberg. The nonmanufacturing PMI, which measures construction and services activity, edged up to an above-consensus 50.3 in August from July’s 50.2.
Separately, the private Caixin/S&P Global survey of manufacturing activity, which polls smaller, export-oriented firms, expanded to a better-than-expected 50.4 from July’s 49.8 as new orders returned to growth. The Caixin services PMI fell to 51.6 from July’s 52.1 reading, missing economists’ forecasts, as softer new work inflows and higher input costs contributed to lower staffing levels. The mixed PMI readings highlighted the uneven performance of China’s economy as a housing market slump—now in its fourth year—and rising trade tensions have weighed on the growth outlook.
The week ahead
All of the main macro action in the coming week takes place on Wednesday when UK GDP and US inflation numbers are both published.
Having enjoyed a decent honeymoon period since the election, things might start to get serious for Keir Starmer and Rachel Reeves from Wednesday with growth expected to slow.
A revival in construction does offer some reason for optimism, but it only accounts for a small part of the economy overall.
Estimates for July are for growth of between 0-0.2%.
In the US, it is inflation time again on Wednesday with concerns now switching away from rising prices to whether the US can even avoid a recession.
In July, the annual headline inflation rate dipped for a fourth straight month to 2.9% marking the lowest level since March 2021.
Core inflation is predicted by the consensus to hit a three-year low of 3.2%. For August, headline inflation is forecast to ease to 2.6% and for core inflation to stay steady at 3.2%.
What the impact is on the thinking of the US Fed is the key, with current projects for a 35 bps (0.35%) rate cut for September as part of cuts of 110 bps (1.1%) by the end of 2024.
Trainline and Trustpilot mark two household names due to report next week, with Apple users also set to get a first look at the new iPhone 16.
Computacenter will kick off proceedings on Monday though, with reassurances that it would still profit this year despite a dip over the first half set to be in focus.
Apple’s latest iPhone launch overnight is then set to dominate proceedings on a quiet Tuesday, ahead of updates from Trustpilot, Zara owner Inditex and Dunelm on Wednesday.
Eyes will be on the growth of Trustpilot’s US operations, while Inditex has already signalled summer collections should have boosted sales recently.
Thursday then promises to bring a busier day, with reports due from Trainline, Kier, Fevertree and IG group.
