“FTSE 100 Falls on China Fears, FDM Surges on FTSE 250”
The London market experienced a weaker session as concerns about China’s property sector led to a downturn in the FTSE 100 Index, which was down 0.6% at 7573. Prudential and mining stocks were among the hardest hit, while BT Group showed modest improvement. Meanwhile, the FTSE 250 Index fell, led by declines in the oil and gas sector. IT-focused professional services company FDM Holdings saw a significant increase in its share price after reporting a 34% rise in pre-tax profit.
“Unusual Manufacturing Growth Boosts UK GDP”
James Smith, an economist at ING, commented on the positive GDP surprise in the UK, attributing it to “unusual” levels of manufacturing growth. The economy grew faster than expected in June, with a monthly GDP increase of 0.5%. However, Ruth Gregory, an economist at Capital Economics, still predicts a recession later this year and believes that the June numbers appear better than reality due to the comparison with a month that had three bank holidays.
“Heathrow Airport Sees Rise in Passenger Numbers”
Heathrow airport reported a 21.4% increase in passenger numbers in July compared to last year, as many Britons sought to escape bad weather at home. While the growth was strong, the numbers are still below pre-pandemic levels. Traffic to Turkey reached record levels, and popular destinations included Portugal, Gibraltar, Italy, and New York.
“Economy ‘Blinking to Life’ but Stuck in Low-Growth Rut”
Matthew Fell, director of competitiveness at BusinessLDN, noted that while the latest GDP growth was positive news, the UK economy remains stuck in a low-growth rut. Fell suggested several low-cost measures that the government could implement to boost growth, such as reversing the decision to end VAT-free shopping for international buyers and increasing productivity through innovation and digital skills capabilities.
“Inflation Warning Impacts US Stocks, FTSE 100 Expected to Open Lower”
A warning from a Federal Reserve official about the need for more action against inflation caused US markets to give up early gains. The Dow Jones Industrial Average ended virtually unchanged after opening higher. The FTSE 100 Index closed higher yesterday but is expected to open lower today following the sell-off in Wall Street. Asian markets also ended the week in the red.
“Better-Than-Expected GDP Raises Possibility of Higher Interest Rates”
Joseph Calnan, manager of corporate currency transactions at Moneycorp, suggested that the better-than-expected GDP numbers may lead to higher interest rates. Calnan stated that the Bank of England has been looking for a significant economic slowdown, which has not materialized despite rising wage growth and a dynamic job market. While it is possible that the Bank of England will maintain its forecast for a rate hike, economic indicators remain unpredictable.
“UK GDP Grows Unexpectedly in Q2”
The UK GDP rose 0.2% in the second quarter, defying expectations of stagnation. The economy also saw stronger growth than expected in June, helped by good weather in various sectors. The quarterly numbers indicate that the UK has avoided a recession, with overall growth in manufacturing and positive contributions from falling raw material prices, software, and hospitality.
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FTSE 100 down on China fears, FDM up 12% on FTSE 250
Concerns about China’s property sector have fueled a weaker session for the London market, with the FTSE 100 Index down 0.6% or 45.60 at 7573.
Prudential lost 10.5 pence to 1028 pence and mining stocks also came under pressure after the Shanghai Composite fell 2% and the Hang Seng weakened 0.7%.
Shares of BT Group led the pack higher, but improved by a modest 0.7 pence to 115.95 pence.
The FTSE 250 Index fell 45.91 points to 18,947.90, led by falls in the oil and gas sector after North Sea explorers Harbor Energy and Ithaca Energy weakened 2%.
IT-focused professional services company FDM Holdings jumped 61 pence or 12% to 579 pence after its half-year results showed a 34% rise in pre-tax profit to £29.8m.
Key market data
Take a look at our key market data as the FTSE 100 fell 0.5% in early trading.
Some of the big losers of yesterday, such as Entain and Spirax-Sarco, continued their declines today.
‘Unusual’ increase in manufacturing boosted GDP growth
James Smith, developed markets economist at ING, said the positive GDP surprise could mainly be attributed to “unusual” levels of manufacturing growth.
“The UK economy grew faster than expected in June, helped by a rise in manufacturing output,” it said. “Monthly GDP increased 0.5% on the month, although 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 general economic growth in the second quarter was 0.2%, slightly higher than expected.
“ONS attributes this to automobile and pharmaceutical production. And while the latter can probably be partly explained by continued improvement in supply conditions (output is up 15% from last summer’s trough), it’s hard to explain why much of this growth fell in June specifically. The impact of the May bank holiday appears to have been fairly minimal compared to past actual events.
“Still, while much of the positive surprise can be explained by those manufacturing sectors, the rest of the economy looks pretty resilient as well. That was helped by better weather in June, which appears to have boosted hospitality and retail.”
That bank holidays ‘make the economy appear stronger than it really is’
GDP growth was not enough to make Ruth Gregory, deputy UK economist at Capital Economics, feel optimistic. She is still predicting a recession this year, and she said the June numbers look better than reality because they compare to a month with three bank holidays.
“The 0.5% m/m increase in real GDP in June and the 0.2% qoq increase in the second quarter confirmed that a recession has so far been avoided,” it said. “But with much of the drag from higher interest rates yet to come, we’re sticking to our below-consensus forecast that the UK is headed for a mild recession later this year.
“At first glance, June’s 0.5% m/m increase looks encouraging. It was stronger than we had expected and consensus (0.3% m/m) and left the level of GDP in June 0.8% above its pre-pandemic February 2020 level. However, given that the increase was mainly due to the return to the normal number of business days in June after the May King’s Coronation bank holiday, makes the economy appear stronger than it actually is.
“ONS did not provide an estimate of the impact of the additional bank holiday. But he did point out that it explains part of the 1.8% m/m increase in industrial production, as well as part of the 0.2% m/m in services production. If the net effect were similar to the additional bank holiday for the Queen’s funeral last September, then it could have boosted GDP growth by 0.3 percentage points.
Heathrow passenger numbers rise to 7.7 million in July
Passenger numbers at Heathrow airport soared to 7.7 million in July, up 21.4% on last year, as Britons looked to escape bad weather at home.
While growth was strong, the numbers are still below pre-pandemic levels.
Traffic to Turkey reached record levels, while there were near-record numbers of passengers going to Portugal, Gibraltar and Italy.
New York remains the most popular destination.
Heathrow Chief Executive John Holland-Kaye said: “It’s great to see so many passengers heading away to enjoy the summer sunshine. We have a great choice of popular destinations and our teams are delivering excellent service that will ensure your journeys come out perfectly.” better start.”
Holland-Kaye will leave at the end of this year, but a date has not yet been announced.
Economy “blinking to life”
Matthew Fell, BusinessLDN’s director of competitiveness, 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 coming to 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 buyers,” he said.
“Increasing productivity is also essential to get out of the economic slow lane and remedy the current cost of living crisis. The Government should unleash innovation with an agreement on Horizon Europe and boost digital skills capabilities to take advantage of AI and emerging technologies.”
Inflation Warning Chills US Stocks, FTSE 100 Looks Lower
A warning from a Federal Reserve official of “more work to be done” in the fight against inflation meant that US markets gave up early gains to end virtually unchanged last night.
The Dow Jones Industrial Average opened 350 points higher after the annual rate of consumer prices rose less than expected in July to 3.2%, a figure that fueled expectations that the central bank will not need to continue raising interest rates. interest.
However, the mood changed after comments from San Francisco Fed President Mary Daly as the Dow finished just 0.15% or 53 points higher.
The FTSE 100 Index closed 0.4% higher yesterday, but CMC Markets expects the top notch to open 42 points lower at 7,576 after Wall Street’s sell-off.
Asian markets ended the week in the red, with Hong Kong’s Hang Seng shedding 0.8% and the Shanghai Composite down 1.5%.
Could rising GDP mean higher interest rates?
Joseph Calnan, manager of corporate currency transactions at Moneycorp, said the better-than-expected GDP numbers could be a “positive plot twist” but also raise the possibility of higher interest rates. “June’s stronger-than-expected growth feels like the first positive surprise in a long series of economic plot twists,” Calnan said. “However, both GDP and inflation are still where they should be, and the Bank of England and government policy makers are clearly struggling to fulfill 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 consecutive interest rate hikes is a significant slowdown in the economy, and this is not all that short-lived.
“Despite the backdrop of skyrocketing wage growth and a dynamic job market; It is possible that the forecast for a 25 bp rate hike will be maintained at the next MPC meeting. But, as the past few months have shown us, you can never be sure which direction the next set of economic indicators will take.”
UK economy grows unexpectedly
UK GDP rose 0.2% in the second quarter of the year, defying expectations of stagnation.
The economy grew 0.5% stronger than expected in June as good weather boosted many sectors.
That helped the quarterly number rise as well, warding off fears of a recession, generally defined as two straight quarters of contraction.
ONS Director of Economic Statistics Darren Morgan said: “The economy recovered from the effects of the additional May bank holiday to post strong growth in June. The manufacturing sector had a particularly strong month, with both automobiles and the often erratic pharmaceutical industry experiencing particularly dynamic growth.
“Services also had a good month with publishing, auto sales and legal services all good, although this was partly offset by declines in healthcare, which was hit by more strikes.
“Construction also grew strongly, as did pubs and restaurants, both helped by the warm weather.
“Over the quarter as a whole, GDP grew a bit with overall growth in manufacturing, helped by falling prices for raw materials, software and hospitality.”
Morning refreshment: what you need to know to start the day
Good morning from the City section of the Evening Standard.
main street chain Wilko collapsed yesterday in administration, putting 12,000 jobs at risk. The 93-year-old retailer has been unable to find emergency investment to save his 400 stores across the UK. Chief Mark Jackson said: “We left no stone unturned when it came to preserving this incredible business, but we must acknowledge that it is with a heavy heart that we have no choice but to make the difficult decision.”
Like many companies, Wilko has been plagued by inflationary pressures, supply chain challenges, and fierce price competition among budget retailers. It is the first major major chain to fall victim to the difficult business environment, but it may not be the last.
The city’s eyes are on the UK GDP figures due to be released this morning. Monthly real gross domestic product (GDP) is estimated to have fallen 0.1% in May 2023 after growing 0.2% in April 2023. Will that economic contraction have persisted through June?
Here’s a roundup of our other headlines from yesterday:
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