UK Politics

FTSE 100 closes higher as traders cheer Chinese data and resume optimistic mode

  • FTSE 100 index closes nearly 90 points higher
  • US ISM manufacturing index recover to 43.1 in May from 41.5 in April
  • US stocks higher but more tentative

5.15pm: FTSE 100 finishes higher

FTSE 100 index closed higher on Monday as traders appeared buoyant on the prospect of the economic world returning to some kind of normal.

Britain's blue chip index finished up nearly 90 points, or 1.48%, at 6,166. The FTSE 250 gained over 234 points, or 1.38% on the day. Wall Street shares also went higher, though more tentatively.

Manufacturing and services reports from China in recent days have also been well received, boosting boosted stocks, noted analyst David Madden at CMC Markets.

"….European dealers took some comfort in that seeing as China was the first country to go into lockdown, and in turn, it was the first to emerge from lockdown, so some people are hoping that Europe will undergo a similar recovery," he said in a note.

Across the Pond, the Dow Jones Industrial Average gained 46 points at 25,429 on the day, while the S&P 500 added around five at 3,049.

Among the Footsie's top gainers was Primark owner Associated British Foods PLC (LON:ABF) as traders took comfort from the prospect of the clothes retailer opening again on June 15, albeit with 80% of floor space in use. Shares soared 8.02% to 1,967p.

3.45pm: US ISM manufacturing index recovers in May

The US faces a long road to recovery, reckons ING, commenting after the release of the US ISM index.

The ISM manufacturing index recovered to 43.1 in May from 41.5 in April and while all the important sub-components, such as production, new orders and employment, all improved “they continue to tell a very painful story”, according to James Knightley, the chief international economist at ING.

“During the global financial crisis the headline ISM index bottomed at 34.5 (December 2008) so hitting a low of “only” 41.5 in April doesnt seem all that terrible. In the current crisis though the headline is being artificially inflated by the supplier delivery times component, which even after dipping back this month, is still up at 68.0,” Knightley noted.

The rise in supplier delivery times is because lockdowns and temporary factory closures have disrupted supply chains, and that will hamper the ability of factories to restart production.

“This is obviously very bad, yet it is still boosting the headline ISM index,” Knightley underlined.

In the UK, the mood was a bit more cheery, with the FTSE 100 up 77 points (1.3%) at 6,154.

3.15pm: US indices perk up after IHS Markit PMI reading

The seasonally adjusted IHS Markit final US Manufacturing Purchasing Managers Index (PMI) posted 39.8 in May, up from 36.1 in April.

The latest figure signalled the second-steepest deterioration in manufacturing operating conditions since April 2009.

“Manufacturing remained in a deep downturn in May, as measures taken to contain the spread of COVID-19 continued to cause production losses, disrupt supply chains and hit demand. Job losses meanwhile continued to run at one of the highest rates in over a decade, and pricing power has collapsed,” said Chris Williamson, the chief business economist at IHS Markit, which compiles the index.

May's IHS Markit US Manufacturing PMI revealed another downturn in business conditions for the sector. Production continued to fall sharply amid a further reduction in demand.
Read more:

— IHS Markit PMI™ (@IHSMarkitPMI) June 1, 2020

“With increasing numbers of companies restarting production, we should see some improvements in the output trend in coming months, and it was reassuring to see signs of the downturn already starting to ease in May, suggesting April was the eye of the storm as far as the production collapse is concerned.

“There remains a high risk that any recovery will be frustratingly slow as ongoing social distancing measures, high unemployment, job insecurity and damaged balance sheets constrain consumer and business spending. The recovery will of course also fade quickly if virus infections start to rise again,” he cautioned.

US indices perked up on the release of the data with the Dow up 34 points (0.1%) at 25,417 and the S&P 500 up 4 points (0.1%) at 3,048.

In the UK, the FTSE 100 was up 74 points (1.2%) at 6,151.

With fears of a trade war between the US and China waning, investors have been moving back into Standard Charttered PLC (LON:STAN), the Asia-focused bank. The stock was up 7.6% at 396.6p and the second-best performing constituent of the Footsie.

2.50pm: US indices off to a mixed start

US indices got off to a mixed start, slightly out of step with global markets.

The Dow Jones 30-share industrial average was off 42 points (0.2%) at 25,341 but the S&P 500 was practically unchanged at 3,044 while the NASDAQ Composite was up 14 points (0.2%) at 9,503.

In London, last weeks firmer trend (if we overlook Fridays dip) has continued, with the FTSE 100 index up 65 points (1.1%) at 6,141.

“Markets have now recovered close to two-thirds of their losses,” observed Rupert Thompson, the chief investment officer at wealth management group Kingswood, referring to the markets rally from its coronavirus panic low point.

“Near term, the positive news flow could continue and the rally may have a bit to further run. Investors who have not participated so far may be sucked into the market for fear of missing out. Longer-term, however, we continue to believe the market has rather got ahead of itself.

“Certainly, markets have recovered quicker than is normal in the early stages of a bull market. Global equities are now up over 30% from their lows over the space of little more than two months. In the past, the average gain has been around 20% over the first three months, with it usually taking six months to see a rebound of 30%,” Thompson noted.

“The scope for further gains later in the year is looking increasingly limited. Indeed, the danger of a correction remains as a rapid return to normality looks unlikely unless a vaccine is developed sooner rather than later. As government support schemes for individuals and companies are wound down over coming months, the damage done to both by the collapse in activity will become evident and is likely to hamper the recovery,” he suggested.

For now, however, the bulls are in the ascendancy and prepared to move back into travel-related stocks such as cruises operator Carnival PLC (LON:CCL) and British Airways owner International Consolidated Airlines (LON:IAG) as lockdown restrictions are relaxed.

The former is up 5.6% at 1,117p and the latter is 5.3% firmer at 240.5p.

1.20pm: Optimistic mood returns

Global markets got off to a positive start to the week as fears of an escalation in the US-China trade war diminished.

The FTSE 100 was up 53 points (0.9%) at 6,130.

“If marginally less upbeat than at the start of the session, the European markets nevertheless remained strong on Monday, expressing their relief that Donald Trump didnt tank the US-China trade deal last Friday,” commented Spreadexs Connor Campbell.

“What makes the gains extra notable is that they come despite Chinese foreign ministry spokesman Zhao Lijian telling reporters that any words or actions by the US that harm Chinas interests will meet with Chinas firm counterattack.

“Instead investors are focusing on the fact that Trump didnt announce anything more damaging last well, as well as the fact the Chinese Caixin manufacturing PMI bounced back into expansion territory in May, hitting 50.7,” he added.

“The Dow Jones is currently set to add just 60 points when the bell rings on Wall Street, pushing it back to 25450. Whether or not it gains steam is going to be based on a few things, namely: a) the state of the Markit and ISM manufacturing PMIs, b) if there is any Trumpdate on the US-China situation, and c) how seriously investors are paying attention to Americas civil unrest,” Campbell opined.

12.35pm: Sterling hardens as Brexit returns to the agenda

Despite sterling have a good morning against the US dollar, investors have piled into blue-chips.

The FTSE 100 was up 76 points (1.3%) at 6,153 even as sterling rose by almost a third of a cent to US$1.2380 on foreign exchange markets at the start of a week in which Brexit is going to be back on the agenda.

“Brexit is back in the spotlight this week as the UK and EU sit down for another round of virtual talks but theres little to suggest we should expect any real progress,” said James Smith, the economist covering developed markets at ING.

“Regardless of whether a free-trade agreement is signed, we should expect big changes in the way the UK trades with the EU. Even with an FTA [free trade agreement] in place, there will still be regulatory checks on goods passing across the channel, and these can be particularly intrusive for agricultural products and these agreements also typically do very little for services.

“That implies some initial disruption to supply chains is inevitable, and the risk of this coinciding with a renewed COVID-19 outbreak over winter months risks putting the brakes on the economic recovery,” Smith added.

On the corporate news front, fashion firm Ted Baker PLC (LON:TED) dived 13% to 133.8p after it announced plans to raise £95mln by placing shares at 75p.

“Teds in a difficult position at the moment, and seems to have reached the limit of its bankers willingness to lend money at acceptable rates. This has led the group to issue new shares at a steep discount to an already badly beaten up price. Management tried to strike an optimistic tone when laying out their plans for the brands future, but this feels like the last throw of the dice to us," said William Ryder, an equity analyst at Hargreaves Lansdown.

In other retail news, cosmetics firm Warpaint PLC (LON:WL7) was up 16% at 66p after it unveiled a deal that will see a number of its products stocked by the wilko chain.

Warpaint London signs deal to supply Wilko with two brands

— FashionNetwork Worldwide (@FNW_WW) June 1, 2020

11.45am: Morning of progress for the FTSE 100

The FTSE 100 was up 70 points (1.2%) at 6,147 after shrugging off the May UK manufacturing purchase managers' index.

"The manufacturing PMI rose to 40.7 in May (revised up marginally from the “flash” reading of 40.6) after falling to a record low of 32.6 in April from 47.8 in March," reported Howard Archer, the chief economic adviser to the EY ITEM Club.

“Output contracted despite the sub-index rising appreciably from Aprils record low. Similarly, new orders contracted in May, but the rate of decline did at least moderate from the sharpest drop in the surveys history seen in April. This applied to export orders as well.

“Weakness was reported across the consumer, investment and intermediate sectors. However, there were some pockets of growth, primarily related to healthcare or PPE. Companies restarting business was also reported to have led to some inflows of business," he added.

10.35am: UK manufacturing industry still in bad shape

Continued supply chain disruptions resulted in another strong contraction in the manufacturing sector, according to the Chartered Institute of Procurement & Supply (CIPS).

Duncan Brock, the group director of CIPS, said output in May fell at its fourth-fastest rate in the near 30-year survey history.

The May revision to the UK manafacturing purchasing managers index was little different to the flash estimate – moving to 40.7 from 40.6.

???????? UK Manufacturing #PMI rises to 40.7 in May (April: 32.6) to signal a further sharp downturn, but the pace of contraction eases from April's record. Output, new orders and employment all fell sharply again amid #COVID-19 restrictions. Read more:

— IHS Markit PMI™ (@IHSMarkitPMI) June 1, 2020

“With new orders from home and abroad drying up for the third month in a row, company owners watched helplessly as the result of factory shutdowns, raw material shortages and furloughed staff continued to eat away at their operations. With no new pipeline of work to fulfil, purchasing dropped at one of the fastest rates for three decades as companies focussed their attention on completing any work in hand with current stocks of materials and with what little capacity remained in factories,” Brock said.

“Worries over safety for returning staff and repairs to broken supply chains will be uppermost in business minds, and are obstacles to be overcome before real recovery can begin. Uncertainty remains the watchword for the months ahead,” he added.

The FTSE 100 was up 60 points (1.0%) at 6,137.

10.00am: Minor revision to May manufacturing PMI

The IHS Markit/CIPS UK manufacturing purchasing managers index (PMI) for May was revised marginally upwards from the flash estimate.

The PMI reading was revised to 40.7 from the flash estimate of 40.6, and was up from 32.6 in April. A level below 50 indicates a contraction in activity.

“Those who typically see the glass half empty will note that the UK manufacturing sector remained mired in its deepest downturn in recent memory. Output, new orders and employment fell sharply again in May as restrictions to combat the spread of COVID-19 caused further widespread disruptions to economic activity, demand and global supply chains,” said IHS Markits Rob Dobson.

“However, the glass-half-full perspective is one where the rate of contraction has eased considerably since April, meaning – absent a resurgence of infections – the worst of the production downturn may be behind us. Pressure on manufacturers should ease further as lockdown restrictions are loosened, customers return to work and global activity restarts,” Dobson said, adding that the UK seems “set for a drawn-out economic recovery”.

The FTSE 100 was up 59 points (1.0%) at 6,135.

9.30am: Mounting trade tensions take the gloss off the Footsie's flying start

Blue-chips in London have come off the top on reports that China is to stop importing some US soya beans.

The FTSE 100, which flew out of the traps to hit 6,177 early doors, was up 55 points (0.9%) at 6,131.

Reports That China Is Said To Stop Importing Some US Soybeans As US-China Tensions Increase $ZS_F $ES_F $USDCNH $USDCNY

— LiveSquawk (@LiveSquawk) June 1, 2020

The Footsies advance was spearheaded by Associated British Foods PLC (LON:ABF), which was up 6.4% at 1,937.5p after it said early trading indicators from the recently re-opened Primark stores have been both “reassuring and encouraging”.

8.30am: Positive start to the week

The FTSE 100 was in bounce-back territory in early trade on Monday after Fridays triple-digit losses, buoyed by a positive start to the trading week in Asia.

The index of UK blue-chips opened 81 points to the good at 6,157.43.

The positivity was provided by President Trump, who opted for a restrained and considered response to Beijings clampdown on Hong Kong.

The Hang Seng provided the pull for the rest of the world with index staging a relief rally that bumped it up 3%.

Closer to home, British Airways owner IAG (LON:IAG) flew to the top of the UK blue-chip index with a 5.6% gain after the Lufthansa board accepted amendments to its proposed bail-out, paving the way for industry-wide state aid.

easyJet (LON:EZJ), up 4.4%, followed in IAGs vapour trails.

After several days of heavy selling activity after the downgrade of its bonds to junk status, Rolls Royce (LON:RR.) received a little love with its shares nudging 3.8% higher.

The miners, led by Anglo American (LON:AAL), were in demand early on as the latest batch of data from China pointed to a poor but not disastrous economic performance in May for the worlds second-largest economy.

Remember, the fortunes of the natural resources firms are closely allied to the state of the Chinese construction sector.

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