China fears hit the FTSE 100, property stocks fall in FTSE 250
The FTSE 100 index is 1% lower, down 78.56 points at 7540.04, amid more worries over China’s stuttering economy.
Hong Kong’s Hang Seng index finished the session 0.9% lower while the Shanghai Composite lost 2% at the end of a week in which China reported worse-than-expected trade figures and a slide into deflation territory.
The struggles of the world’s second largest economy put pressure on European stock market sentiment, despite July’s inflation reading of 3.2% fuelling hopes of a soft landing for the US economy.
Fears over weaker China demand meant Glencore slipped 9p to 445.85p and copper miner Antofagasta declined 37p to 1545p, while BP led a poor session for the energy sector by falling 6.95p to 483.95p.
Interest rate-sensitive stocks also struggled on the back of the latest UK GDP figures, leaving Piccadilly Lights owner Land Securities 8.2p lower at 632.8p and retail warehouse business Segro off 15p to 736p.
Former blue-chip British Land, whose portfolio includes the Broadgate and Paddington Central campuses, fell 10.7p to 323.8p and Great Portland Estates shed 14.4p to 414p as the FTSE 250 index weakened 102.91 points to 18,890.90.
North Sea explorers Harbour Energy also retreated 5.1p to 254.5p and Ithaca Energy weakened 4.6p to 164p.
On the risers board, professional services firm FDM Holdings jumped 61p to 579p after its half-year results showed a 34% rise in profits to £29.8 million.
Deliveroo shares, meanwhile, were 1.2p higher at 129p after Credit Suisse raised its target price to 183p following yesterday’s results.
Huge Wilko store estate would be tough to re-let, new data suggests
A number of landlords will struggle to quickly re-let the huge Wilko estate following the chain’s collapse, data suggests as it emerged scores of shops are still sitting empty from two other high-profile retail casualties.
Homeware chain Wilko fell into administration on Thursday in a move that puts 12,500 jobs at risk.
The 93-year-old business, which has grappled with inflationary pressures and felt the impact of the cost of living crisis on customer spend, was unable to secure a rescue deal. PwC will work on the administration including any search for buyers of the brand name or its around 400 shops.
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Another year of big losses for Odeon
British cinema chain Odeon is struggling to get its finances back into shape after the pandemic, new filings show, as a sluggish pick-up in footfall and a dearth of blockbuster film releases in 2022 led to another year of 8-figure losses.
Company revenues of £202.9 million remain 18% below pre-Covid levels Pre-tax losses for the year stood at £36.8 million. Despite soaring inflation, average ticket prices fell 1% to £7.95, while average customer spend on food and drink sunk 12% to £3.46.
The release of some big Hollywood titles in 2022, including Tom Cruise’s Top Gun: Maverick and Black Panther: Wakanda Forever, spurred a more than 50% year-on-year increase in cinema attendance to 15 million.
The firm refinanced its £400 million debt that was due to mature as soon as next week, in favour of a new debt facility with 12.75% interest that matures in 2027.
Odeon conceded that its going concern status depended on a promise of financial support from its parent, US cinema giant AMC, from whom it expected to require further funding for at least another year to keep it afloat.
“A more robust slate of major movie releases is scheduled during 2023, which has generated optimism that attendance and revenue levels will continue to improve,” Odeon said.
Fixed mortgage rates firmly on the way down
The decline in mortgage rates after a surge to 15-year highs seemed clearer today, as rates declined further.
According to Moneyfacts, the average two-year fixed residential mortgage rate is 6.80%, down from 6.83% yesterday as lenders including Halifax and First Direct brought in new lower rates from today.
The average five-year fixed rate fell from 6.33% to 6.28%.
Buy-to-let rates also dipped, but more slowly.
Rates have been edging down for the past three weeks after June inflation figures came in below expectations, leading traders to believe the Bank of England will not raise interest rates as high as initially feared.
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.”