What's moving the FTSE 100?
27th October 2016 16:10
by Lee Wild from interactive investor
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Volatility, certainly in US equity markets, has been modest of late. Mixed earnings and a looming US presidential election are an excuse to keep powder dry. We've still seen sharp and sudden intraday moves on Wall Street, but nothing like the breathtaking spike in London Thursday morning.
Ahead of third-quarter GDP data at 9.30am, and following the loss of 150 points between late Tuesday and Wednesday afternoon, the swung from a 34-point deficit to a 45-point gain in quick time Thursday; all by five-past-nine.
Behind the rapid rise first thing were the reliable overseas earners like , , , and . But the initial rally was also broad-based, with value plays and , and banks like and , in demand.
But the rally unwound almost as quickly as it arrived, accelerated by the latest GDP data from the Office for National Statistics. A 0.5% increase during the three months to September was down on the 0.7% reported for the second-quarter, but easily beat the 0.3% pencilled in by economists.
That's great news, but a quick flick through the detail got traders thinking. While better-than-expected, it's clear the Brexit vote has slowed growth, and 0.4% contraction in industrial production quarter-on-quarter is a real worry.
It's also unnerving that UK PLC continues to rely so heavily on the colossal services industry, which grew by 0.8% during the quarter.
It's unlikely that third-quarter exports benefitted much from the post-referendum plunge in the pound, and there's little evidence that households have tightened the purse strings.
Yet, resilient third-quarter growth almost definitely postpones any further rate cut in the UK until 2017. As the team at Barclays point out, it also takes the heat off Philip Hammond as the chancellor prepares his Autumn Statement, due on 23 November.
"Against this backdrop, both the monetary and fiscal policy reaction will now most likely be delayed to the first half of next year if fourth-quarter 2016 GDP (to be released at the end of January) were to show further slowdown," says the broker.
"Finally, we highlight once more that UK GDP figures are prone to revisions, and hence we advise not to over-interpret the initial release."
That firepower could come in very handy when the UK, and in particular its dominant services sector, come under the cosh next year. But Simon French, chief economist at Panmure Gordon, remains optimistic:
"While inflationary spikes are anticipated in both energy and food markets during the early part of 2017 the momentum within the UK economy, with the promise of a less austere fiscal stance at the Autumn Statement, should ensure that the immediate risk of a sharp reversal in activity has been averted."
Looking healthier
And the FTSE 100 certainly looks healthier during the afternoon session.
Barclays is top of the risers - up over 4% - after underlying pre-tax profit, which strips out a further £600 million of payment protection insurance (PPI) provisions, grew 44% during the third-quarter to £1.7 billion. That's way above consensus estimates for around £1.3 billion.
Lloyds Banking was up for a second day following its own quarterly results Wednesday, and eked out small gains as investors hoped it would emulate peers.
Even ITV, struggling amid declining advertising revenue, proved popular. It trades on low PE multiples and pays a generous dividend. Investors also hope major shareholder Liberty might bid for the broadcaster. Fundamentally, however, ITV must make better progress lessening dependence on ad revenue.
However, those nerves around a sharp slowdown, and possible recession in 2017, have damaged confidence in many domestic plays. Housebuilder went ex-dividend Thursday, but a 12.3p payout does not account for an 8% plunge in the share price, and it's dragged the rest of the sector lower.
and are lower, too, and the more UK-focused FTSE 250 is nursing triple-digit losses compared with modest gains for the main index.
Over the next few days and weeks, investors will want to keep a close eye on the charts. As we show above, the FTSE 100 downtrend from the April 2015 high is under attack. Support has been breached twice this week before closing above the line.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.