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FTSE and Wall Street lower as pound slides and US factory orders plunge

A look at how the major markets are performing on Tuesday

The FTSE 100 is the red with Wall Street also set for a lower open on Tuesday as chip design firm Arm sets its share price for its US IPO. Photo: Getty.
The FTSE 100 is in the red with Wall Street also set for a lower open on Tuesday as chip design firm Arm sets its share price for its US IPO. Photo: Getty. (Matteo Colombo via Getty Images)

Wall Street, the FTSE 100 and European stocks were all lower on Tuesday afternoon as investors digested the latest data on US factory orders, which declined 2.1% in July. Analysts had expected a decline of 0.1%.

Meanwhile, new data showed UK manufacturing fell last month while retail sales rose in August by 4.1%, compared with 1.0% growth for the same period a year ago.

The latest update from the British Retail Consortium (BRC) suggests inflation is easing as consumers boost their spending. However, online sales showed a slight dip. The pound dipped to a 12-week low against the US dollar following the updates.

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Read more: UK retail sales rise as inflation eases

FTSE and European stocks

The FTSE 100 (^FTSE) closed down 0.21% to 7,437.03 points, while the CAC 40 (^FCHI) in Paris closed down 0.40% to 7,250.38 points. In Germany, the DAX (^GDAXI) declined 0.34% to 15,771.56 points.

European markets had opened in the red, taking their cues from a weaker session overnight in Asia.

The FTSE 100 was dragged down by Ashtead Group, after the equipment rental company cut its annual UK revenue growth forecast. China-sensitive stock Anglo American also weighed on the index.

US and Asia

The Dow Jones (^DJI) opened down 0.08% at 34,808.17, the S&P 500 (^GSPC) fell 0.24% to 4,504.81, while the tech-heavy NASDAQ (^IXIC) declined 0.23% to 13,999.61 after Monday's Labour Day bank holiday.

Investors will be keeping across today's factory orders, as well as ISM services PMI data for August and a trade balance update on Wednesday – and initial jobless claims for the week ending 2 September that will come through on Thursday.

Traders will also be considering the news that chip design firm Arm has set its share price range of between $47 (£37.45) and $51 (£40.63) for its IPO on the New York Stock Exchange.

In Asia, Japan’s Nikkei 225 (^N225) rose 0.30% to 33,036.76 points, while the Hang Seng (^HSI) in Hong Kong lost 1.18% to 18,491.96 on Tuesday. In mainland China, the Shanghai Composite (000001.SS) also declined, by 0.74% to 3,153.40 points.

It comes as China's services activity expanded, however, at the slowest pace in eight months in August as weak demand continues to impact the world's second-largest economy. Moreover, stimulus efforts have failed to revive consumption.

The data broadly aligned with the official services PMI data that was released last week, which showed the sector continued to trend downwards.

AJ Bell investment director Russ Mould, said: “Nagging worries about the Chinese economy are a big contributing factor to the change in mood – the latest PMI reading from the services sector painting a shocking picture. Undoubtedly expectations for a Chinese economic recovery following the removal of zero-Covid measures got way ahead of themselves, but the manner in which things have panned out is probably worse than even most of the sceptics would have predicted.”

Pound

In currencies, the pound sterling hit a 12-week low against the US dollar on Tuesday on the back of disappointing UK economic data.

At the time of writing, the pound to dollar exchange rate (GBPUSD=X) was trading close to levels not seen since 13 June at 1.25, meaning £1 will get you $1.25. On 14 July, the rate was at 1.31.

It comes after the UK S&P Global/CIPS composite Purchasing Managers' Index (PMI) dropped to 48.6 in August from 50.8 in July, the lowest since January.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said to Yahoo Finance UK: "The ratcheting up in interest rates is now making its mark on the services sector which until now has been more resilient to the attempts to squeeze down on demand to drive down prices.

"The closely watched S&P Global/CIPS UK Services PMI showed a contraction in August, indicating confidence is evaporating among companies and consumers. Data out today from Barclaycard also indicated that spending during the month dropped markedly compared to July, particularly across the hospitality sector as people turned more cautious."

Read more: Pound falls against US dollar as economic data disappoints

As a result, she said, the data builds on the picture of a slowing economy and is helping to reinforce bets that interest rates won’t go as high as the market had been predicting just weeks ago which is why sterling has dropped sharply against the dollar today to levels not seen since early June.

Oil prices

In commodities, oil prices gained on Tuesday. US crude oil, or West Texas Intermediate (CL=F), rose 0.23% to trade at $85.75 a barrel, while Brent crude (BZ=F) gained 0.19% to $88.72 a barrel.

"Oil prices have rallied as traders have gotten the message loud and clear that OPEC+ is not in the mood to ease supply anytime soon. The fact that Saudi Arabia has extended the voluntary cut shows that OPEC+ members are very comfortable keeping prices low for a longer period, and they have no interest in what central banks are worried about. In addition, there is also the element that Saudi Arabia wants to keep prices higher as it has massive outgoings in terms of heavy commitment to its infrastructure projects, which are going to change the country for ever," Naeem Aslam, chief investment officer at Zaye Capital Markets, said.

Corporate highlights

Ashtead (AHT.L) has reported its quarterly results today and posted strong growth in first-quarter revenue.

The international equipment rental company said revenue in the financial first quarter to 31 July 2023 rose 19% to $2.70bn from $2.26bn.

“The group delivered another record quarter with revenue up 19%, rental revenue growth of 14% and adjusted profit before tax increasing 11%,” Chief executive, Brendan Horgan, said.

Meanwhile, Novo Nordisk (NVO) has become Europe’s most valuable company, according to Monday’s closing prices, surpassing luxury goods conglomerate LVMH.

This is thanks to hype around the Danish pharma company’s blockbuster appetite-suppressing weight-loss drug Wegovy which is now set to penetrate the UK market. It has already attracted a lot of interest with strong demand landing tens of thousands of people on the waitlist. Obesity is a major health threat in the UK, the US, and other countries, contributing to complications like diabetes and heart disease, which is why there’s so much excitement about this drug,” Victoria Scholar commented.

Novo Nordisk's stock has surged around 40% so far this year and more than 290% over the past five years, making it a standout stock market winner for short and long-term investors alike.

There’s no full year earnings reports today but Darktrace (DARK.L), Restaurant Group (RTN.L), Barratt Developments (BDEV.L) and Dechra (DPH.L) are among the companies that will report on Wednesday 6 September.

There will also be quarterly earnings from Vistry (VTY.L), Direct Line (DLG.L), and Beazley (BEZ.L) on Thursday 7 September – and from Computacenter (CCC.L) on Friday.

Economic data

China Caixin services PMI data for August was expected to fall to 54 from 54.1 this morning. However, it slipped to 51.8. It marks the lowest reading since December when COVID-19 confined many consumers to their homes in the country.

A reading above 50 indicates expansion, while anything below that level shows contraction.

Also today, the Reserve Bank of Australia (RBA) released its latest rate decision and kept it unchanged at 4.1% for a third straight month. However, the bank said that further increases may be needed to keep inflation under control.

“The Australian dollar fell further this morning despite the RBA holding interest rates steady and warning that further tightening may be necessary. The central bank warned that while inflation is declining, a strong labour market and economy remain a risk. What's more, persistent services price inflation which is being seen in other countries could be another potential upside risk in Australia in the future,” OANDA's Craig Erlam said.

“Markets aren't buying the hawkish warning though and continue to price in a 70% chance of no further increases from the RBA, with cuts then likely to start late next year. This will almost certainly change repeatedly over the months ahead but as things stand, clear progress is being made on inflation and the central bank has no desire to needlessly crash the economy,” he added.

Watch: Earnings, jobless claims, Fed’s Beige Book: What to watch this week

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