China’s Covid lockdowns slowed the country’s GDP growth to 0.4% in the second quarter, weaker-than-expected figures revealed today.
The annual outturn, which compared with 4.8% the previous quarter, was offset by separate data showing a surge in consumer spending after restrictions were relaxed in June.
European and US investors are also focused on the latest banking sector earnings after yesterday’s disappointing reports from JP Morgan Chase and Morgan Stanley. In London, shares in Burberry and Fevertree Drinks have fallen sharply after updates today.
FTSE 100 Live Friday
China GDP weakens more than expected
Burberry sales impacted by Covid lockdowns
Fevertree warns on profits as cost surge
US retail sales growth adds pressure to Fed rate rise
14:37 , Simon Hunt
US retail sales grew 1% in June, figures released by the US Commerce Department show, as pressure mounts on the Federal Reserve to deliver a bigger interest rate rise.
The growth was led by increased sales in petrol, furniture and e-commerce and follows a 0.1% drop in retail sales in May.
The figures have prompted some traders to bet on a 100 basis point interest rate rise by the Fed when it meets later this month. A 75 point raise remains the consensus prediction.
FTSE 100 rebounds despite China worries
10:22 , Graeme Evans
Below-forecast GDP figures from China’s Covid-hit economy failed to trigger more selling today as traders kept up their focus on the outlook for US interest rates.
The FTSE 100 index rose 0.9%, reflecting hopes that a one percentage point hike in rates is not as certain as many had thought after this week’s surge in US inflation to 9.1%.
The softening in the mood followed comments made yesterday by two Federal Reserve policymakers ahead of the central bank’s next meeting in less than two weeks.
The prospect of another big rates hike on top of a previous 75 basis point increase has accelerated global recession fears and lifted the safe haven US dollar to multi-year highs, including this week’s parity against the euro.
Those recession worries were added to today when China revealed that Covid lockdowns had slowed annual economic growth to just 0.4% in the most recent quarter.
The GDP performance compares with a rate of 4.8% in the previous quarter and market expectations for around 1%. It leaves Beijing struggling to meet its 5.5% growth target for this year, which follows the 8.1% recorded in 2021.
The Shanghai Composite closed 1.5% lower but some of the GDP impact was offset by a bigger-than-expected rebound in retail sales for June.
Despite today’s improvement of 61.47 points to 7101.28, the FTSE 100 index remains 100 points below where it had started the week.
Banks and house builders led today’s improvement as Barclays, NatWest and Taylor Wimpey gained more than 2%. Rolls-Royce rallied 3% or 2.76p to 88.1p but Burberry tumbled 7% or 110.5p at 1538p in response to its first quarter update.
There was also further selling pressure on motor insurer Admiral after it shares skidded 18% yesterday on fears over the impact of surging claims cost inflation.
It lost another 22.5p to 1911p after analysts at JP Morgan cut their target price from 3000p to 1750p. Direct Line Insurance was also downgraded but its shares rose 5.5p to 214.3p.
Sabre Insurance, whose profit warning yesterday triggered the sell-off, steadied at 113.8p after closing at a record low last night.
The FTSE 250 index rose 214.39 points to 18,695.05, led by a 24% jump for Aston Martin Lagonda after it announced a major fundraising.
Dust up at metal miner Ironveld
09:10 , Simon English
A METAL miner chaired by former England cricket and Majestic Wine supremo Giles Clarke today issued a blistering attack on one of its biggest investors.
Ironveld, an Aim listed iron and magnesium miner, is accusing Richard Jennings of Align Research of conducting a campaign of “bullying, threats and coercion”.
A statement to the stock market today reveals that Jennings, a 9% shareholder, has issued a requisition notice calling for a general meeting to remove Clarke, the chairman, and CEO Martin Eales.
Ironveld says that Align Research operates by selling a promotional research product to smaller companies, taking a shareholding as part of his research compensation and then typically offering other ‘funding services’ to those companies.
When those services are declined, he becomes aggressive and agitates to remove the executives, they say.
Lockdowns hit Burberry sales, shares fall
08:35 , Graeme Evans
Burberry shares are down 4% after the luxury goods group’s first quarter update revealed the impact on China lockdowns on its performance. Comparable store sales were 1% higher, but this rate rose to 16% when excluding mainland China.
Burberry's retail revenues increased 5.4% to £505 million across the 13 weeks to July 2, although without currency tailwinds the figure was flat on a year earlier.
Burberry said: “Our performance in mainland China has been encouraging since our stores reopened in June and we are actively managing the headwind from inflation.”
The company continues to target high-single digit revenue growth and 20% margins in the medium term.
Chief executive Jonathan Akeroyd said: “While the current macro-economic environment creates some near-term uncertainty, we are confident we can build on our platform for growth.”
Fevertree warns over costs surge
08:13 , Graeme Evans
Mixers firm Fevertree Drinks has warned on profits, despite robust consumer demand in its key markets of the UK and United States.
It reported “rapid shifts” in its operational and cost backdrop over the last eight weeks, including through the restricted availability of glass and labour shortages as it seeks to ramp up production on America’s East Coast.
Chief executive Tim Warrillow said: “Whilst we are seeing positive top line performance and expect to deliver good revenue growth for the full year, the challenging logistical and cost headwinds we highlighted previously have significantly worsened in recent months and we now expect them to notably impact our full year margins.”
Underlying earnings are now expected to be between £37.5 million and £45 million for the financial year, which compares with the range of £63 million to £66 million forecast in May.
Shares fell 29% to 845p following the update.
FTSE 100 to open higher, more bank earnings due
07:45 , Graeme Evans
The impact of Covid lockdowns on China’s economy was revealed today when figures showed economic growth slowed to 0.4% in the second quarter of the year.
The annual GDP figure compares with a growth rate of 4.8% in the previous quarter and market expectations for around 1%. It leaves Beijing struggling to meet its 5.5% growth target for this year, which follows the 8.1% recorded in 2021.
A bigger-than-expected rebound in the country’s retail sales for June offset the disappointing GDP release, leading to a mixed session for Asian stock markets.
Michael Hewson, chief market analyst at CMC Markets, said: “Having been locked down for most of April and May the Chinese consumer went out and did a little bit of catchup spending, but confidence still remains weak with restrictions remaining in place in certain parts of the country.”
European stock markets are expected to open higher, lifted by a cooling of expectations for a percentage point rise in US interest rates at the Federal Reserve’s July meeting.
This offset some of the damage caused by yesterday’s disappointing earnings reports from JP Morgan Chase and Morgan Stanley.
US futures markets are pointing slightly higher ahead of the release of more banking sector earnings from Citigroup and Wells Fargo. CMC Markets also expects the FTSE 100 index to open 52 points higher at 7,092.