US public holiday subdues global equity markets, FTSE 100 ends the day lower

2 Sep 2024

Stock prices in London moved lower on Monday, as global stock markets were less active due to the US holiday.

The FTSE 100 index finished the day 12.79 points lower at 8,363.84, a decrease of 0.2%. The FTSE 250 ended the day down 106.03 points at 20,980.51, a decrease of 0.5%, while the AIM All-Share closed 5.61 points lower at 766.90, a decrease of 0.7%.

The Cboe UK 100 finished 0.1% lower at 836.73, the Cboe UK 250 ended the day down 0.4% at 18,493.53, and the Cboe Small Companies index closed slightly lower at 16,849.32.

In the stock markets of Europe on Monday, the CAC 40 in Paris increased by 0.2%, while the DAX 40 in Frankfurt rose by 0.1%.

The US stock markets were not open on Labour Day because it is a public holiday.

During a slow day for company updates in London, Rightmove made a big impact by jumping up 27%.

Australia's REA Group has stated that it is contemplating making a bid to acquire its counterpart in the UK using a combination of cash and shares.

REA confirmed that they have not made any contact with Rightmove or discussed the possibility of making an offer.

However, the company expressed that it views the merging of the two companies as a significant opportunity for transformation.

Panmure Liberum analyst Sean Kealy mentioned that it seems like information about REA's strategy was shared prematurely before significant advancements were achieved.

In terms of cost, the Panmure Liberum analyst stated that he would expect a significantly higher price at this point.

Lately, there has been a lot of merger and acquisition activity in the classifieds sector. Cinven purchased Idealista in Spain, while EQT acquired Property Guru in Singapore. The transactions were done at a valuation of approximately 37 times and 45 times their respective earnings before interest, tax, depreciation, and amortisation.

Rightmove is bigger and more established than those companies, but it is currently trading at approximately 15 times EBITDA for the financial year 2024, as noted by the analyst.

On the other hand, the company that makes engines, Rolls-Royce, and the defense contractor, BAE Systems, both saw a decrease in their stock prices, with Rolls-Royce falling by 6.5% and BAE Systems by 2.8%.

The UK has stopped 30 arms export licences to Israel because The Guardian is worried that weapons made in the UK might be used in a way that breaks the rules of international humanitarian law.

The pause will include parts for military planes like fighter jets, helicopters, and unmanned aerial vehicles.

An examination by the recent Labour administration revealed a significant possibility that British weapons could be employed in severe breaches of humanitarian regulations regarding the handling of Palestinian prisoners and the distribution of assistance to Gaza.

Furthermore, the Times recently stated that there are worries about potential funding cuts for projects in the industry by Chancellor Rachel Reeves.

Defense officials are worried that the government might announce reductions to important military projects during the autumn statement, according to The Times.

A source in the UK military said that it seems unlikely that the Labour party will be allocating additional funds to the armed forces in the near future. They also expressed worry that the goal of increasing defence spending to 2.5% of GDP may not be reached until after 2030.

At the end of the trading day in London on Monday, the British pound was valued at $1.3145, which was slightly lower than the value of $1.3155 on Friday. The US dollar, on the other hand, was trading at JP¥146.95 against the Japanese yen, which was higher than the value of JP¥145.52.

The value of the euro decreased from $1.1074 to $1.1068.

This week, the primary thing that markets are paying attention to is the employment information in the United States, with the highlight being the US jobs report on Friday.

Brown Brothers Harriman mentioned that the Federal Reserve is becoming more worried about the possibility of reduced employment and how this could negatively impact consumption spending.

A broker noted that if job numbers indicate a stable labor market, there may be an increase in Fed funds futures supporting the USD and Treasury yields. On the other hand, if the job market worsens, there could be more pressure for the Fed to lower interest rates by the end of the year, leading to a decrease in USD and Treasury yields.

Barclays predicts that there will be an increase of 175,000 in non-farm payrolls, surpassing the expected 165,000, and a decrease in the unemployment rate from 4.3% to 4.2%.

Barclays mentioned that if things go as predicted, we can expect three rate cuts of 25 basis points by the end of the year. However, if the numbers turn out to be much worse than expected, there is a possibility of a 50 basis points rate cut in September.

Before the release of the nonfarm payrolls numbers, we will see job vacancy data on Wednesday, as well as the ADP private payrolls and weekly jobless claims figures on Thursday.

In London, data revealed that the growth in the UK manufacturing industry persisted in August, as production, new orders, and job numbers all increased.

The S&P Global UK manufacturing purchasing managers' index, which has been adjusted for seasonal changes, increased to a 26-month high of 52.5 in August. This was higher than the 52.1 recorded in July and remained the same as the initial estimate.

The PMI has shown growth in five of the last six months, crossing the 50-point mark that indicates a neutral position. The only exception was April.

Four of the PMI parts showed improvement in operating performance in August: output, new orders, employment, and suppliers' delivery times. However, the stocks of purchases component continued to show contraction for the twenty-third month in a row.

In the FTSE 250, Kainos experienced a 14% drop in share price after announcing that their total revenue for the year will be lower than what the market was expecting.

Kainos mentioned that they saw a temporary effect from the UK general election in Digital Services, as well as challenges with pricing in Workday Services.

In general, Kainos is predicting a slight uptick in revenue for the financial year ending on March 31, 2025, but it is lower than what the market is currently anticipating.

The company is estimating that they will make around £415.5 million in revenue based on the current market trends. However, in the financial year 2024, the company actually made £382.4 million in revenue.

Projected pre-tax earnings are anticipated to align with the current average forecasts from the market, totaling £79.1 million. This represents a slight increase from the £77.2 million reported in fiscal year 2024.

The price of Brent oil closed at $76.92 per barrel in London on Monday, lower than the price of $78.83 at the end of trading on Friday. Gold closed at $2,500.29 per ounce, a slight decrease from its previous price of $2,505.27.

On Tuesday, Ashtead, DS Smith, and Watches of Switzerland will provide updates on how their businesses are doing.

We will also be receiving information on retail sales from the British Retail Consortium.

In other places, there will be the release of US manufacturing PMI data.

Release Date: September 2, 2024