FTSE 100 on the back foot, as UK economy recovers but service sector prices rise at fastest rate sin

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  • FTSE 100 down 44 points
  • B&M falls after figures
  • Ex-divs help push down market

9.51am: Boom boom Britain

And so to the UK, which has also beaten expectations in the latest IHS Markit/CIPS survey – but seen inflationary pressures hit a 24 year high.

The services PMI rose to 62.9 in May, up from 61.0 in April. This is the third month in a row the figure is above the 50 level signifying growth, and indicates the pent up demand which was unleashed when COVID-19 restrictions were eased.

The seasonally adjusted UK Composite Output Index rose from 60.7 in April to 62.9 in May, to signal the steepest rate of expansion since the series began in January 1998.


But given the worries about pricing pressures, this is a key sentence from the report: “A combination of strong demand and rising operating expenses resulted in the steepest increase in prices charged by service providers since the survey began in 1996.”


Tim Moore, economics director at IHS Markit, said: “UK service providers reported the strongest rise in activity for nearly a quarter-century during May as the roll back of pandemic restrictions unleashed pent up business and consumer spending.

“The latest survey results set the scene for an eye-popping rate of UK GDP growth in the second quarter of 2021, led by the reopening of customer-facing parts of the economy after winter lockdowns…

“The successful vaccine roll out has generated a strong willingness to spend and fortified business optimism across the service economy.

“However, inflationary trends intensified in May as suppliers passed on higher transport bills, staff costs and raw material prices. Imbalanced demand and supply appears to have spread beyond the manufacturing sector, which contributed to the steepest rise in prices charged by service providers since the survey began in July 1996.”

The FTSE 100 seems to have taken things in its stride, off its worst levels and now down 44.9 points or 0.63% at 7063.1.

9.26am: Eurozone economy picks up 

The Eurozone economy is picking up a little better than expected, to judge from the latest IHS Markit survey.

Both the services purchasing managers index and the composite one (which includes both services and manufacturing) for May have picked up the pace of recovery.


It was the service sector that lead the way, said IHS: “May’s data indicated a second successive monthly rise in service sector output, and the best recorded for nearly three years. Nonetheless, despite seeing the slowest growth for three months, manufacturing output continued to a rise at a sharper rate than services activity.”

But for those worried about inflation, there were signs of cost pressures with input prices increasing by the most in over a decade and – with companies trying to pass these on – output prices rising at the strongest rate in the series history.

Chris Williamson, chief business economist at IHS Markit said: “A growing area of concern is capacity constraints, both in terms of supplier shortages and difficulties taking on new staff to meet the recent surge in demand. This is leading to a spike in price pressures, which should ease as supply conditions improve, but may remain an area of concern for some months, especially if labour shortages feed through to higher wages.”


Meanwhile, back in the UK, the FTSE 100 continues to decline ahead of the latest UK services data, down 50.02 points or 0.7% at 7057.98.

AJ Bell financial analyst Danni Hewson said: “The period earlier in the year when so-called ‘meme’ stocks were soaring wasn’t necessarily the happiest time for the markets overall and it’s notable that after shares in US cinema chain AMC Entertainment soared to a record high overnight the FTSE 100 fell out of bed on Thursday morning..

“There are still so many factors for investors to weigh, such as whether the economy will overheat or whether new COVID-19 variants could prompt a further economic downturn.

“There is also an element of having to second guess how central banks and governments will respond to the rapidly shifting backdrop.

“All of this uncertainty is making it tricky for the markets to make concerted progress as we move towards the halfway point of 2021.”

9.07am: Ex-divs help drag down market

Another factor dragging the leading index lower is the usual Thursday tradition of companies seeing their shares go ex-dividend.

So National Grid PLC (LON:NG.) is down 4.72% at 915.3p while Kingfisher PLC (LON:KGF) has fallen 2.74% to 344.1p.

Overall the decline in the FTSE 100 has accelerated as investors await key service sector data from the UK and jobs figures from the US.

These are likely to be scrutinised for any signs of inflationary pressures, still a current market obsession.

Meanwhile the leading index is down 46.65 points or 0.66% at 7061.35.

8.51am: Leading shares drift lower

The FTSE 100 bucked the wider global market trend and drifted lower in the opening exchange.

However, the scale of the decline and the lack of real volume behind it suggests the momentum could quickly shift later in the session, particularly if, as the stock futures suggest, Wall Street opens in positive territory.

“Markets are treading water ahead of more economic data points which will further inform the inflation debate,” said Richard Hunter, head of markets at Interactive Investor.

“One of the drivers of market jitters around inflationary pressures has been bottlenecks in the labour market, and over the next two days the jobless claims number and the non-farm payrolls reading will provide new evidence on the state of the nation.

“The oil price is another driver of concern as there does not seem to be any excess supply coming on stream for the moment from the major producing countries. The price is ahead by 39% in the year to date, partially driven by an anticipated spike in demand, and the effect of this inevitably puts further upward pressure on prices.”

Proving the old stock market adage that it’s better to travel than arrive, B&M European Value Retail (LON:BME) was marked down 4% in the early exchanges after what on the face of it was a solid set of results.

With the stock up 41% over the past year, some investors may be looking to book some profit on their investment. There was also a minor warning that trading continued to be volatile at a weekly and category level.

BT (LON:BT.A) fell 3% after Deutsche Bank’s analyst switched their recommendation on stock in the telco to ‘sell’.

6.50 am: Front foot start predicted

The FTSE 100 is set to start Thursday on the front foot although through this shortened week markets are marking time somewhat.

CFD firm IG Markets sees the London benchmark up around 16 points, making a price of 7,113 to 7,116 with just over an hour to go until the open.

US employment stats – the first of which comes out tonight – are the main macro-focus along with European PMI data, also due later. The monthly stats come as inflation remains not very far from policy maker’s thinking, and the usual central bank second-guessing is bound to follow shortly after the respective prints.

The corporate diary is quite light again in this bank holiday week, albeit discount retailer B&M and water utility Pennon are among the notable names in the book for Thursday.

Last night saw a muted but slightly positive markets.

Wall Street finished Wednesday positively, albeit only slightly. The Dow Jones added just 25 points or 0.07% closing at 34,600, whilst the S&P 500 similarly gained just 0.14% to finish the day at 4,308.

The Nasdaq was up 19 points or 0.14% ending Wednesday at 13,756.

In Asia, trading was mixed. Japan’s Nikkei advanced 131 points or 0.45% to 29,076.

Hong Kong’s Hang Seng slipped 184 points or 0.6% lower to 29,121, whilst the Shanghai Composite edged slightly higher to trade at 3,606.

Around the markets

The pound: 1.4152, down 0.13%

Gold: US$1,901 per ounce, down 0.35%

Silver: US$27.99 per ounce, down 0.59%

Brent Crude: US$71.89 per barrel, up 2.3%

WTI Crude: US$69.34 per barrel, up 2.4%

Bitcoin: US$38,793, up 5.56%

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mostly higher on Thursday as Australia’s retail sales rose 1.1% month-on-month in April on a seasonally adjusted basis, according to the country’s Bureau of Statistics.

The Shanghai Composite in China lifted 0.24% but Hong Kong’s Hang Seng index fell 0.61%

In Japan, the Nikkei 225 gained 0.29% while South Korea’s Kospi rose 0.79%.

Shares in Australia lifted, with the S&P/ASX 200 trading 0.50% higher.


Proactive Australia news:

Predictive Discovery Ltd (ASX:PDI) has extended NE Bankan prospect at depth with strong gold grades of up to 5 metres at 2.4 g/t from 245 metres in diamond drilling at the Bankan Gold Project in Guinea.

Nova Minerals Ltd (OTCMKTS:NVAAF) (ASX:NVA) (FRA:QM3) has welcomed a resource update from the Thompson Brothers Lithium Project in Canada through its majority- owned subsidiary Snow Lake Resources Ltd.

Creso Pharma Ltd (ASX:CPH) (FRA:1X8) has traded higher on news that target acquisition company Halucenex Life Sciences Inc is looking to capitalise on recent regulatory shifts in the Californian healthcare market with its psychedelic products.

Strategic Elements Ltd (ASX:SOR) is to negotiate a new agreement with global Fortune 100 software-industrial company Honeywell International Inc (NASDAQ:HON) to further develop and commercialise the Autonomous Security Vehicle (ASV).

Lithium Australia NL (ASX:LIT) (OTCMKTS:LMMFF) (FRA:3MW) has received a standard patent ‘Certificate of Grant’ from IP Australia for its SiLeach® extraction technology for low-energy recovery of lithium from micas – potentially a short-cut in the production of lithium-ion batteries.

Miramar Resources Ltd (ASX:M2R) has kickstarted a reverse circulation (RC) and aircore drilling campaign at the Gidji Gold Project Joint Venture (JV) in WA’s Eastern Goldfields.

European Lithium “at forefront of Europe’s battle for white gold”, Spark Plus reports

European Lithium Ltd (ASX:EUR) (FRA:PF8) has welcomed a research report by Spark Plus Pte Ltd analyst Cyprus Sia who says the company is leading the charge to be among the first few electric vehicle (EV) battery-grade lithium suppliers within Europe by 2023.

Twenty Seven Co Ltd (ASX:TSC) has completed a 662 hole auger drilling campaign for 987 metres over the entire Yarbu tenement package, providing an unparallel geochemical insight into an underexplored part of the Marda-Diemals Greenstone Belt.

Shree Minerals Limited (ASX:SHH) has discovered new copper occurrences during its first site visit to the Edwards Creek Project in the Northern Territory and this comes at a time of very positive copper market fundamentals.

Matador Mining Ltd (ASX:MZZ) (OTCMKTS:MZZMF) (FRA:MA3) has boosted its landholding across a major Newfoundland gold region following a strategic review.

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