London close: Stocks finish mixed as US economy contracts

London’s top-flight index had pared most losses but still closed weaker on Thursday, after a veritable king tide of corporate news, while fresh data showed the American economy contracting in the second quarter.

The FTSE 100 ended the session down 0.04% at 7,345.25, while the FTSE 250 was up 1.1% at 19,855.19.

Sterling was also in a mixed state, last trading down 0.32% on the dollar at $1.2119, while it strengthened 0.17% on the euro to €1.1940.

“Today’s US growth release saw an annualised reading of -0.9%, bringing about a technical recession which is characterised by two consecutive quarters in the red,” said IG senior market analyst Joshua Mahony.

“Interestingly, while most elements of the GDP reading contracted, rising prices did help lift the value of exports and personal consumption expenditures.

“Despite many expecting to see today’s GDP data signal a contraction of the US economy in the second quarter, we have seen the dollar and stocks both move lower in response this afternoon.”

Mahony said the boost provided by Fed chair Jerome Powell after the central bank raised interest rates overnight had been “fleeting”, despite his inference that future hikes would be data-driven.

“While a data-driven approach from the Fed would signal a potential slowing of hikes in the face of a deterioration in jobs and growth, the contraction of the US economy provides a warning of the environment faced by US businesses going forward.”

In economic news, the American economy recorded a second straight contraction over the three months to June, fitting the oft-used technical definition of a recession.

According to the Department of Commerce, US gross domestic product shrank at a seasonally-adjusted quarterly annualised pace of 0.9% over the three months through June, falling short of projections for growth of 0.5%.

Part of the reason for that shortfall was a larger-than-expected drag from companies running down their stockpiles of goods, subtracting two percentage points from growth.

According to Ian Shepherdson at Pantheon Macroeconomics, many economists had failed to factor in the scale of the hit from rising commodity prices, which led to a "hefty" drop through the inventory valuation adjustment.

Public consumption was another drag, with the 1.9% decline "impossible to square with the monthly data".

"[Final sales to domestic purchasers] could easily fall a bit in the third quarter, but headline GDP probably will rebound strongly," Shepherdson said.

“We expect the Fed to take more notice of the indicators of final demand, which is why we expect a rate hike of only 25 or 50 basis points in September.

“The third quarter is the period of maximum risk for final demand; by the fourth, we expect rising real incomes to support significantly stronger consumption.”

Staying stateside, Americans filed first-time unemployment claims at a slightly slower pace in the week ended 23 July, dropping by 5,000 to 265,000 according to the Department of Labor - short of expectations for a drop to 253,000.

On a non-seasonally adjusted basis, claims fell by 42,417 week-on-week to 216,469, with notable decreases in Massachusetts, New York, and South Carolina.

The four-week moving average, which aims to strip out week-to-week volatility, printed at 249,250, an increase of 6,250 from the previous week's upwardly revised average of 243,000.

Across the channel, meanwhile, economic sentiment in the eurozone tumbled in July as the invasion of Ukraine and surging inflation took their toll.

The European Commission’s economic sentiment indicator fell to 99.0 from 103.5 in June, coming in below analysts' expectations of 102 and below the long-term average.

It said the largest declines were in industrial and services confidence, mainly due to a fall in orders, while the consumer confidence index fell by three points.

“High inflation and the soaring costs of energy are, of course, major headwinds,” said analysts at ING.

“Unfortunately, the labour market, which had been a big support for consumption also shows signs of weakening.”

ING noted that the employment expectations indicator, while still above its long-term average, fell for the fifth month in a row.

“In the consumer survey, unemployment expectations also increased.

“No wonder that the intention to make major purchases over the next 12 months is now close to an all-time low.”

On London’s equity markets, medical technology group Smith & Nephew tumbled 11.37% after it posted a drop in first-half pre-tax profit.

“Smith & Nephew struggled during the pandemic as elective surgeries were cancelled and demand for its hip and knee implants fell,” said AJ Bell’s Russ Mould.

“As we emerge from the pandemic then in theory it should have a big backlog of business to get through, but supply chain and execution issues in its orthopaedics business are holding it back.

“Recently appointed CEO Deepak Nath really needs to sort these problems out fast so the company doesn’t miss out on a significant market opportunity.”

Elsewhere, Airtel Africa slid 7.37% after first-quarter results, along with BT Group, which lost 8.09%.

Barclays fell 4.64% after it reported a decline in half-year pre-tax profits due to higher costs and a £300m impairment provision for bad debts amid the cost-of-living crisis.

The bank said pre-tax profits fell 24% to £3.7bn, while group income was £13.2bn - up 17% year-on-year, including £800m from hedging arrangements related to the over-issuance of securities.

Credit impairment charges were £300m compared with a £700m release of cash last year that had been set aside for debts expected during the Covid pandemic.

CMC Markets plunged 19.97% after the online trading platform said operating costs were set to be 5% higher than initially expected.

Molten metal flow engineer Vesuvius was in the red by 5.69%, despite lifting its full-year outlook and reporting a jump in first-half profit and revenue thanks to higher selling prices and market share gains.

Rathbones Group was also on the back foot, slipping 0.96% after its interim results.

On the upside, miners rallied, with Anglo American up 2.5% despite reporting a 28% fall in first-half earnings.

Equipment rental firm Ashtead shot 6.08% higher after US peer United Rentals lifted its full-year revenue guidance amid robust demand.

Pest control and hygiene services company Rentokil Initial ascended 5.81% after it posted a rise in interim profit and revenue, with broad-based growth across its categories.

Smurfit Kappa got a 5.37% boost after JPMorgan Cazenove lifted its price target on the shares, while drinks maker Diageo rose 2.63% after it reported a jump in full-year sales thanks to resilient demand and price increases.

Shell managed gains of 0.31% after the oil giant posted a better-than-expected second-quarter profit of $11.5bn, driven by soaring energy prices.

Schroders pushed 6.15% firmer after the fund manager said assets under management ticked up 1% in the first half.

Car dealership Inchcape gained 4.45% after it posted a rise in first-half profit and revenue and announced the acquisition of Latin American automotive distributor Derco for £1.3bn.

Elsewhere, DiscoverIE jumped 7.89%, Hammerson added 8.18% and Weir Group rose 7.16%, all after their own respective updates.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Iain Gilbert and Alexander Bueso.

Market Movers

FTSE 100 (UKX) 7,345.25 -0.04%
FTSE 250 (MCX) 19,855.19 1.10%
techMARK (TASX) 4,335.26 -0.66%

FTSE 100 - Risers

Fresnillo (FRES) 697.80p 6.47%
Schroders (SDR) 2,898.00p 6.15%
Ashtead Group (AHT) 4,397.00p 6.08%
Rentokil Initial (RTO) 532.00p 5.81%
Smurfit Kappa Group (CDI) (SKG) 3,003.00p 5.37%
Intermediate Capital Group (ICP) 1,481.00p 4.63%
Unite Group (UTG) 1,139.00p 4.59%
St James's Place (STJ) 1,202.50p 4.52%
Admiral Group (ADM) 1,884.00p 4.15%
Smith (DS) (SMDS) 288.20p 4.08%

FTSE 100 - Fallers

Smith & Nephew (SN.) 1,067.50p -11.37%
BT Group (BT.A) 161.85p -8.09%
Airtel Africa (AAF) 158.30p -7.37%
Barclays (BARC) 150.34p -4.64%
Aveva Group (AVV) 2,231.00p -4.25%
Standard Chartered (STAN) 566.80p -3.44%
Whitbread (WTB) 2,591.00p -3.14%
SSE (SSE) 1,726.00p -3.01%
Pearson (PSON) 765.80p -2.84%
Centrica (CNA) 88.84p -2.35%

FTSE 250 - Risers

Hammerson (HMSO) 23.40p 8.18%
Hochschild Mining (HOC) 78.15p 7.94%
Discoverie Group (DSCV) 738.00p 7.89%
Weir Group (WEIR) 1,594.00p 7.16%
Genus (GNS) 2,782.00p 5.46%
TBC Bank Group (TBCG) 1,328.00p 4.67%
Bridgepoint Group (Reg S) (BPT) 249.00p 4.62%
Inchcape (INCH) 821.00p 4.45%
Molten Ventures (GROW) 461.60p 4.34%
Smithson Investment Trust (SSON) 1,360.00p 4.13%

FTSE 250 - Fallers

CMC Markets (CMCX) 246.50p -19.97%
Vesuvius (VSVS) 326.00p -5.69%
Royal Mail (RMG) 276.90p -3.79%
Polymetal International (POLY) 193.50p -3.73%
Mitchells & Butlers (MAB) 170.40p -3.07%
NB Private Equity Partners Ltd. (NBPE) 1,575.00p -2.78%
SSP Group (SSPG) 254.10p -2.16%
Spire Healthcare Group (SPI) 238.00p -2.06%
Provident Financial (PFG) 185.20p -1.80%
National Express Group (NEX) 176.20p -1.62%