London midday: FTSE flat as Pearson, BP slump

London stocks had pared earlier small gains to trade flat by midday on Tuesday as investors mulled the latest reading on the UK manufacturing sector, with Pearson and BP pacing the decline, while housebuilders rallied.

The FTSE 100 was steady at 7,869.00.

A survey out earlier showed that the UK manufacturing sector contracted further in April. The S&P Global/CIPS manufacturing purchasing managers’ index fell to 47.8 from 47.9 in March, remaining below the 50 mark that separates contraction from expansion but above the flash estimate of 46.6.

Output, new orders, employment and stocks of purchases all contracted and vendor lead times improved.

Rob Dobson, director at S&P Global Market Intelligence, said: "The UK manufacturing sector remained in the doldrums at the start of the second quarter. Output and new orders contracted, as manufacturers felt the impacts of client uncertainty, destocking and tightening cost controls. There was no escape from the subdued mood of the market, with both domestic and export customers remaining reticent to commit to new contracts.

"There was better news on supply chains, as supplier lead times have now shortened in each of the past three months, providing welcome news in terms of improved resource availability and helping drive down raw material price pressures."

Elsewhere, figures released by Nationwide showed that house prices edged higher in April following seven consecutive months of declines. House prices ticked up 0.5% on the month following a 0.7% drop in March, to an average of £260,441.

On the year, meanwhile, house prices fell 2.7% in April following a 3.1% fall the month before.

Nationwide chief economist Robert Gardner said that while annual house price growth remained negative, "there were tentative signs of a recovery" with the monthly uptick.

"April’s monthly increase follows seven consecutive declines and leaves prices 4% below their August 2022 peak," he noted.

"Recent Bank of England data suggests that housing market activity remained subdued in the opening months of 2023, with the number of mortgages approved for house purchase in February nearly 40% below the level prevailing a year ago, and around a third lower than pre-pandemic levels. However, in recent months industry data on mortgage applications point to signs of a pickup."

In equity markets, shares in education publisher Pearson tumbled after US firm Chegg, which provides online guidance for students preparing tests, warned over the impact of AI chatbots on its homework-help services. Chegg said in its first-quarter earnings on Monday that since March, it had seen "a significant spike" in student interest in ChatGPT.

"We now believe it’s having an impact on our new customer growth rate," it said.

Oil giant BP fell despite reporting a better-than-expected first quarter profit of $5bn. The results beat analyst expectations of a $4.3bn quarterly profit. Underlying replacement cost profit, BP’s measure of net income, hit $4.96bn, up from $4.8bn in the final three months of 2022 and beating expectations of $4.3bn in a company-compiled survey of analysts.

On the upside, housebuilders the top gainers after the Nationwide data, with Persimmon, Taylor Wimpey, Barratt, Berkeley, Vistry and Redrow all higher.

HSBC rallied as it reinstated its dividend and announced a new round of share buybacks as it trebled first-quarter profits on the back of rising interest rates. The bank posted a pre-tax profit of $13bn for the three months to March against $4.2bn a year earlier and the $8.64bn average company-compiled analysts’ estimates.

It was also boosted by a reversal of a $2bn impairment HSBC took against the planned sale of its French business, reflecting the fact that the deal may no longer go through.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: "HSBC has seen profits soar, and investors should be reasonably happy with the restored quarterly dividend and $2bn buyback that looks likely to be completed over the next quarter.

"Whether this is enough to quell the voices of those adamant that splitting HSBC up is the best course of action for investors remains to be seen, but certainly, one gripe had been the lack of returns given the strong capital position."

Ashtead gained after the equipment rental firm said it had started a share buyback of up to $500m.

Carnival and Tui advanced on positive read-across from Norwegian Cruise Line, which on Monday lifted its annual profit forecast and posted better-than-expected first-quarter results.

Rightmove was boosted by an upgrade to ‘buy’ at HSBC.