The markets are in a state of flux, and the FTSE 100 is feeling the heat. On Friday, the index took a hit, closing down 22.56 points, or 0.2%, at 10,750.11. This comes after a week of mixed performance, with the index down 1.4% overall. But what does this mean for the future of the market? And what are the key players saying? Let's take a closer look.
A Summer Lull or Something More?
Analysts are divided on the cause of the drop. Some point to a summer lull, a natural slowdown after a sustained rally that pushed European indices to record highs. David Morrison, senior analyst at Trade Nation, agrees, suggesting that the pullbacks are a pause in this upward trend. But others are more concerned. The question now is whether this marks the top for the FTSE 100 or if there are more gains to be had.
US Indices and Energy Prices
Much of the market's performance is tied to US indices. This week's softer US inflation readings and last week's disappointing payroll release have led to a dialing back of Fed rate hike expectations, which has supported equities. However, European investors are keeping a close eye on energy prices, especially as the summer edges to its conclusion. The CAC 40 in Paris closed down 0.2% on Friday, while the DAX 40 in Frankfurt rose 0.5%.
Retail Sales and Interest Rates
The surprise drop in US retail sales on Friday adds fuel to the debate over the future path of interest rates. The report from the US Census Bureau showed advance monthly US retail and food services sales declining 0.6% on-month in July. This data follows encouraging consumer and wholesale inflation prints earlier in the week, and it adds weight to hopes that interest rates will not be raised at the September Federal Open Market Committee meeting.
Currency and Bond Yields
The greenback faltered across the board, with the pound trading at 1.3550 US dollars on Friday afternoon, up from 1.3498 dollars at the equities close on Thursday. The euro stood higher at 1.1583 dollars against 1.1535 dollars. Against the yen, the dollar was lower at 159.12 yen, compared to 159.33 yen. The yield on the US 10-year Treasury stretched to 4.69% on Friday from 4.64% on Thursday, and the yield on the US 30-year Treasury widened to 5.27% from 5.21%.
Corporate News
In London, Entain rose 2.1% after further consideration of Thursday's results, when the Ladbrokes owner reported better-than-expected revenue figures. Aviva was also in the green, up 1.8%, after strong first-half results. However, Antofagasta fell sharply for the second day in a row, down 4.6%, after Thursday’s lowered production guidance. Drug stocks and large FTSE 100 constituents GSK and AstraZeneca both fell 2.1%.
On the FTSE 250, recruiters Michael Page and Hays continued their recent revival, up 5.5% and 5.3% respectively. Page received a boost as UBS upgraded the stock to “buy” from “neutral” and increased its share price target to 235p from 180p.
But it was a woeful day for investors in GB Group, as shares sank 31%. The Chester-based identity verification and fraud prevention company lowered revenue growth guidance, grappling with tough trading conditions in the Americas Identity arm and the departure of its sales leader in that region.
On AIM, Cohort climbed 6.1% after it was awarded a 140.7 million euros contract from Saab to deliver integrated sonar systems for the Polish Orka submarine programme.
Looking Ahead
Monday's global economic calendar includes industrial production and retail sales figures in China and a Gross Domestic Product print in Japan, as well as an inflation report in Canada. Monday's UK corporate calendar has full-year results from Optima Health. The markets are certainly in a state of flux, and the future of the FTSE 100 remains uncertain. But one thing is clear: the markets are a fascinating and complex beast, and the key players are always worth watching.
