Stocks in London drifted into the red on Monday, on what was a quieter day for global equity markets given the US public holiday. The FTSE 100 index closed down 12.79 points, 0.2%, at 8,363.84. The FTSE 250 ended down 106.03 points, 0.5%, at 20,980.51, and the AIM All-Share closed down 5.61 points, 0.7%, at 766.90.
The main focus for markets this week is employment data in the US, culminating in the US jobs report on Friday. Brown Brothers Harriman noted the Federal Reserve is increasingly concerned with downside risk to employment and the negative feedback loop this could have on consumption spending.
'Job numbers that point to a soft landing in labour market conditions would trigger an upward adjustment to Fed funds futures in favour of USD and Treasury yields. In contrast, a worsening job market could reinforce the case for 100 [basis points] of Fed easing by year-end and further weigh on USD and Treasury yields,' the broker commented.
Barclays expects non-farm payrolls to have risen by 175,000, above the consensus for 165,000, alongside a decline in the unemployment rate to 4.2% from 4.3%. 'Such an outcome would strengthen our expectation of three 25bp rate cuts through year-end. A much weaker set of numbers could put 50bp on the table for September,' Barclays said.
Ahead of the nonfarm payrolls numbers, job vacancy data will be released on Wednesday, and ADP private payrolls and weekly jobless claims figures will be reported on Thursday.
On a quiet day for company news in London, Rightmove stood out, soaring 27%. Australia’s REA Group confirmed it is considering considering make a cash and shares takeover offer for its UK peer.
REA said it has not yet ‘approached, nor had any discussions with, Rightmove regarding any potential offer’. However, the company said it sees a ‘transformational opportunity’ in the combination of the two companies.
Panmure Liberum analyst Sean Kealy said REA’s approach appears to have been leaked before much progress has been made.
On price, the Panmure Liberum analyst said he’d be looking for a ‘large premium’ at this level. ‘We’ve seen lots of M&A in classifieds recently, with Cinven buying Spain’s Idealista and EQT taking private Singapore’s Property Guru - at about 37-times and 45-times [earnings before interest, tax, depreciation and amortisation] respectively.’
Rightmove is ‘larger, and more mature’ than those businesses, but trading at around 15 times financial 2024 Ebitda, he pointed out.
In contrast, engine manufacturer Rolls-Royce and defence contractor BAE Systems fell 6.5% and 2.8% respectively. The Guardian said the UK has suspended 30 arms export licences with Israel amid concerns UK-manufactured weapons could be used in breach of international humanitarian law.
The suspension will cover components for military aircraft including fighter aircraft, helicopters and drones. A review by the new Labour government found a ‘clear risk’ that UK arms may be used in serious violation of humanitarian law relating to the treatment of Palestinian detainees and the supply of aid to Gaza.
In addition, the Times reported over the weekend concerns that projects in the sector will be cut by Chancellor Rachel Reeves. The Times said defence officials fear the government may use the autumn statement to announce cuts to major military projects.
One UK defence source said there was no sign Labour would announce extra money for the armed forces any time soon and raised concerns that the stated ambition to increase defence spending to 2.5% of GDP would not be achieved until well beyond 2030.
In London, figures showed the recovery in the UK manufacturing sector continued into August, with output, new orders and employment all rising. The seasonally adjusted S&P Global UK manufacturing purchasing managers’ index rose to a 26-month high of 52.5 in August, up from 52.1 in July, and unchanged from the earlier flash estimate.
The PMI has now signalled expansion in five out of the past six months, above the 50-point neutral mark, with the exception being April. Four of the PMI components stayed at levels consistent with an improvement in operating performance during August – output, new orders, employment and suppliers’ delivery times. In contrast, the stocks of purchases component signalled contraction for the twenty-third consecutive month.
Impact of Economic Data on Markets
The FTSE 100's performance is likely to be influenced by the US jobs report, with a strong report potentially boosting the index, while a weak report could weigh it down. The report could also impact the Bank of England's interest rate decisions.
Rightmove Takeover Bid
REA Group's potential takeover of Rightmove has sent shockwaves through the market, with Rightmove's shares soaring 27% on the news. This move could reshape the UK property market, with REA Group's expertise potentially bringing significant changes to Rightmove's operations.
Defence Sector Concerns
Concerns about UK defence spending have weighed on defence stocks, with Rolls-Royce and BAE Systems falling significantly. The potential cuts to defence projects could impact the UK's military capabilities and could have ramifications for the wider economy.
Manufacturing Sector Recovery
The UK manufacturing sector continued to recover in August, with the PMI hitting a 26-month high. This suggests that the sector is gaining momentum, which could provide a boost to the overall economy. However, the ongoing supply chain issues remain a concern.
A Look Ahead
The coming weeks will be crucial for the FTSE 100, with the US jobs report, the Bank of England's interest rate decision, and the continued recovery of the manufacturing sector all set to play a role in the index's performance.
