- FTSE 100 up 5 points
- BP and Shell head higher
- Aveva reports full year loss
9.47am: Housing market pulls construction activity lower
The UK construction sector saw a slowdown in growth in May, mainly due to the residential housing market.
The headline S&P Global/CIPS UK Construction Purchasing Managers’ Index – which measures month-on-month changes in total industry activity – registered 56.4 in May, down from 58.2 in April and below the expected figure of 56.6.
This was the lowest reading for four months.
Weaker trends in the house building sub-sector were the main brake on growth, with this index falling to 50.7 from 53.8 in April. This signalled the worst performance for residential work since May 2020.
The replies to the survey suggested that subdued consumer confidence and worries about the economic outlook had constrained demand. Higher borrowing costs and intense inflationary pressures were also cited as factors likely to hold back growth over the next 12 months.
The report indicated that business activity expectations at construction companies were the least upbeat since August 2020.
Unsurprisingly the vast majority of survey respondents (73%) reported a rise in purchasing prices. This was linked to rising fuel, energy and raw material costs. But the overall rate of inflation eased to a three month low.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Though still offering a comfortable margin above the no change mark, the construction sector saw growth ease to a four-month low with the usual suspects taking the heat out of the recovery – elevated inflation, future uncertainty and supply-chain disruption.”
Back with the markets and the FTSE 100 has come back off its worst levels and has made it into positive territory – just.
The leading index is currently up 5.21 points at 7604.14 having fallen as low as 7574.
9.09am: Crude climbs ahead of US inventory figures
Oil prices continue to bubble up ahead of US inventory data later, with some experts predicting it could reach US$150 a barrel.
At the moment Brent crude has risen 0.63% to US$121.33 while West Texas Intermediate, the US benchmark, is 0.79% higher at US$120.35.
Jeffrey Halley at Oanda said: “The data releases across Europe and the US today are strictly second-tier. Probably the most interesting will be the US official crude inventory data after last week’s surprise 5 million-barrel drop. With Brent crude and WTI both around $120.00 a barrel, sharp falls in headline crude inventories or refined products could spur another rally in oil prices.”
The strength of the crude price continues to support the oil giants.
BP PLC (LSE:BP.) is 1.14% better while Shell PLC (LSE:SHEL, NYSE:SHEL) is up 0.62%.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The continuing intensity of the war in Ukraine is adding to fears that supply constraints will continue for longer, and the effect of oil cartel OPEC’s recent decision to turn on the taps more fully has faded fast. That’s been helping to lift shares in energy giants like BP and Shell, given that higher energy prices have seen cash pouring into their coffers.”
Meanwhile Jeremy Weir, chief executive of oil and commodities trading giant Trafigura, has told an FT conference that crude prices were heading towards US$150 a barrel this year.
He said if oil reached that level demand could slump and trigger a slowdown in global economic growth.
Worries about the economy are helping to keep the FTSE 100 in negative territory. It is now down 21.87 points or 0.29% at 7577.06.
8.14am: Uncertain start for markets
Leading shares have made another uncertain start, as concerns about the global economy slowing at the same time as inflation soars continue to nag at investors.
Ipek Ozkardeskaya, senior analyst at Swissquote, said: “The World Bank [yesterday] cut its 2022 growth forecast for the second time this year, from 4.1% in January to 3.2% in April and to 2.9% this week on the back of several-years-long of above-average-inflation and below average growth, that will especially hit low to middle income economies.
“The probability of US recession is also being pulled higher by several big banks. Morgan Stanley, for example, recently said that the probability of recession in the US jumped from 5% to 35% since the start of the year.”
Meanwhile after the Reserve Bank of Australia put up interest rates by more than expected this week, the Reserve Bank of India has raised a key interest rate by 50 basis points, the second hike in as many months.
In early trading the FTSE 100 has dipped 4.19 points to 7594.74.
Software group Aveva Group (LSE:AVV) is among the fallers, slipping 1.08% after it reported a 3.3% rise in annual revenues but moved from a £36.6mln profit to a £6.5mln loss from operations.
It said the integration of acquisition OSIsoft was progressing well.
7.40am: House prices past their peak?
UK house prices continue to rise, but at the slowest annual rate so far this year.
House prices increased by 1.0% in May, the eleventh consecutive monthly rise, according to the latest Halifax survey, with the average price at a record £289,099.
Annual house price inflation edged down from 10.8% in April to 10.5%.
But the Halifax points out that house prices have risen 74% in the last 10 years
Russell Galley, Halifax managing director, said: “The average cost of buying a home in the UK is up 1%, or £2,857, on last month, and has now risen for eleven consecutive months. Annual growth also remains in double-digits, at 10.5%, although this is the slowest rate of growth seen since the start of the year
“The average cost to buy a home in the UK is now £289,099, hitting yet another record high. Despite the very real cost of living pressures some people are experiencing, the imbalance between supply and demand for properties remains the primary reason driving the continued climb in house prices.
“For house hunters, the extent of the impact of property price inflation continues to be linked to the type of home they are looking to buy. Compared to May last year, you’d need around £10,000 more to buy a flat, but an additional £50,000 for a detached home. This clearly creates a knock-on effect for those looking to make their first home move, as the rungs on the housing ladder have become increasingly wider
“However, the housing market has begun to show signs of cooling. Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it’s likely activity will start to slow.
“So, there is perhaps one green shoot for prospective purchasers; with overall buying demand down compared to last year, we may be past the peak sellers’ market.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com, said: “I believe house prices will fall by 5% this year and possibly even more in 2023. Property prices are already coming off their record highs and transaction levels are falling. Mortgage costs, fuel, food and energy prices continue to soar with no end in sight. Throw in National Insurance and tax hikes, the terrible events unfolding in Ukraine and the autumn energy cap increase and it’s a recipe for economic disaster that we won’t see the full effects of until the winter. There is nowhere for house prices to go but down.”
6.50am: US expected to give a lift to Footsie
The FTSE 100 is seen on the front foot ahead of Wednesday’s open, following on from more positive trading last night in the US.
CFD firm IG Markets has the blue-chip benchmark around 20 points to the better, making a price of 7,622 to 7,625 with just over an hour to go until trading begins.
“Sentiment continues to remain extremely fickle, prone to the ebb and flow of inflation expectations, followed by fears that central banks will over react in combatting said inflation, which is then followed by concern about what that might do to global growth,” said Michael Hewson, analyst at CMC Markets.
“This argument which the market appears to be having with itself, over whether we see a recession, or a soft landing is likely to become a lot clearer, over the next week or so, starting with US CPI on Friday, followed by PPI and the Fed meeting a week from now.”
The Dow Jones added 264 points or 0.8% in Tuesday’s trade, to close at 33,180, whilst the S&P 500 advanced 0.95% to finish Tuesday at 4,160.
Similarly, the Nasdaq gained 113 points or 0.94% to 12,175.
Small-caps also finished Tuesday in positive territory with the Russell 2000 index up 1.57% to 1,919.
In Asia, Japan’s Nikkei added 247 points or 0.89% to trade at 28,192.
Hong Kong’s Hang Seng was up 1.6% to 21,877 though the Shanghai Composite dipped 0.26% to 3,233.
Around the markets
Pound: US$1.2573, down 0.1255%
Gold: US$1,849 per ounce, down 0.25%
Silver: US$22.12 per ounce, down 0.53%
Brent crude: US$120.98 per barrel, up 1.4%
WTI crude: US$119.96 per barrel, up 1.45%
Bitcoin: US$30,522, up 3.5%
Ethereum: US$1,809, up 3.2%
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