Lucy Harley-McKeown
European and US markets fall as US stocks pull back from all-time highs
How major markets are performing on Friday
In this article:
The FTSE 100 (^FTSE) and European stocks fell on Friday, following UK public sector data showing debt reached 100% of GDP last month, with debt up ￡3.3bn from August 2023. US stocks also pulled back from all-time highs following post-rate cut froth.
The FTSE 100 was 1.1% lower by the closing bell in Europe. Meanwhile, Germany's DAX (^GDAXI) fell 1.4% and the CAC 40 (^FCHI) in Paris declined 1.4%.
The pan-European STOXX 600 (^STOXX) moved 1.4% lower.
Across the pond, the S&P 500 (^IXIC) fell roughly 0.6%, shortly after the opening bell. The Dow Jones Industrial Average (^DJI) was down 0.2% after a record close. Leading the way lower, contracts on the tech-heavy Nasdaq Composite (^IXIC) dropped 0.9%.
Earlier on Friday UK data was released showing that the difference between public sector spending and income was ￡13.7bn in August, the third highest August borrowing since monthly records began in January 1993.
The ONS said that public sector net debt excluding public sector banks was provisionally estimated at 100% of GDP; this was 4.3 percentage points more than at the end of August 2023, and remains at levels last seen in the early 1960s.
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Gold prices surge
As markets sink, traders are heading into haven assets, pushing gold higher. Axel Rudolph, senior Technical analyst at online trading platform IG said:
The gold price continues to surge and added another percent to this week's gains with it trading in new record highs around the $2,615 per troy ounce mark. The oil price slid slightly, however, following its 6% gains from its September multi-year lows.
Next week's economic calendar is on the light side, beginning on Monday with UK and US manufacturing and services PMIs and culminating with Friday's Fed preferred PCE inflation gauge.
FedEx drags
FedEx Corporation slashed its full-year guidance on Thursday after reporting fiscal first-quarter earnings that significantly missed Wall Street expectations, driven by weakness in its core Federal Express segment.
Shares of the logistics giant dropped 14.6% early trade following the disappointing results.
For the quarter, FedEx posted adjusted earnings of $3.60 per diluted share on revenue of $21.6bn (￡16.2bn), falling short of analysts' projections. Wall Street had been expecting earnings of $4.86 per share on $21.96bn in revenue.
Margins in the company's Federal Express business, a key contributor to its overall performance, shrank to 5.2% in the first quarter, down from 7.1% in the same period last year.
In light of this, FedEx revised its full-year outlook for fiscal 2025, narrowing its adjusted earnings per share (EPS) guidance to between $20.00 and $21.00, compared with its previous forecast of $20.00 to $22.00. The company also tempered its expectations for revenue growth, which is now projected to rise by a low single-digit percentage year-on-year, down from earlier estimates of a low-to-mid single-digit increase.
Despite the downgraded outlook, FedEx reaffirmed its commitment to shareholder returns, announcing plans to repurchase an additional $1.5bn worth of stock during fiscal 2025, bringing its total buyback program for the year to $2.5bn.
How US stocks are faring at the open
Mercedes-Benz pares outlook
Mercedes-Benz revised down its full-year profit outlook for the second time in under two months, following a continued slump in sales volumes in China, the world’s largest car market. The German luxury carmaker cited ongoing weakness in Chinese demand for premium vehicles for the adjustment.
"The downgrade comes amid further deterioration of the macroeconomic environment, mainly in China. GDP growth in China lost further momentum amid weaker consumption as well as the continued downturn in the real estate sector," Mercedes-Benz said in a statement.
The latest downgrade reflects deepening concerns about the broader Chinese economy, where slowing GDP growth, weaker consumer spending, and a persistent downturn in the property sector have taken a toll on the luxury car market. Mercedes-Benz had previously cut its profit margin forecast in July but has now been forced to further revise its projections.
Shares of the company, which are listed in Frankfurt, dropped 3% following the announcement.
In light of these challenges, the Stuttgart-based company has adjusted its 2024 outlook for both its cars division and the broader Mercedes-Benz Group. The automaker now anticipates an adjusted return on sales for Mercedes-Benz cars in the range of 7.5% to 8.5%, down from its prior estimate of 10% to 11%. This signals an expected return on sales of around 6% for the second half of the year.
As a consequence of the reduced sales expectations, Mercedes-Benz Group’s earnings before interest and taxes (EBIT) are projected to fall significantly below last year’s level. Free cash flow for the industrial business is also forecasted to be considerably lower than in 2023.
"Additionally, the second half of 2024 is expected to be impacted by various valuation adjustments. Furthermore, the dynamic pricing environment is expected to continue," the company said.
Trending tickers: Investec
Vicky McKeever writes:
Investec Group has indicated a robust financial performance for the first half of the year, forecasting pre-provision adjusted operating profit between ￡520m and ￡550m, a year-on-year increase of 6.7% to 12.9%, according to a trading update.
The bank expects adjusted operating pretax profit in the six months to September to be between ￡450m and ￡482m, up from ￡441m in the same period last year.
Headline earnings per share could be anywhere from 1.4% below last year’s 36.9p to 3.5% ahead. This includes the costs of “executing strategic actions”.
The group's performance has been driven by strategic initiatives, including its recent combination with Rathbones, which has influenced earnings. However, the firm noted that prior one-off gains have resulted in lower basic earnings per share.
Despite headwinds in the UK market, Investec highlighted several positive factors, including strong revenue momentum, an improved cost-to-income ratio, and solid credit quality.
Despite retail bump, consumer confidence falls
UK consumer confidence suffered a big fall in September, down seven points compared with the same time last year.
According to GfK (GFKRF)'s consumer confidence barometer, all measures were down in comparison with last month’s announcement. Key future indicators on personal finances, economy and purchase intentions all came in sharply lower.
The index measuring changes in personal finances during the last year was down two points at -9, which was nine points better than September 2023. Meanwhile, the forecast for personal finances over the next 12 months is down nine points at -3, which is three points higher than this time last year.
The measure for the general economic situation of the country during the last year is also down two points at -37. This is 16 points higher than in September 2023.
READ MORE: UK consumer confidence suffers big fall in September
'No wriggle room' ahead of Autumn budget
Matt Swannell, chief economic advisor to the EY ITEM Club, said:
The government will likely have to increase spending over the next few months, due to a combination of accepting the recommendations for higher pay increases from public sector pay boards and non-labour cost overruns across a range of government departments.
Beyond this year, the UK's fiscal position will remain stretched. Though the chancellor's multi-year spending review will conclude in spring 2025, she will likely be tempted to put in place more realistic spending totals in the upcoming budget. At this stage, the Autumn budget looks likely to feature a tweak to the fiscal rules, alongside some tax rises beyond those that had been set out during the general election campaign. A material rise in taxes alongside a loss of momentum throughout the economy may prompt the Monetary Policy Committee (MPC) to deliver more interest rate cuts around the turn of the year.
PwC's view on UK public debt
Following news UK public debt ballooned to 100% of GDP, Gora Suri, economist at PwC UK said:
Public spending is not expected to come down in aggregate terms, however, we could see pockets of spending being redirected to areas where needs are more pressing (e.g. healthcare and education).
One option for Labour is to tinker with the fiscal rules to take some pressure off public finances, particularly the net debt rule which states that debt as a share of GDP should be falling by the end of the forecast horizon. Labour could tweak this rule by altering the definition of net debt (e.g. by excluding Bank of England debt from the calculation) or by changing the number of years it takes to reach that target.
Asian stocks track Wall Street gains, react to BoJ
UK retail sales jump in August
Yahoo Finance UK reporter Pedro Goncalves writes:
UK retail sales enjoyed a robust performance in August, with volumes rising by 1%, surpassing economists' forecasts, according to the Office for National Statistics (ONS).
The latest figures mark a continued recovery, following a 0.7% increase in July, and lift year-on-year sales by 2.5%. This outpaced the City consensus of a 1.4% rise.
August’s gains were driven by favourable weather conditions, which boosted demand for clothing and supermarket purchases. Textile, clothing, and footwear stores led the charge, posting a 2.9% increase in sales, while food retailers also saw a notable 1.8% rise.
ONS chief economist Grant Fitzner said: “Retail sales rose in August as warmer weather and end of season promotions helped to boost sales, most notably for clothing and food shops. Supermarkets, in particular, contributed to the largest annual rise for food sales since the summer of 2021."
How US stocks are faring in premarket
Overnight in the US: Dow hits 42k
From our US colleagues:
US stocks soared, with the Dow Jones Industrial Average (^DJI) closing above the 42,000 level for the first time amid growing optimism that the Federal Reserve's jumbo interest rate cut will deliver a "soft landing" for the US economy.
The S&P 500 (^GSPC) climbed roughly 1.7%, while the Dow rose more than 1.2%, with both indexes trading at record highs. The tech-heavy Nasdaq Composite (^IXIC) led the gains, up roughly 2.5%.
Stocks rallied as investors took a closer look at the Fed's decision to kick-start its new rate cycle with a 50 basis point cut. After Wednesday's policy announcement, the gauges swayed before closing lower.
Wall Street has absorbed Fed Chair Jerome Powell's message that a deep cut in a relatively strong economy will ultimately fend off the risk of recession — and is a sign of faith, not panic about current conditions.
Bank of America now believes the Fed will go on to cut rates by 0.75% by the end of the year, versus the 0.50% it previously forecast. By comparison, the central bank's own "dot plot" indicates policymakers expect a half-percentage-point reduction.
Good morning!
Hello from London — happy Friday! We made it through a 50 basis point interest rate cut by the Federal Reserve and now, this morning, retail sales data in the UK.
Also today:
The GfK consumer confidence barometer
A release by the Office for Budget Responsibility
Fitch Ratings sovereign review.
Let's get to it.
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