Market report: China worries resume, Novo Nordisk knocks LVMH from top slot and Ashtead shares fall sharply.
- Weak services data is another brush stroke in the picture of China’s recovery running out of steam.
- Struggling Chinese property giant makes key debt payments before deadline, easing some concerns about contagion into financial sector.
- FTSE 100 opens lower after China snapshot and US futures are subdued as investors take cautious stance ahead of manufacturing data later.
- Wegovy weight loss drug helps propel manufacturer Novo Nordisk into position as the valuable European company, knocking LVMH from its slot.
- Ashtead shares sink as it sharply revises guidance for revenue growth in the UK.
- Heatwave should prove a boost for hospitality after Barclaycard figures indicates August was a washout for many outdoor venues.
Susannah Streeter head of money and markets, Hargreaves Lansdown:
‘’Sentiment has turned downbeat again on China as fresh brushstrokes are painted on the picture of its slowing economy. The closely watched Caixin PMI data showed growth in the services sector decelerating by more than expected. Services had been a brighter spot in the economy, with hopes that consumers would continue to spend on trips out and education, but demand is turning more sluggish with any stimulus efforts to spur spending not hitting the mark. The data has overshadowed relief that the struggling property giant Country Garden has managed to make key interest payments on its debt, reducing, for now, concerns about contagion in the financial sector. China appears to be taking one step forward, but two steps back, as optimism one day turns to pessimism the next.
The FTSE 100 has opened lower as concerns spread again about demand in the huge Chinese economy for the goods listed companies produce, from metals and minerals to expensive handbags and premium drinks brands. As Wall Street gears up to resume trading after the Labor Day holiday, the mood is also expected to be one of caution as investors await the latest factory order data and a snapshot on confidence in the economy. New orders increased solidly in June, but there will be some nervousness given indications of a slowdown given the revision to growth for the April to June quarter. Americans also look set to continue their run of economic pessimism, although hopes that there will be a pause in interest rate hikes later this month, may give a tiny bit of room to more optimism which could show up in the IBD/TIPP index.
Australia’s Reserve Bank has kept its finger on the pause button, maintaining its cash rate at 4.1%. This move was widely expected, but it warned that higher rates will have to linger for longer given that inflation is still far too high. This is a mantra we are set to hear other central banks repeat over the months to come.
Equipment rental company Ashtead is seen as a bellwether of economic health and its latest update is a warning for deteriorating conditions in the UK. Although sales are holding up Stateside, with the company expecting robust momentum to continue, it’s a very different outlook for the UK. Ashtead has flagged softening market conditions and dropped its annual UK rental revenue growth significantly from 10-13% to 6-9%. While the warning lights have been flashing, particularly in the latest snapshot of the UK manufacturing sector in August flash PMI numbers, the extent of the fall in guidance has come as shock, with shares falling sharply on the open. Its little surprise that its UK and US businesses are diverging in prospects, given the huge stimulus programmes provided by the Biden administration across sectors like green energy and infrastructure.
The king of luxury fashion LVMH has been knocked off the throne as Europe’s most valuable company by a Danish pharma giant, Novo Nordisk as its weight loss drug becomes its crown jewel. The obesity treatment Wegovy has sparked a frenzy of interest around the world, particularly after trial data showed that it reduced heart risks by 20%. The medicine helps regulate appetite and reduce cravings, and demand for the drug has pumped higher around the world, as approvals from regulators roll in and the company has ramped up production. ’As warning lights flash about China’s slowdown, investors are changing gears and reversing some positions in stocks dependent on a confident Chinese consumer. China has been the engine of growth for luxury brands, but investors are now seeking more defensive positions, particularly in healthcare which can offer more dependable revenues in a downturn. Demand for innovative drugs is increasing as populations age in Western nations, and clearly some investors consider that companies investing in new sought after therapies are a more resilient prospect right now than handbag manufacturers boasting super-high price tags.
Barclaycard’s latest data shows how much of a struggle it’s been for hospitality in August as rain-soaked days put off tourists from spending. Sales at restaurants fell 5.8% while bars, pubs and clubs saw their lowest growth in sales since last October, coming in at 2.8%. Although consumer card spending grew 2.8% year-on-year in August it was significantly below July’s growth figure of 4%. Cinemas provided a bright spot on a gloomy landscape, with Barbie a ray of rosy light as holidaymakers sheltered from the rain to watch the hit movie. High street sales held up better, according to the British Retail Consortium helped by a splurge on self-care as travellers stocked up on beauty treatments at home or stocked up on sun cream for trips to warmer climates. After such a soggy summer, this spurt of good weather should provide a ray of sunshine for hospitality. The heatwave this week should mean pubs, bars and restaurants who have invested in outdoor space might finally be able to recoup some of August’s lost beer and food sales due to stormy skies. Sunshine brings a feel-good factor, which should entice more consumers, particularly high spending tourists, to splash a little more cash, and make the holiday vibes last that bit longer, before another Autumn of uncertainty arrives.’’
