The FTSE 100 closed negative territory on Tuesday as investor attention shifted to the United States and China as the manufacturing sectors in both countries slowed.
ISM US manufacturing data slowed more than expected in July reviving fears about a possible US recession. Meanwhile, investors in natural resource companies grew tired of China’s lack of action on stimulus.
China has been hinting at unleashing a wave of stimulus which is yet to materialise. A fourth month of declines in manufacturing activity had some hoping China would announce firm steps to boost the economy. China instead made unconvincing comments they were considering a range of measures.
The FTSE 100’s natural resource companies have enjoyed recent support from China stimulus hopes, but this waned on Tuesday.
The US manufacturing sector was also showing signs of weakness as ISM Manufacturing data for July missed expectations with a reading of 46.4 versus estimates of 46.8. A reading below 50 signifies contraction.
US stocks fell in the immediate reaction to the ISM release, and already weak European stocks jumped on the tailcoats and closed the session in the red.
The FTSE 100 closed down 0.4% at 7,666.
BP
BP had started the day higher after announcing a 10% dividend increase and a $1.5bn share buyback. However, the stock fell in line with natural resources as disappointment about China’s stimulus took hold.
“BP has been unable to escape the heavy blow to profits dealt by lower commodity prices this earnings season, and investors will be disappointed by today’s earnings miss. As a result, BP has unashamedly pushed shareholder returns to the top of its priority list, and has scope to continue raising the dividend over the rest of the year even if oil prices come under further pressure. It was pleasing to see this come without a cut to guidance on capital investment,” said Derren Nathan, head of equity analysis at Hargreaves Lansdown.
There are significant projects in the pipeline both in economically attractive oil fields, such as phase 2 of the Mad dog project in the Gulf of Mexico, and entry into the European offshore wind market. BP needs to keep the pace of investment high if it wants to sustain growth in shareholder returns, and develop resilience against oil price volatility over the longer term.”
HSBC
HSBC was among the top risers after releasing rising profits in the first half due to higher interest rates and the reversal of an impairment charge related to French operations.
“HSBC’s results got the thumbs-up from investors thanks to bumper profits and news of another $2 billion share buyback, having already completed one this year,” said Laith Khalaf, head of investment analysis at AJ Bell.