The FTSE 100 was firmly in the red on Tuesday as growth concerns started to creep in after several weaker uS data points.

Apart from earnings and geopolitics, the main drivers for equity markets tend to be economic growth and monetary policy. Over the past year, the focus has almost exclusively been on interest rates, and markets have given the growth outlook little consideration.

Indeed, US growth has been reasonably strong, so there has been little for investors to be concerned about while they wait for the Federal Reserve to cut rates. This may be about to change.

A string of US economic data points has reminded us that economic growth dictates company earnings, and if growth rates slow, the outlook for earnings may be impacted.

The risk of such a scenario hit equities and oil prices on Tuesday, and the FTSE 100 was trading down 0.3% at the time of writing.

“The FTSE 100 started Tuesday in negative territory amid signs of US economic weakness and mixed trading in Asia,” said AJ Bell investment director Russ Mould.

“Also not helping matters was a fall in oil prices, as OPEC’s surprise decision to start rolling back some of its production cuts before the end of the year hit the market. Index heavyweights BP and Shell, as well as other resources names, were on the back foot.

“News of slowing activity in US factories is a double-edged sword as it could provide the Federal Reserve with more room for manoeuvre on interest rates. Job openings data later today could reveal if a softening economy is being reflected in looser labour market conditions. Friday’s non-farm payrolls release is also in focus as investors await the latest decision from the Federal Reserve next week.”

The fixation on interest rates will likely continue in the short term, but investors will become increasingly concerned about growth if we receive further weak data later this week.

As Mould alluded to, commodity companies were among the worst hit on Tuesday with miners Anglo America, Antofagasta, Rio Tinto and Glencore down between 1.7% and 3.6%. A soggy Asian session weighed on Standard Chartered which fell 4%.

Ocado was the biggest faller, down 6.4%, as the high-beta stock accentuated the wider market move.

Defensive utilities companies and consumer staple stocks were the best performers as the risk-off move drove allocations to ‘safer’ stocks.

Hargreaves Lansdown has released investor buying activity for May, revealing its ISA account holders have waded into equities in a big way.

During May, HL ISA investors picked out broad equity indices for their portfolios, particularly those with a focus on US stocks providing exposure to the AI story and wider technology sector.

Top Funds bought in ISAs, May 2024 (net buys, HL clients)

“It’s a firmly ‘risk on’ mood for HL clients. Interest rates cuts have been kicked into the long summer grass, and the April market slump is in the rearview mirror, meaning ISA investors are filling their baskets with equity funds,” said Emma Wall, head of investment analysis and research, Hargreaves Lansdown

“Five of the top 10 most bought funds in ISA wrappers last month were global equity funds, with the remainder made up of US equity and tech trackers, an L&G European index fund and ISA stalwart Jupiter India, which has been a mainstay in the top 10 lists for the past six months.”

“This market optimism amongst HL clients is not surprising; the spectre of recession has passed and equity markets on both sides of the Atlantic rallied through the first half of May. The S&P 500 shrugged off April losses to hit yet another all-time high, while the FTSE 100 similarly recorded a new peak mid-month.”

While its great US and UK equities have hit record highs in recent months, the data from Hargreaves Lansdown’s client’s buying activity during the period should be treated with caution. Retail investors are notoriously bad at timing the market and are often guilty of chasing returns in fear of missing out.

It should be no surprise that HL’s retail client base bought up equity-based funds given the biases associated with individual investor activity. However, retail investors rushing into stocks at elevated levels has historically proved to be a sell signal for equities.

As the warning goes, when your taxi driver starts talking about stocks, it’s probably time to sell. This usually happens near a peak in stocks.

That’s not to say we’re anywhere near euphoria in stocks, but as Emma Wall points out, the rush into stocks by HL’s investors may mean many over look the opportunity to diversify portfolios into other asset classes that may offer better value than equities.

“While stickier-than-hoped inflation and higher-than-anticipated jobs data has meant interest rate cuts are no longer expected this month, it is better to be early when it comes to investing and now could be a great time to buy bonds,” Emma Wall said.

“Most portfolios would benefit from the diversification a fixed income fund brings to an equity portfolio, and over the long-term, bonds offer both income and growth opportunities.”

UK gilt and US treasury yields are trading near multi year highs and the potential capital gains on offer – should interest rates fall – are compelling.

Checkit, the augmented workflow and smart sensor automation firm, has made a formal £12 million all-share offer to acquire rival Crimson Tide. T

he unsolicited approach offers Crimson Tide shareholders 7 new Checkit shares for every Crimson Tide share they hold.

The 182p per share offer price represents a 12% premium to Crimson Tide’s closing share price on 3rd June and may be difficult for Crimson Tide’s shareholders to stomach, given Crimson Tide traded significantly higher than the offer price for long periods during 2023.

If successful, existing Crimson Tide investors would own around 30% of the enlarged Checkit group.

Checkit believes combining the two companies creates a compelling scaled player in workflow software with significant revenue and cost synergy potential. A larger entity could attract broader investment and higher valuation multiples than the current standalone businesses.

The product fit between Checkit’s workflow automation and Crimson Tide’s mobility solutions is complementary. An integrated offering spanning sensors, software and services would benefit both customer bases.

Crimson Tide’s logistics, healthcare and retail verticals are highly relevant for Checkit. Leveraging its expertise in areas like IoT sensors could provide Crimson Tide a edge as it aims to expand its mobility roadmap.

Substantial cross-selling opportunities have been identified, particularly into Checkit’s established US market footprint. The combined entity would pursue an aggressive expansion strategy across multiple sectors worldwide.

Checkit stated the all-share bid is “undoubtedly in the best interest” of both companies’ investors. However, the Crimson Tide board has yet to formally respond to the unsolicited approach.

Ceres Power, a leading clean energy technology firm, has been awarded a major new contract from Shell for the second phase of their collaboration on solid oxide electrolysis cell (SOEC) technology.

The contract tasks Ceres with designing a 10 megawatt (MW) pressurised SOEC module to produce green hydrogen at high efficiency.

The 10MW module represents a tenfold scale-up from the existing 1MW SOEC demonstration system deployed by the partners at Shell’s R&D facility in Bangalore, India. Data and learnings from this operational demo unit are informing the design of the radically larger 10MW system.

A key advantage of SOEC is its potential for high efficiency. The technology can achieve around 35% more hydrogen output per unit of electricity when integrated to capture waste heat from industrial processes.

The 10MW module design will target energy consumption below 36 kilowatt-hours per kilogram of hydrogen produced – meeting the 2030 technical targets set by the European Union.

“Our strategic collaboration with Shell continues to provide valuable insights, ensuring Ceres’ SOEC technology is well positioned to meet our partners’ needs for the green hydrogen and synthetic fuels markets. Building on Ceres’ class-leading technology, our commitment to continuous innovation keeps Ceres’ commercial offering at the forefront of the industry in terms of simplicity, efficiency, and performance,” said Phil Caldwell, Chief Executive of Ceres.

Ceres Power implements an asset-light green hydrogen licensing model to partnerships with the world’s largest companies including Bosch, Doosan, Shell and Weichai.

London’s leading index started the week with a spring in its step, gaining over 1% at one point in early trade before falling back.

“The FTSE 100 made a strong start to June with resources, energy and financial stocks among those making solid gains,” said AJ Bell investment director Russ Mould.

The driving force behind Monday morning’s positive start was optimism around interest rates and a strong session in Asia overnight.

“Positive vibes are powering the FTSE 100 higher, as fresh hopes swirl that interest rate cuts are not as far off as feared,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“Strong trading in Asia has laid the groundwork for an upbeat session, as investors take took cues from gains on Wall Street on Friday. Signs of weaker consumer spending patterns have lifted expectations that upwards price pressures could ease off and that the Fed may be less inclined to keep interest rates higher for longer.”

Economic data is set to dominate trade this week, with a raft of manufacturing data due to be released before the Non-Farm Payrolls on Friday.

Traders will also be looking forward to the European Central Bank’s interest rate decision this week and the possibility of a the first rate cut from a major western central bank after a two year hiking cycle.

Should the ECB cut rates, it will increase the chance of the Bank of England and Federal Reserve cutting rates in the near term. Although there is little indication central banks will make several rate cuts this year, simply cutting rates once will mark the end of the hiking cycle and boost consumer and investor sentiment. This may underpin further gains in the stocks.

JD Sports bounces back

JD Sports was the FTSE 100’s top riser on Monday, surging 7.4%, as it completely erased losses incurred on Friday after the release of its full-year results. The sports retailer said its Q1 sales were down compared to the same period last year but investors are choosing to look slower sales to the group’s future expansion across North America.

The FTSE 100’s gains were broad on Monday, with 87 of the constituents trading in positive territory at the time of writing.

St James’s Place’s recovery continued as shares gained another 4% after JP Morgan upgraded the stock to ‘overweight’.

GSK was the FTSE 100’s top faller following the news it was facing litigation in Delaware related to Zantac potentially causing cancer in patients. GSK shares were down 9% at the time of writing.

“Investors had reached a point of some comfort with GSK’s Zantac issue as a series of US lawsuits linking the heartburn drug to cancer appeared to be running out of steam,” Russ Mould said.

“However, a judge in Delaware has thrown a significant spanner into the works by giving the green light for 70,000 cases to go forward and by allowing expert witnesses to testify in court that the drug may cause cancer.

“GSK and the other parties involved, Pfizer and Sanofi, have made clear they disagree with the ruling and GSK has said it will mount an appeal.

“However, in the short term this just pours more uncertainty over the investment case. An uncomfortable comparison for GSK management can be drawn with AstraZeneca, which has left its counterpart for dust in recent times and is forging ahead with ambitious growth targets.”

Shein is reportedly preparing to fire the starting gun on its London IPO this week in what will be the highest profile flotation for months.

The fast fashion retail company is thought to be seeking a valuation of over £51bn as London triumphs over New York in attracting Singapore-based Shein.

“It’s rumoured that it could file paperwork for an IPO as soon as this week, which may value the company at more than £51 billion,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Streeter continued to explain that while Shein’s listing will be very welcomed with open arms by London’s struggling capital markets, there are ESG considerations which may prevent some investors taking a stake in the company.

“While New York still holds immense pulling power, and was the company’s first choice, plans for a listing there look unlikely given the lack of a welcome by regulators,” Streeter said.

“This is over its ties to China, where it was founded, and questions raised over its supply chain and working conditions. London looks set to be the second-choice destination and, while this would be a boost for the city, is likely to present deep ESG issues for investors to navigate.”

“Shein has come under significant criticism for the huge volumes of cheap clothes it produces, the lack of transparency in its supply chain and its appropriation of other designers’ work. Given these concerns, investors could be wary if ESG is on their priority list. Nonetheless confirmation of listing may be fresh election campaign fodder for the Conservatives, who are likely to say it demonstrates that government efforts in wooing firms to launch IPOs in London are paying off.”