The FTSE 100 soared on Wednesday as London’s China-focused contingent reacted to the news China had slipped into deflation as consumer prices fell.

Chinese CPI inflation in the year to June fell to -0.3%. This compares to 7.9% in the UK and a consensus US CPI of 3.3% in the year to July, due to be released on Thursday.

Deflation is bad news for the Chinese economy, and investors are once again hoping China will announce fresh stimulus. If deflation is left unchecked, it will pile pressure on businesses and curtail already slow Chinese growth.

Where other countries are fighting #inflation, #China has entered full #deflation mode!#CPI -0.3%#PPI -4.4% pic.twitter.com/PFrPl1lUK3

— jeroen blokland (@jsblokland) August 9, 2023

There is a sense of fatigue in markets related to persistently disappointing Chinese economic data which is morphing into hopes the Chinese authorities will soon act to stimulate the economy. Should China unleash a wave of stimulus, the FTSE 100 will be a beneficiary.

“The market has spent so long fretting about inflation it feels discombobulating to suddenly switch attention to deflation,” said AJ Bell investment director Russ Mould.

“Given the broader disinflationary impact on the global economy though, these latest figures may give central bankers in the US, UK and Europe pause for thought when they weigh up their next steps. They cannot afford to repeat their earlier complacency over surging prices but they will want to avoid overdoing it, inflicting too much economic damage and perhaps being forced to undo their hard work by cutting rates before they’re ready to.

“Interestingly the FTSE 100 was higher this morning with firms whose fortunes are traditionally tied to China enjoying gains, perhaps amid hopes of further Chinese stimulus to get the economy moving.”

FTSE 100 movers

The companies suffering the most yesterday were at the forefront of today’s rebound. abrdn was 2.5% higher as bargain hunters stepped in after a 10% selloff yesterday.

Miners Glencore and Antofagasta rose on China stimulus hopes while BP and Shell ticked higher in line with oil prices.

Hiscox was the FTSE 100’s top faller on Wednesday despite reporting a ten-fold increase in profits. Hiscox shares were down 6% at the time of writing.

Bellway shares were little changed on Wednesday despite the housebuilder reporting falling revenue, completions and average sales price in the first half of 2023.

It has been a terrible 2023 for UK housebuilders. Bellway’s trading statement for the year ended 31st July confirms the mid-cap housebuilder is facing the same pressures reported by its FTSE 100 peers.

Bellway generated housing revenue of around £3.4bn, down from £3.5bn in 2022. Total housing completions fell to 10,945 homes, weaker than 2022’s 11,198. Their Average selling price dipped to £310,000.

The housebuilder’s margins were squeezed to 16% from 18.5% by rising prices and the use of sales incentives.

Although Bellway’s results do not make for pleasant reading, the tepid 1.3% reduction in the Bellway share price suggests the bad news is baked into the cake. Indeed, while Bellways results were poor, they weren’t catastrophically bad.

“Reservation rates are down sharply, the order book is also down sharply, prices are no longer going up and completions are expected to go down in the coming year, but shares in Bellway are holding firm despite the gloomy outlook statement that accompanies the housebuilder’s latest trading update,” said AJ Bell investment director Russ Mould.

“Analysts are cutting their profit forecasts for the fiscal year to June 2024 and still the shares do not seem to care, so perhaps markets are already pricing in a lot of the bad news.

“After all, Bellway’s shares have almost halved from their pre-pandemic peaks of early 2020 and the difficulties discussed by chief executive Jason Honeyman have not just developed. Inflation, in the form of wage and raw material costs, began to move higher in spring 2021. The Bank of England started to raise interest rates in December 2021. Trussonomics blew up the mortgage, pension and government bond markets in autumn 2022.”

Broking group TP ICAP enjoyed growth in their FX & Money Markets and Energy & Commodities in the first half of 2023 as revenue on a statutory basis increased to £1,132m from £1,080m in the same period a year ago.

TP ICAP is becoming an increasingly digital business and is focusing on its electronic trading platforms in the face of falling cash equity revenue. Cash equity revenues sank 22% in the first half.

Energy & Commodities revenue was up 12% while FX & Money Markets gained single digits.

TP ICAP Group shares were 15% higher at the time of writing as the release of strong first-half operational performance was accompanied by a £30m share buyback and a 7% dividend increase.

Nicolas Breteau, CEO of TP ICAP Group, commented:

“Our focus on productivity, contribution, and tight cost management, generated an uplift in profit and EBIT margin. Energy & Commodities delivered a strong performance, as energy markets normalised. Overall, Group revenue increased by 1%, following a strong performance last year, when the revenue base was up 7% (excluding the Liquidnet acquisition).”

“Our transformation, and diversification, initiatives are going well. The rollout of Fusion, our award-winning electronic platform, is on track, with an increasing focus on client adoption. Liquidnet now has two major banks connected to the Dealer-to-Client Credit proposition, with a third in the final stages. Parameta Solutions has launched energy-related indices, in partnership with General Index, a leader in this sector. Energy & Commodities is growing in Environmentals; there are more opportunities in the provision of energy-related data to Parameta Solutions, and voluntary and mandatory carbon credits.

“Dynamic capital management is a key element of our strategy. The £100m of cash we targeted in the first half last year has been freed up 6 months ahead of schedule; it will be used to pay down debt. We are also announcing, starting today, a share buyback programme of £30m, and will continue to assess opportunities to free up cash to further invest in the business, pay down more debt, and/or return more capital to shareholders. An interim dividend of 4.8 pence per share, up 7%, will be paid to shareholders on 3 November 2023.”

TUI shares were shining on Wednesday morning after the travel group revealed robust trading in the third quarter as holidaymakers scrambled to book overseas breaks despite the cost of living crisis.

Shares had given up gains and were trading negatively in the early afternoon.

TUI continued its rebound from the pandemic last quarter, with 5.5 million customers using the company for their holidays, an increase 9% versus the prior year. It also presents 95% of pre-pandemic customer levels in Q3 2019 on a comparable basis. TUI recorded an average load factor of 93% compared to 92% in Q3 2022.

Group revenue hit €5.3 billion the last quarter, up 19% compared to Q3 2022 thanks to higher volumes and prices. This performance brought Group revenue to 11% above pre-pandemic levels in Q3 2019, driven by improved pricing.

TUI’S Group underlying EBIT was €169.4 million, a strong improvement of €196.5 million and €122 million excluding prior year flight disruption costs.

“Demand is looking brighter as travel rebounds, and flight capacity at the start of the important summer season has been firing on all cylinders. A total of 5.5m customers enjoyed a holiday with TUI in the quarter, up by 9% on the prior year. And supported by these higher volumes of sun-seekers as well as price hikes, revenues soared upwards at double-digit rates,” said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

“TUI doesn’t just run flights, it has a much wider package holiday business. In some ways that makes it more defensive – there’s more to offer and plenty of cross-selling opportunities. But the drains on cash when you have planes, huge hotels and even cruise ships to fill are enormous. So returning to pre-pandemic levels is key and good progress is being made on this front.

“Debt levels have improved significantly over the year, helped by a recent €1.8bn rights issue as well as positive free cash flows. But standing at a mighty €2.2bn, the debt level’s still eye-watering compared to profits, meaning dividends are likely off the table for now.”

The FTSE 100 was firmly in the red on Tuesday as the index felt the pressure of more poor Chinese economic data.

London’s-leading index is dominated by companies with exposure to China and performance is often driven by perceptions of Chinese growth.

The FTSE 100 was down 0.5% at the time of writing on Tuesday after Chinese exports fell 14.5% in July compared to a year ago.

“The Chinese economy continues to splutter and that’s bad news for a FTSE 100 chock full of companies which are closely tied to its fortunes,” said AJ Bell investment director Russ Mould.

“This time it’s trade data which has come in way short of expectations. China has been trying to move to being an economy driven by domestic consumption but the level of support provided to households during Covid and the country’s particularly stringent and long-lasting Covid restrictions didn’t match up to those seen in the West.”

In addition to disappointing Chinese data, sentiment was hit by a downgrade of US banks by Moody’s and weakness in Italian banks after the Italian government announced a 40% levy on excess profits earned due to higher interest rates.

It is safe to say markets were in a risk-off mood on Tuesday, with US equities falling and European stocks deep in the red.

The Italian FTSEMIB was down 2.2% and German DAX fell 1%.

FTSE 100 movers

One wouldn’t have been surprised to see the FTSE 100’s miners among the top fallers on Tuesday after markets learned of China’s dismal trade figures.

Anglo American, Glencore, and Antofagasta were among those most heavily impacted. The case for Glencore’s shares wasn’t helped by the 62% reduction in first-half net income released on Tuesday.

“Operating in what the company described as a “normalisation of commodity market imbalances and volatility” the group reported a 20% decline in revenues to $107bn and a drop of 62% in the group’s net income, to $4.6bn,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.

“With debts equivalent to just two months of net income the group has decided to make an additional “top-up” distribution of $2.2bn to shareholders, taking total announced shareholder returns this year to $9.3bn.”

abrdn shares fell after the investment manager said a challenging macro environment has hit assets under management. Despite this, the company announced a fresh wave of share buybacks. abrdn shares were down 10% at the time of writing.