FTSE 100 analysis: Stocks hit by surprise US credit rating downgrade – Top UK stocks

FTSE 100 outlook

The FTSE 100 is down 0.9% in early trade.

Ratings agency Fitch downgraded the US’ credit rating yesterday to double A from triple A, saying it ‘expected fiscal deterioration over the next three years’ and citing a ‘high and growing general government debt burden’. The agency also flagged an ‘erosion of governance’ over the last 20 years and said this has ‘manifested in repeated debt limit stand-offs and last minute resolutions’.

That is weighing on US futures today and contributed to a sharply negative session in Asia, with the Nikkei 225 down 2.3% and the Hang Seng falling 2.6%, and this is carrying over to Europe this morning.

Meanwhile, markets are also in a cautious mood ahead of the Bank of England decision tomorrow. Economists are anticipating another 25 basis point increase, although they see an outside chance of a 50 basis point hike as the UK continues to have a tougher time bringing inflation down. That means there is some debate over the future path, with economists currently anticipating they will peak at around 5.8% in early 2024.

The headline economic event today is US ADP employment change this afternoon, which will set the stage ahead of the more closely-watched non-farm payrolls out on Friday.

FTSE 100 analysis: Where next for the UK 100?

The UK 100, which tracks the performance of the FTSE 100, is falling this morning and trading at a two-week low.

The index has slipped below both the 100-day and 200-day moving averages today, leaving the 50-day to provide a potential safety net following the recent death cross that saw the shorter-term moving averages slip below the longer-term ones.

We can see the wedge, as the share price is contained by the year-to-date falling trendline and the supportive trendline that can be traced back to the lows we saw during the pandemic, remains intact after it failed to break above the upper line. A break above 7,770 is the immediate upside target.

Top UK stock news

BAE Systems is up 0.1% after hiking its dividend and launching a new share buyback after reporting strong double-digit growth in the first half as demand for defence remains high in the current geopolitical climate, allowing it to raise its guidance. Revenue was up 13% from last year at £11.0 billion and it took in £21.1 billion of orders, taking its backlog to a new record of over £66 billion! Underlying EPS increase 17% to 29.6p. BAE raised its interim dividend by 11% to 11.5p and it plans to launch a new £1.5 billion buyback once the existing one is completed. BAE said it is now expecting sales to rise 5% to 7% this year, up around 200bps from its previous goal, and sees underlying EPS climbing 10% to 12%, around 500bps higher than previously expected.

Haleon is down 0.1% in early trade despite reporting a rise in sales and profits in the first half of 2023 as it sold more products at higher prices, prompting it to raise its full year outlook. The consumer healthcare giant said it is now anticipating annual organic revenue growth of 7% to 8% and that adjusted operating profit will rise 9% to 11%. It was previously targeting the top end of its 4% to 6% sales growth range. Haleon said revenue was 10.6% higher in the first half, with organic growth of 10.6%. Adjusted operating profit was up 8.9% from last year at £1.27 billion. ‘Looking ahead, whilst we continue to expect a challenging environment given further pressure on consumer spending and global geopolitical and macroeconomic uncertainties, we remain confident in the resilience of Haleon's incredible portfolio of category leading brands,’ said CEO Brian McNamara. It declared an interim dividend of 1.8p.

Smurfit Kappa is down 4.5% after it reported lower revenue and earnings in the first half as demand for packaging declines, with volumes down some 6% in the first half. Revenue was down 9% at EUR5.8 billion in the first half while Ebitda was down 5% at EUR1.1 billion. Pretax profit at the bottom-line was down 14% at EUR659 million. Still, it raised its interim dividend by 6% to 33.5 cents. ‘While the global macro backdrop continues to be uncertain, there are some encouraging signs of improvement and we are confident about our future prospects. Smurfit Kappa has never been in better shape strategically, operationally and financially. Reflecting the continued confidence in the quality of our business and our prospects, the Board has approved a 6% increase in the interim dividend,’ said CEO Tony Smurfit.

Taylor Wimpey is up 2.3%. The housebuilder posted lower sales and profits in the first half of 2023 as tough market conditions, plagued by high inflation and rising interest rates, continues to make things challenging for housebuilders. The company built just 5,120 homes in the period compared to 6,922 the year before and, while average selling prices were up around 6.7%, we saw revenue decline 21% to £1.64 billion and pretax profit drop 29% to £237.7 million. Taylor Wimpey said it now expects to hit the top end of its goal to build 10,000 to 10,500 homes in 2023. We have seen its sales rate slow further and its cancellation rate rise in the early stages of the second half as rising rates continue to push up mortgage rates. It said the inflationary pressures on costs have moderated to around 6% from 9% to 10% at the start of the year.

Ibstock is up 1.5%. We saw a sharp drop in profits in the first half as demand for building products suffers because of the tough conditions in the housing and construction markets. Revenue was down 14% at £223 million while pretax profit plunged 42% to £30 million, including an £11 million hit from closing its clay site. Still, it upped its interim dividend by 3% to 3.4p. It said demand did improve throughout the period but left its outlook unchanged given the high level of uncertainty.

ConvaTec is down 0.2% after it increased its annual guidance after seeing an acceleration in organic revenue growth and an improvement in margins during the first half. The medical device company said it is now anticipating organic revenue growth of 6% to 7.5% in 2023 and an adjusted operating margin of at least 20.5%. It was previously targeting a 5% to 6.5% rise in sales and a margin of 19.7%. Revenue was up 1.1% in the first half while operating profit jumped almost 42%, aided by better margins. It raised its interim dividend by 3% to 1.769p.

Ferrexpo is trading marginally higher today as it continues to have a tough time operating in Ukraine given the war with Russia, leading to a sharp drop in sales and lower earnings in the first half of 2023. Revenue was down 64% to $334 million and its profit after tax was down 67% at $27 million. ‘Unfortunately, the war, coupled with the continued closure of the Ukrainian ports mean volumes remain lower than pre-war production levels. Whilst a renewed sense of optimism in Ukraine is noticeable, the situation continues to be challenging,’ said executive chair Lucio Genovese.

Endeavour Mining is down 4.2% after profits declined in the first half of 2023 as it produced less gold at higher costs. Gold output was down 13% in the period while the all-in sustaining cost of production increased 18%. That contributed to a sharp 45% drop in adjusted net earnings to $119 million. Still, it raised its dividend to $0.40. Production is expected to increase in the second half.

Wizz Air is down 1.3% today. The airline carried over 6 million passengers in July, up 26.6% from what we saw the year before as the recovery from the pandemic continues and demand for travel proves resilient. Its load factor increased to 94.9% from 89.7% the year before, as capacity grew at a slower rate than passenger numbers.

Coca-Cola Europacific Partners is up 0.5% as it benefited from higher volumes and prices in the first half as it announced it will jointly acquire Coca Cola Beverages Philippines alongside local partner Aboitiz Equity Ventures and raised its outlook. The company saw volumes increase 1% year-on-yuear in the first half and that, alongside higher prices, saw revenue jump 10.5% to almost EUR9 billion. Profit after tax was up 16.5% at EUR854 million. The company said it is now aiming for revenue to grow 8% to 9% this year, up from its previous goal of 6% to 8%, and is aiming for operating profit to improve 12% to 13% compared to its original goal of just 6% to 7%.

John Wood Group is down 0.5% this morning. The oilfield services giant has signed a multi-year deal to keep providing services to global projects run by oil giant Shell. The three-year deal, which could be extended for up to two more years, will involve its consulting and engineering teams in Europe, North America, Latin America, South-East Asia, Australia and the Middle East.

Virgin Money UK is down 1% in early trade. It has launched a new £50 million share buyback as it announced a third quarter trading update. The bank said demand for mortgages was down 0.4% in the period as conditions in the housing market remain tough, although this was partly cushioned by other parts of the business. Loan demand was up 0.7% from the year before and customer deposits were some 5% higher. Its net interest margin improved thanks to higher rates. ‘We have delivered another quarter of good progress against our strategy, with growth in both deposits and our target lending segments. Given our strong capital position, we anticipate a total of £175 million of buybacks for FY23 with more to follow as we normalise our surplus capital position by the end of next year,’ said CEO David Duffy.