5 factors to dictate London equities next week

Highlights

• Stock markets have remained volatile and vulnerable for many reasons
• At present levels, FTSE 100 stands below to closing mark on 10 May
• Persistent uncertainty about recovery has apparently stalled the growth

Stock markets have remained volatile and vulnerable to the ongoing global, as well as domestic developments pertaining to the enterprises which have recently resumed their large-scale operations after the withdrawal of lockdown restrictions.

The growth of benchmark FTSE 100 has apparently stalled as investors continue to remain skeptical about the prospects of recovery in the upcoming term following the tightened local operative environment for enterprises seeking to restart at the pre-Covid level of commercial scale.

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At the present levels, the headline index stands flat as compared to the position recorded five months earlier. FTSE 100 closed at 7,123.68 on 10 May 2021, it concluded at 7,078.04 on 7 October, a de-growth of 0.6%.

FTSE 100 (5-month performance)

Source: REFINITV

Although, the index has touched fresh 52-week high during the corresponding time when the markets bounced back from the Delta variant-led jittery. With the major round of corporations beginning to start the third quarter earnings in the current month, we take a look at five major factors that will dictate the London equities in the next week.

UK employment numbers & GDP estimates

The second week of October will see the Office for National Statistics (ONS) announcing the rate of unemployment, average earnings for August and claimant count for the month of September. The employment activity has gained momentum in the recent months, adequately supported by the furlough scheme but the primary contributing sectors to the national economy including manufacturing and services reflected a partial contraction in the level of job creation.

It also highlighted how the businesses are struggling to fill in the vacant positions for a long time due to limitedness of skilled workforce. The situation is far more worse for small-and-medium scale enterprises as they are unable to hire workers at premium wages as some of the bigger corporations are doing it.

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Alongside the employment numbers, the ONS will come up with the preliminary estimates for the UK GDP growth in August of 2021 and the balance of trade. The series of macroeconomic data to be announced next week will be helpful enough for the investors to set trading strategies for the upcoming weeks.

Evergrande’s development

The week-after-week developments surrounding the Evergrande Group has deeply rattled the equity market confidence as the investors proceeded with ultimate caution due to repeated defaults on interest payment deadlines by the second-largest property developer of China.

The cash-strapped real estate corporation is looking towards various avenues to mobile money that can be utilised for servicing the scheduled interest payments on offshore bonds. With a mammoth-sized debt burden of nearly $305 billion, approximately equal to 2% of Chinese economic output, Evergrande’s collapse would be enough to derail China’s economic growth. Not only this, a fallout will critically dent the interdependent partners and institutional investors across the world.

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As the group has missed seperate payments of $47.5 million and $83.5 million in coupon, the bondholders would be shocked if the corporation missed to oblige the payments within the 30-day grace period nearing its end after a couple of weeks.

US inflation numbers

Speaking of inflationary troubles, the US Bureau of Labor Statistics will be unveiling the inflation rate for the month of September. The increasing factory-gate prices across the countries due to raw material shortage and evident troubles with the supply chain and logistics systems, the price-charged inflation has skyrocketed in the recent months.

As far as the rate of inflation in the UK is concerned, the August figure surpassed the target of the Bank of England following which the central bank has indicated a possibility of tapering in the present scale of bond purchases.

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The rising energy prices across the nation have furthered the pain amid the market participants as they fear a long-lasting aftereffect of inflation. The industries already grappling with the inadequate supply of fuel due to acute deficiency of HGV drivers and hauliers, will have to face another round of disruption as they will not be able to see the anticipated quantum of consumer spending in the upcoming holiday period due to immensely high household bills.

Corporate earnings

The third quarter earnings report card will be eventful for markets as investors will gauge the effective benefits of the restriction-less trading period during July-September quarter. In the upcoming week, companies such as Entain Plc (LON: ENT), Just Eat Takeaway Plc (LON: JE), Domino’s Pizza Plc (LON: DOM), Legal & General (LON: LGEN) and Hargreaves Lansdown (LON: HL) will be announcing their respective quarterly report cards.

While, in the rest of the month, big heavyweights including Unilever (LON: ULVR), Relx (LON: REL), Anglo-American (LON: AAL), Barclays (LON: BARC), London Stock Exchange Group (LON: LSEG), InterContinental Hotels Group Plc (LON: IHG), HSBC Holdings Plc (LON: HSBA), Reckitt Benckiser (LON: RB), Whitbread (LON: WTB), GlaxoSmithKline (LON: GSK), Fresnillo (LON: FRES), Royal Dutch Shell (LON: RDSA), Lloyds Banking Group Plc (LON: LLOY), British American Tobacco (LON: BATS), Evraz (LON: EVR), Glencore (LON: GLEN), NatWest Group (LON: NWG) and WPP (LON: WPP) are scheduled to reveal their July-September performance.

Business sentiments

The operating environment for businesses becomes more crucial, at a time when a large section of enterprises are looking to revive their processes ahead of the holiday season and the subsequently expected spending spree.

The issues including faltering supply chains, unavailability of key personnels managing primary duties on an enterprise level, heightened prices of raw materials, disruptions in the cross-border trade due to limitedness of staff and potential aftermath of terminated furlough scheme and stamp duty holiday will be rightly encountered by the industries.

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The government of the UK, however, has stepped in to calm the fuel crisis due to driver shortages by sending 200 military personnel trucks to transport the petrol to the refuelling stations. But other sections including the hospitality industry remain under the doldrums of acute workforce shortfall as most of the hospitality settings have consumer-centric business models that require an adequate number of staff to perform various duties.

A major breakthrough for the industry will collectively help in improving the overall sentiments as people are more willing to spend now than any other stretch during the 18-month long course of pandemic so far. The slow rate of increase in payrolled employees could flag more concerns for the national spending as people with reduced earnings will not be able to spend, even if they want to.