Proactive Investors -
- FTSE 100 rises 13 points to 8433
- Gold hits new record high – analysts point to Iran, China, US rates
- Ryanair (LON:0RYA) says airfare growth easing
Looking forward to inflation numbers, some uncertainty remains
The FTSE 100 is almost down flat now, up just 4 points, though the FTSE is up 124 at 20,874.
There's some interesting comments today looking forward to the UK inflation numbers on Wednesday.
Economist James Smith at ING, in particular, who says the services inflation is the "make or break" number to determine a June rate cut for the BoE.
"The Bank of England is preparing for its first rate cut, and Wednesday’s services inflation data will determine whether that comes in June or August.
"We think services inflation could come in hotter than expected, and if we're right, that would favour another ‘on hold’ decision next month," Smith says.
Markets are pricing a 58% chance of a June cut happening at the time of writing.
At a headline level, the story should be a good one, with overall inflation, likely to fall to within a whisker of the Bank’s 2% target, writes Smith, mostly putting this down to the 12% fall in household electricity/gas bills at the start of April and a similar cut expected again in July's Ofgem next price cap move, based on wholesale natural gas prices.
"If we’re right, then that should be a recipe for several rate cuts this year. We expect at least three, which is slightly more than markets are pricing."
However, services inflation is a major uncertainty this week, Smith says.
"In the very short term, there’s still some uncertainty over services inflation. That’s ultimately what the BoE is most interested in, and it seems to have assumed even greater prominence in the monetary policy decision-making process given recent volatility in the wage figures."
The MPC expects services inflation to dip from 6.0% to 5.5% in April’s data due this week, with the market consensus expecting 5.4%, and ING expecting 5.6%.
"Slight deviations here or there are not likely to substantially move the needle for the Bank. And it's worth saying we do get another inflation release just ahead of June’s meeting, but we think there’s less uncertainty surrounding that set of data."
The bottom line, says Smith: "if the data comes in with expectations, a June rate cut would quickly become the base case. But given the committee is visibly divided, a bigger upside surprise to services inflation this week would move the dial back towards August for the first rate cut."
BT delay, Virgin Trains comeback, auditors slammed
A few stories from the website this morning that I think are worth sharing.
BT (LON:BT) this morning said it had delayed plans to force all customers to switch to broadband due to concerns about vulnerable people who depend on telecare or landlines for emergency alarms.
The telecom giant has abandoned an industry-agreed timeline of completing the national switchover by the end of next year, setting a new deadline of the end of January 2027.
Lobby groups had warned that, unlike copper-based landlines with power, digital-based telecare services stop working if there is a power cut or the internet goes down.
Richard Branson’s Virgin Group has applied to run trains on England’s west coast route in direct competition with Avanti.
Virgin Trains confirmed the 'open access' licence application over the weekend to operate in tandem with Avanti West Coast, which it lost out to in 2019.
And as for auditors, the FT has a story about how auditors failed to ring alarm bells before 75% of the biggest company collapses in the recent years.
Research was carried out by Sheffield University following several high-profile failures at the likes of BHS, Carillion and Thomas Cook.
The university’s Audit Reform Lab pointed to a lack of warnings from big four accountants, noting Ernst & Young, for example, gave going-concern warnings for just one in five firms it had audited in the year before they failed between 2010 and 2022.
PwC's, Deloitte's and KPMG's audit teams were not much better, the research found.
Wall Street to open higher
US stocks are set to join most European markets and open the week higher, though any good news from across the pond is not yet filtering over to the FTSE 100.
Gains will be led by the tech-powered Nasdaq, according to the futures market, which is pointing to the Nasdaq 100 opening 0.3% higher, ahead of a 0.2% gain for S&P 500 futures.
Dow Jones futures, after last week saw the index break through the 40,000 barrier for the first time right at the close, are roughly flat so far.
Last week, in addition to the Dow 40k, the S&P took back 5300, while Nasdaq 17k "remains elusive" says Kenny Polcari at Kace Capital Advisors.
The tech index, he says, "needs to gain 1.8% to get us to that number – with many betting this will be the week – why? Think NVDA! [Earnings] are due out on Wednesday after the bell….and the sense is that they are going to crush it again…that they can’t make their chips fast enough and AI is the story."
Crytpo trend
Bitcoin traders had nothing to write home about over the weekend trading session but things are livelier this morning.
The BTC/USD pair recouped all of yesterday’s losses, up 9.2% on a week ago at $66,274.
The cryptocurrency markets are showing signs of consolidation, says our daily crypto report, with a lack of risk appetite for more volatile, less liquid altcoins.
Investing in the UK campaign
Hargreaves Lansdown (LON:HRGV), the UK's largest DIY investment platform has launched a campaign called “Get Investing in the UK” to encourage customers to invest in the UK.
The fund supermarket, which, like its rivals, offers investors thousands of US and international shares to buy and sell, as well as upping analyst coverage over a variety of US and European shares in recent years, says the campaign will "highlight both the benefits of investing as well as our best ideas on the long-term investment opportunities we see in the UK".
Emma Wall, head of investment analysis and research at the Bristol-based group, said: "Now is the time to get investing in the UK. It is home to lots of world-class companies, selling their goods and services across the globe, that aren’t just reliant on the strength of the UK economy to thrive.
"There’s also a diverse array of innovative smaller businesses, some of which are pioneers of emerging industries with the potential to blossom into the giants of tomorrow."
She also notes London's reputation as a happy hunting ground for income investors, with the UK Dividend Monitor from Computershare predicting nearly £94.5 billion will be paid out in dividends this year, including specials, a 4.3% increase on 2023, plus share buybacks that were worth almost twice as much as dividends last year.
"It’s a key year for the UK with a number of events which brings focus on investing in the UK, not least a General Election and various rumoured IPOs. Interest rate cuts are on the near horizon, which are positive for equities and negative for savers, making the stock market more attractive on a longer-term view," said Wall.
Around 83% of shares held by HL’s clients are in UK listings.
Wall notes that the UK is trading at a 43.5% discount to the US based on 12-month forward earnings, currently near the biggest discount to the US in over 20 years, while the FTSE 100 and FTSE 250 are trading at significant discount to the Eurostoxx 50 too, which is attracting bids for giants like Anglo American (JO:AGLJ) or mid-sized names like Keywords Studios today.
Asda not focused on market share growth
Ahead of fresh grocery industry data due tomorrow from Kantar, analysts at Shore Capital have put out a note saying they believe Asda will continue prioritising debt reduction over sales and market share growth.
Sales at the UK's third-largest supermarket lifted 1.4% on a like-for-like basis during the first quarter of 2024, a figure which is “relatively poor”, according to the broker.
However, Asda's owners are not believed to be focused on sales league tables and market share but instead are targeting the “generation of profitable transactions”.
To boost this area, Asda is required to grow its margins and cash flow, something analysts believe is going well.
Brokers in talks
WH Ireland Group PLC (AIM:WHI) says it is in deal talks with a fellow broker Zeus Capital.
Noting recent press speculation, the City firm confirmed that it is in discussions with Zeus "with regards to the possible sale of its capital markets division".
"These discussions are at an advanced stage but there can be no certainty that any transaction will occur."
Elsewhere in small caps world, CT Automotive Group PLC (LON:CTA) shares have jumped 20% this morning as the components group swung into profit following a bounce back in its markets after a major disruption during the pandemic.
Revenues rose 15% to US$143 million, driven by production revenue up by 13% and US$10.9m of tooling projects.
Bigblu (AIM:BBB) fell almost 12% after announcing the sale of its Norwegian operations and the departure of chief executive Andrew Walwyn.
Its business and consumer broadband provider Brdy is to be sold for just £1 to an entity led by the firm’s Norwegian management and former boss Walwyn, Bidblu said.
Comments from Ryanair's O'Leary
In his chat with analysts and the media, Ryanair's CEO Michael O'Leary said a "recessionary feel around Europe" was a possible reason for the softer growth in flight prices.
This morning's results again flagged that the price rises seen last year were easing off, which followed his update from two weeks ago, where O'Leary said summer fares were not likely to see the 5% to 10% rise he had initially expected last month.
"It is a bit surprising that pricing hasn't been stronger and we're not quite sure whether that's just consumer sentiment or recessionary feel around Europe but we still see peak travel demand certainly through July and August being strong," O'Leary said.
"And if we have to discount or cut fares to fill to 94% load factor in April, May and June then so be it."
Financial chief Neil Sorahan also told Reuters the airline had to reduce fares in particular for mid-week flights in recent weeks to boost demand.