- FTSE 100 at session highs, US markets open higher
- FOMC decision awaited, 75bps rate rise expected
- Lloyds, Reckitt impress, Rio Tinto (LON:RIO) slips as dividend cut
FTSE 100 held near session highs following a strong start to trading in the US.
At 2.45pm the lead index was 50 points to the good at 7,356.28 with the broader FTSE 250 index up 92.27 points at 19,661.06.
US stocks opened higher spurred by better-than-expected tech earnings released after the bell yesterday as investors awaited the release of the Fed’s interest rate verdict at 2pm Eastern.
Just after the open, the Dow Jones Industrial Average had added 158 points at 31,919 points, while the S&P 500 was up 33 points at 3,954 points and the Nasdaq Composite was up 182 points at 11,745 points.
OANDA senior market analyst Craig Erlam noted that there was plenty more to come from big tech, but first investors would hear from the Fed which was expected to hike interest rates by another 75 basis points.
“[The Fed] finds itself in an uncomfortable spot, with markets now pricing in a relatively swift u-turn in 2023 from aggressive tightening to loosening in order to support the economy,” he said.
“The Fed must walk a fine line as any validation of that will undermine its efforts to tighten and get a grip on inflation. Attention will be on its guidance over the coming months and how hawkish it will continue to be.”
Meanwhile, US durable goods orders rose unexpectedly in June, jumping 1.9%, coming in far higher than the market expectation of a decrease of 0.4%.
Pantheon Macroeconomics chief economist Ian Shepherdson noted that the upside surprise in the headline number came from the aircraft component, with defence aircraft jumping 81% out of the blue.
“These numbers are noisy, but that was exceptional, and it will likely mean-revert in July,” he said.
“Core capital goods orders rose 0.5%, in line with the recent trend, but probably about flat in real terms. The rate of growth has slowed markedly over the past year, and the summer likely will see a further softening, given the decline in capex spending plans in the regional Fed surveys.”
12.45pm: FTSE 100 near session highs with US seen higher
FTSE 100 advanced to session highs with the lead index up 42.81% to 7,349.09 and the broader FTSE 250 index up 81.85 points to 19,650.64.
Sentiment was given a lift by positive corporate updates and a likely positive restart on Wall Street later today.
The focus now shifts to the FOMC meeting and its accompanying statement due at 2.15pm ET today.
UBS said it expects the Federal Reserve to deliver another 75bps rate increase, bringing the federal funds target rate to 2.25–2.5%. It said markets will be scrutinizing the messaging at Fed chairman Jerome Powell’s press conference.
UBS added that while markets have been calmer in recent days the lull may not last as investors digest the various implications from the Fed actions. It’s the message that matters, UBS stated.
“We think the size of the Fed rate hike is less important than the Fed's ability to convince markets that it has inflation under control. The Fed’s forward guidance, which has already helped tighten financial conditions much more quickly than its rate hikes alone would suggest, will remain key for markets.”
“We expect Powell to continue to drive home the message that inflation is unacceptably high and that the Fed is solely focused on getting it under control. The central bank is looking for conclusive evidence that inflation is moderating, and is unlikely to put too much stock in fluctuating commodity prices amid volatile markets”
“Instead, in the coming months, we expect the Fed to focus on more reliable signs that the demand side of the economy is slowing.”
11.30am: FTSE 100 positive, US seen opening higher
FTSE 100 held near session highs approaching midday with the blue chip index 30.87 points higher at 7,337.15 boosted by positive corporate news and hopes for a positive restart on Wall Street.
Reckitt Benckiser and Lloyds Banking Group (LON:LLOY) benefitted from positive results rising 4.58% and 3.77% respectively.
Attention now shifts across the pond with US stocks expected to rally at the open on Wednesday on relief that some key quarterly after-hours tech earnings, notably from Google owner Alphabet (NASDAQ:GOOGL) Inc (NASDAQ:GOOG) (Alphabet Inc (NASDAQ:GOOG)) and software giant Microsoft (NASDAQ:MSFT) Inc, proved not as bad as feared.
Futures for the Dow Jones Industrial Average were trading 0.5% higher pre-market on Wednesday, while those for the broader S&P 500 index were up 1.0%, and futures for the tech-laden Nasdaq-100 added 1.7%.
However, everything today will hinge on the afternoon interest rate decision from the US Federal Reserve and its accompanying statement, due at 2.15pm ET. The Fed is widely expected to raise interest rates by 75 basis points as it tries to tame inflation, but the key question is whether such a hike will have the desired effect of tackling inflation which is currently at multi-decade highs.
Jeffrey Halley, senior market analyst, Asia Pacific, OANDA noted: "After what seems like an interminable wait, we are finally at FOMC day ... Markets have baked another 75 basis points into their loaves of bread, but it's going to be all about what the Fed and Jerome Powell say and not what they do.
"The IMF downgraded world growth forecasts last night, and there are plenty of recessionary signs around the world. What we’re not yet seeing, is easing commodity prices and supply chain pressures flowing through to lower prices."
He continued: "Markets will be betting heavily that the Federal Reserve may mollify some of its inflationary language. These were the same markets that just recently were pricing in 100 basis points today in a panicked manner, so don’t take their “wisdom” as gospel. Although the Fed may well be pleased that some of their harsh medicine is taking effect by virtue of voice and intent rather than action, it wouldn’t make much sense for them to take their foot off the brakes right now and pivot to being dovishly hawkish."
"The Fed already has a credibility issue thanks to being so vehemently in Team Transitory, and although my expectations for them are nearly as low as the Reserve Bank of New Zealand, monetary custodial of my beloved but now thoroughly messed up country, I expect them to “stay on message," Halley concluded.
On the earnings front, the latest numbers from Alphabet and Microsoft both came in below expectations but had some bright spots and both shares rose.
Microsoft blamed a strong US dollar and a slowing PC market, although it was noted that Q4 revenues were still a record $51.87bn, and 12% up over the same period a year ago. As for Alphabet, advertising revenues were also good, but again below expectations. YouTube revenue came in at $7.34bn, below $7.52bn, while advertising revenues rose 12% to $56.3bn.
On Wednesday, after-hours, the earnings spotlight will be on Facebook (NASDAQ:META) ower Meta Inc and music streaming firm Spotify Inc, while both Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:NASDAQ:AMZN) (Amazon.com Inc (NASDAQ:AMZN)) will round out the tech deluge on Thursday.
For some light relief, US economic data due on Wednesday includes the latest durable goods orders, pending homes sales. and MBA mortgage applications.
10.30am: FTSE 100 holds gains mid-morning
FTSE 100 remained in positive territory, mid-morning, with the lead index trading 32.62 points higher at 7,338.90. The broader FTSE 250 index also pushed ahead, 67.82 points to the good at 19,636.61.
AJ Bell Investment Director Russ Mould commented: “The FTSE 100 was higher on Wednesday morning, buoyed by some positive corporate results and news from the US overnight as Microsoft and Alphabet reported numbers which were not as bad as some may have feared,”
“US stocks had fallen ahead of the tech giants’ earnings thanks to Walmart’s profit warning. Although Microsoft and Google-owner Alphabet were behind expectations, it turned out to be only modestly so.
“A lot of the headwinds facing Microsoft relate to the strong dollar and production shutdowns in China, these are external factors outside the firm’s control and which don’t say too much about the underlying health of the business.
“However, with Alphabet one of its engines of growth, in the form of ad sales on its Youtube platform, is starting to splutter and this could be a more serious long-term issue.
“All the focus tonight will be on the US Federal Reserve and whether it does or says anything to upset what remains a rather jittery market.”
9.30am: FTSE maintains gains, BRC highlights rising shop price inflation
FTSE 100 maintains its positive start to trading with the lead index up 40.98 points at 7,347.26 at 9.30am.
The broader FTSE 250 also recouped some of yesterday’s losses, up 100.75 points, at 19,669.54.
Positive results from Lloyds Banking Group and Reckitt Benckiser helped the mood while strong US futures indicate a brighter showing in the US today after yesterday’s losses.
Signs of building inflationary pressures are never far away and there was more evidence released today.
The British Retail Consortium reported that shop price inflation rose to 4.4% in July, up from 3.1% in June, the rise is the highest since the British Retail Consortium started its index in 2005.
Food inflation was up 7%, compared to 5.6% in June. This was partly due to a 8% rise in fresh food inflation, up from 6.2% in June.
Non-food inflation hit 3%, up from 1.9% in June - a record-high, beating the previous record of 2.2% in April.
Helen Dickinson, chief executive of the British Retail Consortium, said: "Rising production costs - from the price of animal feed and fertiliser to availability of produce, exacerbated by the war in Ukraine - coupled with exorbitant land transport costs, led food prices to rocket by 7%.
"Some of the biggest rises were seen in dairy products, including lard, cooking fats and butter. Meanwhile, non-food prices were hit by rising shipping prices, production costs and continued disruption in China.
"As inflation reaches new heights, retailers are doing all they can to absorb as much of these rising costs as possible and to look for efficiencies in their businesses and supply chain.”
9.05am: FTSE up, Lloyds and Reckitt raise guidance
FTSE 100 made a strong start to trading on Wednesday boosted by positive corporate news and hopes for a strong rebound in the US today as results from tech giants, Microsoft and Alphabet, were not as bad as feared despite missing forecasts.
At 9.00am, the FTSE was 40 points higher at 7,346.33 with the FTSE 250 64.28 points higher at 19,629.02.
Reckitt Beckiser led the FTSE 100 risers, up 6.28% at 6,762p, as the consumer goods group raised its guidance for 2022 after reporting first half results today.
It now expects like for like net revenue growth of 5% to 8% for 2022, and growth in adjusted operating margins.
Laxman Narasimhan, Chief Executive Officer, said: “Despite challenging conditions, we are confident about the rest of the year, we are already delivering sustainable mid-single digit net revenue growth, and remain firmly on track to deliver our medium-term adjusted operating margin goal".
Matt Britzman, analyst at Hargreaves Lansdown (LON:HRGV), said “Reckitt’s resilient performance continues to impress.”
He added “Price hikes were all but guaranteed given the double-digit inflation in certain costs the group’s seeing, but impressively volumes are still growing.”
Lloyds Banking Group was another to benefit from a positive update, with shares up 3.87% to 45.22p after it also raised guidance for the full year.
The banking giant reported first half net income of £8,451mln in the six months to June 30th, up 12%, although EPS slipped to 3.7p from 5.1p.
Richard Hunter, Head of Markets, at Interactive Investor, commented: “Lloyds may no longer be the pick of the bunch given lingering concerns around the state of the UK economy, but the general view of the shares as a buy reflects confidence in the bank’s ability to keep a firm hand on the tiller.”
The strong results helped pull NatWest (LON:NWG) Group shares higher as well ahead of their results later this week.
But shares in Rio Tinto topped the FTSE 100 fallers as the company reported a 29% fall in first half profits and more than halved its dividend.
The global mining group was hit by weaker iron ore prices due to cooling demand from top customer China, higher costs and labour shortages.
Shares were 3.89% lower at 4,636p.
Unite Group (LON:UTG) was another faller with shares down 2.46% at 1,151p as the group cautioned that it was not immune from the impact of rising costs and interest rates.
But it remained confident in its ability to deliver significant growth over the medium to long term.
Building group Ibstock topped the FTSE 250 risers after raising guidance for the full year as it reported first half results.
Shares soared 6.24% as the company said it now expects to deliver adjusted EBITDA 1 for 2022 modestly ahead of the expectations signalled at the time of the AGM statement in April
The company reported a 28% rise in revenues to £259mln in the six months to June (2021: £202mln) while adjusted EBITDA was up 29% to £71mln from £55mln with growth driven by a strong performance by the clay division.
8.30am: FTSE opens higher, Lloyds and Reckitt impress
FTSE 100 made a strong start to trading on Wednesday boosted by a number of positive corporate updates and indications of a rebound in the US today after yesterday’s falls.
At 8.25am the blue chip index stood at 7,331.31, up 25.03 points, with the FTSE 250 up 48.93 points at 19,617.72.
In the US results from tech giants Microsoft and Alphabet missed expectations but were not as bad as some feared and both were up in after hours trading helping send US stock futures higher.
In the UK investors were digesting a hefty batch of results from a number of FTSE 100 heavyweights.
Lloyds Banking Group rose 4.93% to 45.68 after raising guidance for the full year.
The banking giant reported first half net income of £8,451m in the six months to June 30th, up 12%, although EPS slipped to 3.7p from 5.1p.
Shore Capital said it expects to upgrade its full year profit before tax forecast to around 37bn from the current £6.82bn and EPS to at least 7p from 6.5p.
Reiterating its buy rating analyst Gary Greenwood said he believed the market is misunderstanding and so mispricing the significant improvement in bank balance sheets since the Global Financial Crisis.
He saw 36% upside to his fair value of 60p.
The strong results helped pull NatWest Group shares higher as well ahead of their results later this week.
Reckitt Benckiser was another to benefit from a positive update.
The consumer goods raised its guidance for 2022 as it reported first half results today and now expects like for like net revenue growth of +5 to 8% for 2022, and growth in adjusted operating margins.
Reckitt reported 8.6% like for like growth in revenues to £6,888m in the first half and adjusted EPS f 178.6p, up 25.2%.
Laxman Narasimhan, Chief Executive Officer, said: “Despite challenging conditions, we are confident about the rest of the year, we are already delivering sustainable mid-single digit net revenue growth, and remain firmly on track to deliver our medium-term adjusted operating margin goal".
Reckitt topped the FTSE 100 risers, up 5%, at 6,692.
But shares in Rio Tinto topped the FTSE 100 fallers as the company reported a 29% fall in first half profits and more than halved its dividend.
The global mining group was hit by weaker iron ore prices due to cooling demand from top customer China, higher costs and labour shortages.
7.35am: FTSE 100 set to open higher, Lloyds, Reckitt raise guidance
FTSE 100 seen opening higher with the US expected to recoup some of yesterday’s heavy losses with results from tech giants Microsoft and Alphabet not as weak as feared.
Spread betting companies are calling the lead index 30 points higher although the mood may be impacted by another busy day of corporate news.
US markets closed down on Tuesday with the DJIA down 228 points, 0.7%, at 31,762, the Nasdaq Composite lost 220 points, 1.9%, to 11,563 and the S&P 500 slid 46 points, 1.2%, to 3,921.
But US futures were pointing to a strong opening when markets reopen later today.
Lloyds Bank reported half year net income of £8,451m for the six months to June 30th, up 12%, although EPS slipped to 3.7p from 5.1p.
The banking group said given the strong financial performance in the first half of 2022 and based on current macroeconomic assumptions it was raising 2022 guidance.
Banking net interest margin now expected to be greater than 280 basis points and the return on tangible equity is now now expected to be c.13%.
Capital generation now expected to be greater than 200 basis points.
It added asset quality remained strong with no current deterioration seen across the portfolio.
GSK reported second quarter sales of £6.9bn, up19%, with growth seen in all divisions.
The pharmaceuticals giant also raised guidance for 2022 expecting sales growth of between 6% to 8% (previously 5% to 7%) and adjusted operating profit growth of between 13% to 15% (previously 12% to 14%); both at constant exchange rates.
Adjusted EPS is expected to grow by around 1% lower than operating profit.
The group added this guidance excludes any contribution from COVID-19 solutions
Reckitt Benckiser also raised its guidance for 2022 as it reported first half results today and now expects like for like net revenue growth of +5 to 8% for 2022, and growth in adjusted operating margins.
The consumer goods company reported 8.6% like for like growth in revenues to £6,888m in H1 and adjusted EPS f 178.6p, up 25.2%.
Laxman Narasimhan, Chief Executive Officer, said: “Despite challenging conditions, we are confident about the rest of the year, we are already delivering sustainable mid-single digit net revenue growth, and remain firmly on track to deliver our medium-term adjusted operating margin goal".
Building group Ibstock raised guidance for the full year as it reported first half esults.
The company said it was mindful of broader macroeconomic uncertainties but now expects to deliver adjusted EBITDA 1 for 2022 modestly ahead of the expectations signalled at the time of the AGM statement in April
The company reported a 28% rise in revenues to £259 million in the six months to June (2021: £202 million) while adjusted EBITDA was up 29% to £71m from £55m with growth driven by a strong performance by the clay division.
6.50am: FTSE seen opening higher
FTSE 100 was tipped to open higher on a big day for corporate and macro news (read more).
Financial spread betting firms had a rise of around 25 points pencilled in when trading in London gets underway, even after a mixed performance on Wall Street.
Walmart’s profit warning (read more) unsettled the mood early on while earnings misses by Google owner Alphabet (read more)and Microsoft (read more) added to the jitters.
Asian markets were mixed even though China’s Industrial base showed a decent recovery in June.