Proactive Investors -
- FTSE 100 sets new intra-day high, now up 54 points
- CMA rules Microsoft-Activision deal would hurt competition
- Housebuilders rise as mortgage rates start to fall
1.00pm: US markets seen lower
Wall Street is expected to open lower as investors continue to digest comments from Federal Reserve Chair Jerome Powell that confirm further rate hikes lie ahead, while they also await earnings from the likes of Walt Disney (NYSE:DIS) and Uber (NYSE:UBER).
Despite this London's blue chip index is at 7,918.86, up 54.15 points, 0.69%.
Futures for the Dow Jones Industrial Average fell 0.2% in Wednesday pre-market trading, while those for the broader S&P 500 index dropped 0.3% and contracts for the Nasdaq-100 shed 0.2%.
In an interview at The Economic Club of Washington yesterday, Powell acknowledged that inflation has begun to decline but said interest rates would still have to rise as the Fed battles to return inflation to 2%.
US stocks rallied towards the close, with the Dow ending 0.8% higher at 34,157, the Nasdaq closing 1.9% up at 12,114 and the S&P 500 gaining 1.3% to 4,164.
“Investors appear a little relieved at Fed Chair Jerome Powell sticking to last week's script despite Friday's jobs report indicating that the labour market remains red hot,” commented Craig Erlam, senior market analyst at OANDA. “It would appear traders had become a little more defensive on the expectation of a hawkish shift but Powell refrained from taking the leap.”
Erlam noted that the market is getting a consistent message from policymakers across various central banks. While headline inflation is falling and will likely fall much further, core services inflation remains a big concern, and tight labour markets make achieving lower wage growth consistent with 2% inflation targets very difficult.
“It's been clear for a while that the journey back to 2% was likely to be more treacherous than the path to peak inflation, and the data in the first quarter in particular, perhaps the second also, was going to highlight that,” he added. “Recent jobs reports alone have epitomized that and sentiment in the markets is likely to continue mirroring it in the coming months.”
Apart from Walt Disney and Uber, YUM! Brands, Fox Corp, MGM Resorts and Coty are among the company's reporting quarterly earnings today.
12.45pm: Diesel price falls below 170p for first time since March
A better day for consumers. Following the news that mortgage rates have started to drop another big chunk of the household budget, fuel, is also heading down.
The price of a litre of diesel has fallen below 170p for the first time since last March, according to figures from data company Experian (LSE:EXPN) which showed UK forecourts were charging an average of 169.9p per litre on Monday.
RAC fuel spokesman Simon Williams said: “This is good news for drivers of diesel vehicles as they have had to endure some tough times with the average price of a litre nearly hitting £2 at the end of June. Since then the price has tumbled 30p, saving more than £16 on a full tank.”
The FTSE 100 is certainly driving full throttle at 7,920.82, up 56.11, or 0.71%.
12.27pm: CMA rules Microsoft-Activision deal would hurt competition
An investigation by the Competition & Markets Authority has provisionally concluded that Microsoft’s proposed acquisition of Activision could result in higher prices, fewer choices, or less innovation for UK gamers.
The provisional findings from the CMA follow a wide-ranging investigation conducted over the last five months to understand the market and potential impact of the deal.
This has included holding site visits and hearings to hear directly from business leaders at Microsoft (NASDAQ:MSFT) and Activision, analysing over 3mln internal documents from the two businesses to understand their views on the market, commissioning an independent survey of UK gamers, and gathering evidence from a range of other gaming console providers, game publishers, and cloud gaming service providers.
The CMA provisionally found that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service.
Microsoft already accounts for an estimated 60-70% of global cloud gaming services and also has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).
The CMA provisionally found that buying one of the world’s most important game publishers would reinforce this strong position and substantially reduce the competition that Microsoft would otherwise face in the cloud gaming market in the UK.
Microsoft announced in January 2022 that it would pay $68.7bn in cash for Activision, the firm behind Call of Duty, World of Warcraft and Candy Crush.
Meanwhile, the FTSE 100 is still motoring along, at 7,919.55, up 54.84 points, or 0.70%.
12.05pm: Hiring down but pace of decline cools
Businesses are reining in hiring but the rate of decline cooled in January suggesting warnings about a severe recession may have been overblown, a closely watched survey out today showed Wednesday.
Permanent hires fell for the fourth month in a row last month, with KPMG and the Recruitment and Employment Confederation’s (REC) permanent placement index coming in below the 50 point growth threshold again at 46.8 points.
Recruitment activity dampened by uncertain outlook and candidate shortages in January, but recruiters signalled a stronger increase in demand for staff with overall vacancies expanding at the quickest rate for three months. Read the report here : https://t.co/3lnneUCKuC pic.twitter.com/R1fEzB9HGP— Recruitment & Employment Confederation (@RECmembers) February 8, 2023
But REC Chief Executive, Neil Carbery said “January’s recruitment activity suggests that speculation about a shallower economic downturn may be justified.”
“While permanent placements dropped for the fourth straight month, the pace of contraction slowed and temporary billings growth accelerated again,” he noted.
The rate of vacancy growth climbed for the first time in nine months, “another sign of firms feeling confident to hire, even if they are leaning more to temporary hiring than normal in this uncertain environment,” Carberry added.
Shares in recruiters took heart from the news with Hays (LON:HAYS) PLC up 1.03%, PageGroup PLC 1.67% higher and Robert Walters PLC (LSE:RWA) rising 1.83%.
The gains in the sector were reflected in the broader market with London’s FTSE 100 now at 7,917.24, up 52.53 points, or 0.67%.
11.40am: Trading suspended in Turkey
Trading on Turkey’s stock market has been suspended this morning after the country’s benchmark equities index fell 7%.
Stocks dropped sharply again on Wednesday, following heavy losses on Tuesday after Turkey and Syria were hit by a devastating earthquake that has killed thousands of people.
Turkey’s stock exchange suspended trading after a $35 billion selloff in the wake of devastating earthquakes in the country. https://t.co/EqN7FIwKY0— Lisa Mateo (@LisaMateoTV) February 8, 2023
The Bist 100, which contains the hundred largest companies listed on the Borsa İstanbul, has been suspended and Turkey’s Borsa Istanbul said it did not say when trade would resume.
According to Bloomberg, this is the first time that Turkey’s stock exchange has suspended trading in 24 years.
Back in London and the FTSE 100 is still enjoying itself, at 7,923.62, up 58.91 points, or 0.75%.
11.20am: Housebuilders rise on Barratt green shoots and falling mortgage rates
Further signs of easing pressures for UK homeowners.
Virgin Money (LON:VMUK) has become the first lender to offer a sub-4% mortgage for new purchases since Liz Truss and Kwasi Kwarteng’s mini-budget sent rates soaring.
HSBC (LON:HSBA) launched a five-year fix at 3.99% yesterday, but that deal was only available to those who are remortgaging or switching rates.
Virgin’s offer will be the first sub-4% deal since September 2022.
As with HSBC’s deal, Virgin’s 3.95% rate will require a 40% deposit.
Rates have started to fall as markets have begun to price in a lower than expected peak in UK interest rates, currently 4%.
Virgin Money debuts deals under 4%, brings back 95% LTV products https://t.co/kYVbxgPJwE— Mortgage Finance Gazette (@MFG_Magazine) February 8, 2023
The news has provided a much needed fillip to the housebuilding sector which is firmly in the green today.
Sector giant Barratt Developments (LON:BDEV) earlier on Wednesday reported an upturn in reservations in January compared to the end of 2022 although it stressed market conditions remain challenging.
Shares in Barratt rose 1.98%, and others in the sector followed suit. Persimmon PLC (LON:PSN) advanced 2.77%, Bellway PLC (LON:BWY) rose 2.55%, Redrow PLC (LON:RDW) gained 1.67% and Berkeley Group Holdings PLC (LON:BKGH) was up 1.75%.
The strong performance helped drive the FTSE 100 to a new intra-day record high of 7,934.30. It is currently up 68 points at 7,932.
10.50am: Sent packing
On a day of record highs in the FTSE 100 packaging companies failed to join in the fun.
The top three fallers in the lead index are all from that sector after Smurfit Kappa Group plc (LSE:SKG) said box volumes were down around 2% in 2022 against a strong prior year, and that Germany and the UK markets performed below expectations.
Shares slipped around 1%, although off earlier lows while peers DS Smith and Mondi PLC (LSE:LON:MNDI) nursed similar falls.
The declines are in contrast to the index as whole which remains buoyant, up 63.72, or 0.81%, at 7,928.43, in touching distance of its new record high of 7,929.36.
10.30am: No escape from economic realities for Barratt
Julie Palmer, Partner at Begbies Traynor (LON:BEG), said results from Barratt Developments PLC show “there’s no escaping the impact of soaring interest rates, rising inflation and a consumer confidence crisis on the housing market.”
“The order book that insulated the housebuilder from these headwinds in the first half and helped it deliver a pre-tax profit of £501.5mln is down nearly 30% versus a year ago,” she noted.
“Wrap in property valuations dropping and you can see how homebuyers, who enjoyed more than a decade of rock-bottom rates, are pulling back from making long-term financial commitments on mortgages as the cost-of-living crisis bites.”
On the plus she pointed out “With the UK facing a long-term housing shortage, Barratt remains a fundamentally strong business.”
But “taken together and it’s not a pretty picture for one of Britain’s largest housebuilders.”
“Recruitment freezes and cutting back on new sites will do something to mitigate these challenges but materials and labour inflation are heading in one direction and sales seemingly the other.”
“For the housebuilders like Barratt, this could be the market to sit on its land bank and fasten down some hatches,” she suggested.
Yet housebuilder shares are contributing to the FTSE's gains this morning, with Barrett and rivals up more than 2%.
9.58am: Plans to relax listing rules for ARM provoke backlash - reports
Plans to water down City rules to bring Arm Holdings back to the London market have provoked a backlash, according to the Daily Mail.
The Institute of Directors (IoD) said there was a ‘real danger’ in trying to rewrite the rulebook to lure specific firms such as the chip maker.
British officials are locked in last-ditch talks to bring Arm back to the UK in a float expected to value the company at around £50bn.
The Cambridge-based firm ‘remains fully committed to listing in calendar 2023’ but gave no further details about the venue or timing of the float in an update yesterday.
But some in the City fear that regulators are preparing to relax established stock market rules in order to lure Arm to London.
The Mail quoted Roger Barker, director of policy and corporate governance at the IoD, said: ‘The UK regulatory authorities are demonstrating a worrying willingness to rewrite the listings rulebook as a means of luring business to London.”
“There is a real danger in watering down established governance rules in order to win transactions. It undermines the integrity of both the rules themselves and the UK’s wider governance framework.”
“The UK should not endanger its hard-won reputation for high governance standards by engaging in a regulatory race to the bottom,” he added.
9.21am: Qatari's to join race for Manchester United - reports
Qatari investors are set to join the race to buy Manchester United PLC as the mid-February deadline for bids approaches.
According to the Daily Mail a group of private, high-wealth individuals based in the oil-rich state, buoyed by Qatar’s hosting of the World Cup, have set their sights on a club they view as ‘football’s crown jewels’.
They will make an offer for the Red Devils in the coming days, the report said, and are confident their bid will blow the competition out of the water.
EXCLUSIVE: Qatar-based investment group to bid for Manchester United. Would arm Erik ten Hag with huge transfer kitty aimed at taking club to the top of world football. Excited by the project & confident their bid will be the strongest. Full story: https://t.co/6anXwNBFEm #mufc— Mike Keegan (@MikeKeegan_DM) February 7, 2023
United’s owners, the Glazers, are seeking more than £6bn for the club, and there is the prospect of another huge bill to redevelop Old Trafford.
The bid would come from separate, individual Qatari investors removing one potential hurdle given Qatar Sports Investments’ ownership of Paris Saint-Germain.
One entity cannot own two clubs in the same competition and United and PSG could meet in Europe.
There is no interest in taking a partial stake, with only a full-blown takeover being discussed, according to the Mail.
If successful it would mean added spice to the Manchester derby with the cities two clubs owned by opposite sides of the Qatar-Abu Dhabi rivalry.
It would also see Qatari-owned United go up against Saudi-owned Newcastle.
Jim Ratcliffe, the owner of Ineos, has already signalled his interest in the club while bids from US consortiums are also expected.
9.00am: FTSE higher but off best levels
The FTSE 100 has settled in positive territory but off new record intra-day highs of 7,926.35 established earlier.
Currently up 49 points at 7,914, investors continued to take the glass half full view of Fed chair, Jerome Powell’s comments in Washington yesterday.
While signalling further rates rises were on the way Powell did note inflation was easing.
Neil Wilson at markets.com suggested the bullish market reaction reflected a view that “the market had been expecting Powell to come out fighting – after the monster jobs report everyone expected Powell to be very hawkish and wasn’t any more hawkish than before.”
“That gave the market an easy reflex higher after some initial volatility around the remarks,” he reckoned.
Wilson’s key takeaway was “the Fed is now totally data dependent.”
A report from respected thinktank, the National Institute for Economic and Social Research, which suggested the UK could sidestep a protracted recession this year also provided support to the market.
Housebuilder Barratt Developments PLC remained in positive territory, just, up 0.8%, after half-year numbers.
Richard Hunter, Head of Markets at interactive investor, commented “Housebuilders are on shaky ground at the moment, and this update from Barratts is understandably cautious.”
“The results themselves are robust enough, but concerningly much of this was made possible by the previous strength of the forward order book leading into the new financial year,” he pointed out.
“Uncertain though the immediate outlook may be, Barratts remains well-managed and well-regarded by investors, and the market consensus of the shares as a strong buy makes it one of the preferred plays within a sector which is currently difficult to navigate,” he added.
Elsewhere and PZ Cussons (LON:PZC) PLC fell 5.14% to 202.99p after first-half results.
Barclays (LON:BARC) Capital noted pre-tax profits of £34.5mln were below consensus expectations of £35mln although revenues of £337mln topped City forecasts. Margins were lower than forecast.
“While the top-line beat should be taken well, the margin below at 9.9% (consensus 10.4%) will be a talking point especially on the strength of the 2H23 phasing and any pressure points on the UK consumer within the hygiene category,” the broker suggested.
8.30am: BP (LON:BP) share price could double - Barclays Capital
Barclays Capital has suggested BP PLC’s share price could double. Raising its price target to 1,000p the bank said yesterday's strategic update “addresses key investor concerns and enables, in our view, a potential re-rating of the shares.”
“Longevity in the upstream combined with profitable renewables lead to stronger free cash flow,” it said.
Unsurprisingly, Barclays retained an overweight rating.
Deutsche Bank (ETR:DBKGn) was also bullish on BP although on a lesser scale than Barclays. It raised its price target to 591p from 549p and kept a buy recommendation.
Shares in the oil major extended yesterday's gains, rising a further 2.87% in early exchanges in London, to 531.20p.
8.15am: Record breakers - FTSE 100 hits new high
The FTSE 100 established a new record high in early exchanges on Wednesday as investors followed the lead of US markets which rallied strongly on Tuesday despite mixed signals from Fed chair, Jerome Powell in a speech.
At 8.15am London’s blue-chip index was 57.96 points higher at 7,922.67, above its recently set best intra-day level of 7,906.58, established on February 3.
Victoria Scholar, head of investment at Interactive Investor, said: "Yesterday Fed Chair Jerome Powell said inflation is easing, raising hopes that the US could be approaching the peak for interest rates. A strong close on Wall Street with the Nasdaq closing up by 1.9% has helped drive a positive start to the European session."
“The disinflationary process, the process of getting inflation down, has begun and its begun in the goods sector,” Powell told the Economic Club of Washington DC. “But it has a long way to go. These are the very early stages of disinflation.”
But Ipek Ozkardeskaya, senior analyst, Swissquote Bank pointed out Powell also made hawkish comments on interest rates.
“He said that the Fed may hike the rates more than what’s priced in if the jobs market remains unexpectedly strong,” she noted.
“But in vain. Investors focused on the fact that he appeared just as hawkish as he has always been, that he didn’t promise a 50bp hike at next meeting, and that he said that the Fed won’t actively shrink its balance sheet for at least a few years,” she added.
Back in London and Barratt Developments PLC gained 1.30% despite warning of challenging markets conditions and cutting the dividend.
The housebuilder highlighted an improvement in reservations since the start of 2023.
Tate & Lyle was another early riser after the food ingredients producer set out new targets for the five years to end-March 2028 and a reorganisation of its operating units.
The company said it was targeting revenue growth of 4% to 6% a year, underpinned by high single digit food & beverage solutions growth, core earnings growth of 7% to 9% per year.
It also aims for a return on capital employed improvement of up to 50 basis points per annum on average and a new target to deliver $100mln of cumulative productivity benefits.
Shares rose 1.8%.
7.50am: UK could avoid recession - NIESR
The UK could sidestep a protracted recession this year but growth will remain close to zero as the impact of high inflation and rising borrowing costs weigh on the economy.
That was the view of the National Institute for Economic and Social Research (NIESR) in its latest quarterly economic review.
NIESR said that while a recession could be avoided, growth would however still remain “anaemic” at best as high inflation and rising interest rates took effect, with the economy forecast to expand by just 0.2% this year.
It noted the labour market remains strong but because of anaemic growth, forecast a slow rise in unemployment in the coming year, peaking at around 4.7% in the third quarter of 2024.
But the thinktank warned households in Britain will suffer a hit to their finances of up to £4,000 this year with low and middle-income households facing the biggest financial hit from the cost of living crisis.
“With the cost of living crisis having a lasting effect on households, for at least 7mln, it will certainly feel like a recession,” the report said.
With high energy bills and the rising cost of a weekly shop, at least 7mln households, about a quarter of the population, will be unable to meet in full their planned energy and food bills from their post-tax incomes, the report added.
7.43am: Frasers says Rascal Clothing deal off the table
Frasers Group PLC has completed the purchase of five brands from JD Sports Fashion PLC (LON:JD) but is longer buying the Rascal Clothing brand as part of the deal.
In a short statement, the Sports Direct (LON:FRAS) confirmed the completion of the purchase of premium fashion brands - Cricket, Tessuti, Scotts, Giulio and Choice.
But the Rascal Clothing deal will not proceed as JD Sports said “one of the founders has exercised a pre-emption right agreed as part of the group's acquisition of Rascal on 5 February 2019.”
In December, Frasers said it was buying seven brands from JD Sports in a £47.5mln deal.
It said it would make an announcement on the remaining brand Topgrade Sportswear, "in due course".
7.34am: Barratt builds solid profit growth, some green shoots
Barratt Developments PLC reported a 15.9% increase in pre-tax profits at the half-year stage and improved reservation activity at the start of 2023 although trading conditions remain challenging.
The housebuilder highlighted a strong operational performance in the six months to December 31 with 6.9% growth in total home completions to 8,626 with reported pre-tax profits increasing to £501.5mln from £432.6mln a year before.
The full year out-turn remains dependent on how the market evolves through the Spring selling season, but assuming the improved reservation activity experienced since the start of 2023 continues, Barratt expects to deliver total home completions of between 16,500 to 17,000.
The dividend was cut to 10.2p from 11.2p reflecting the planned reduction in dividend cover to 2.0 times for the full financial year but Barratt said a share buy-back programme would recommence following today's results announcement.
Barratt highlighted a strong balance sheet with net cash of £969.1mln, although this was down from £1,131.7mln a year ago.
Net private reservations per active outlet per average week from January 1 through to 29 January were 0.49, 45.6% below the 0.90 in the equivalent period in 2022, reflecting the more tentative demand seen in the calendar year to date, but an uplift on the level of activity seen at the AGM.
Forward sales as at January 29 were 10,854 homes compared to 15,736 a year ago at a value of £2,665.0mln (30 January 2022: £4,109.7mln).
Chief executive, David Thomas, said: “Consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales - particularly in the second quarter.”
“Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.”
7.00am: Footsie expected to push higher
FTSE 100 is expected to open higher, and push back towards its recently hit record highs, after US markets advanced following comments from Fed chair, Jerome Powell that inflation has begun to decline.
Spread betting companies are calling the lead index up by around 42 points.
“In short Powell’s comments were only slightly more hawkish than his press conference remarks, however US markets didn’t seem to care that much, finishing the day strongly higher even as bond yields remained steady at their recent highs” commented Michael Hewson, chief market analyst at CMC Markets UK.
“This resilience in the US looks set to translate into a positive European open later this morning” he suggested.
The Dow closed Tuesday up 266 points, 0.8%, at 34,157, the Nasdaq Composite jumped 226 points, 1.9%, to 12,114 and the S&P 500 improved 53 points, 1.3%, to 4,164.
“The disinflationary process, the process of getting inflation down, has begun and its begun in the goods sector,” Powell told the Economic Club of Washington DC. “But it has a long way to go. These are the very early stages of disinflation.”
Barratt Developments PLC (LSE:BDEV) and Severn Trent (LON:SVT) are the big names reporting today in London while over in the US earnings from Walt Disney and Robinhood (NASDAQ:HOOD) Markets take centre stage.