Proactive Investors -
- FTSE 100 makes solid progress, up 40 points
- Government set to scrap Channel 4 privatisation
- Falling gas prices could boost Treasury's coffers
2.39pm: US opens higher ahead of Fed minutes
US stocks opened higher on Wednesday ahead of a slew of key economic data this week, including the release of the highly-anticipated minutes from the Fed’s December meeting today.
Just after the market opened, the Dow Jones Industrial Average had added 51 points or 0.2% at 33,188 points, the S&P 500 was up 11 points or 0.3% at 3,835 points, and the Nasdaq Composite had gained 39 points or 0.4% at 10,432 points.
Meanwhile, Tesla Inc (NASDAQ:TSLA) shares were up 2.4% after falling 12% yesterday as disappointing delivery numbers added to investor concern about the EV maker.
OANDA senior market analyst Craig Erlam said equity markets were pushing higher on Wednesday, buoyed by softer yields and some promising PMI revisions in Europe.
“It would appear investors are increasingly coming around to the idea that central banks will be forced into cutting rates earlier than previously anticipated in order to support the economy,” he said.
“That would also suggest they anticipate inflation will subside faster than previously thought which would be welcome if true after a year of overshoots.”
But he noted that there was plenty more to come today that could potentially dampen the mood, most notably the Fed minutes from its December meeting.
“The central bank is determined to reinforce its hawkish stance on investors and prevent an unwanted loosening of financial conditions and the minutes could be another opportunity to do so,” Erlam said.
“Whether investors will be in the mood to listen is another thing.”
2.27pm: Sunak's five promises for 2023
In the UK and prime minister, Rishi Sunak, is setting out his plans for 2023.
In a speech he has made five promises:
- First, he will halve inflation this year.
- Second, he will grow the economy.
- Third, he will make sure national debt is falling.
- Fourth, NHS waiting lists will fall.
- Fifth, he will pass new laws to stop small boats, so that people who come to the UK illegally are detained.
This is Sunak's 'go hard or go home' gamble...Meet these five pledges and he has a chance of going into the next election claiming he is at least delivering.
Fail to meet one or more of them and he's just made re-election even more challenging. https://t.co/mhb2h9IyaA
— Paul Brand (@PaulBrandITV) January 4, 2023
“They are your government's priorities, and we will either have achieved them or not. No tricks, no ambiguity. We're either delivering for you or we're not" he declared.
2.16pm: Salesforce to axe 8,000 jobs
Across the pond now and news of some hefty job losses at Salesforce.
The business software giant is laying off 10% of its work force, around 8,000 employees, and scaling back office space because of concerns about the economy, the company said today.
“The environment remains challenging and our customers are taking a more measured approach to their purchasing decisions,” Marc Benioff, the company’s chief executive, said in a note to employees announcing the cut.
The largest private-sector employer in its hometown of San Francisco, the company has almost tripled its workforce in the past five years, in large part through dozens of acquisitions.
“We hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff said.
2.10pm: Energy boost for the Chancellor
There could be a boost to the Treasury’s coffers as the estimated cost of subsidising household energy bills has fallen by £5bn after a drop in wholesale gas prices, according to Cornwall Insights.
The consultancy firm has forecast the government’s policy to protect households from the cost of living crisis, the energy price guarantee (EPG), will now cost £37bn, down from the £42bn it forecast in November.
Our latest price cap forecasts predict the cap will fall below the Energy Price Guarantee from July 2023:For a typical household we forecast:
Q2 23 (Apr-Jun): £3,545
Q3 23 (Jul-Sept): £2,800
Q4 23 (Oct-Dec): £2,835
Read more on our predictions below: https://t.co/eaomjQLjEO
— Cornwall Insight (@CornwallInsight) January 4, 2023
Its latest forecasts for the Default Tariff Cap (price cap) have shown energy bills for a typical household are predicted to be below the EPG from July this year although bills are set to remain significantly above pre-pandemic levels – settling at around £2,800 for the second half of 2023, £300 above the current capped EPG rate of £2,500.
1.55pm: BT invests in planned drone super-highway
BT Group (LON:BT) PLC has pumped £5mln into a start-up seeking to create a drone corridor across southern and central England to carry cargo and other supplies.
The telecoms group’s digital hub, Etc, is investing the money into the drone firm Altitude Angel, to support its work on Project Skyway.
The scheme would involve a 165-mile drone corridor created above Reading, Oxford, Milton Keynes, Cambridge, Coventry and Rugby – in what the two firms hope will become the UK’s drone superhighway and the largest and longest network of its kind in the world.
The long-term aim is to create a network connecting towns and cities, as well as linking transport and package delivery hubs across the country.
Altitude Angel is working on software that detects and identifies drones, while also enabling the small aircraft to safely share airspace with other, crewed aircraft.
Under the £5m deal, BT Group will provide connectivity and network infrastructure to allow Altitude Angel to roll out its software.
1.46pm: Sainsbury's rewards staff with pay rise
J Sainsbury (OTC:JSAIY) PLC is investing a total of £205mln in what it called “its biggest ever investment in pay” taking hourly pay rates to at least £11 per hour.
This latest pay rise of £185mln is on top of the £20mln Sainsbury’s invested in October, the food retailer said, adding it was also bringing forward its annual pay increase by a month to February 2023 to ensure “it can best support colleagues with the rising costs of living in the year ahead.”
Sainsbury’s is investing £205m to boost hourly colleague pay to at least £11 and help support colleagues with the rising cost of living. This investment is the largest we've ever made in pay and exceeds the government's new National Living Wage rates https://t.co/EzaREDKgJh pic.twitter.com/WqfrGWapPd— Sainsbury's News (@SainsburysNews) January 4, 2023
Sainsbury’s and Argos hourly retail colleague pay will increase from £10.25 to £11.00 per hour and from £11.30 to £11.95 per hour in London.
The move is the latest by rival high street chains as they battle to retain staff in a tight labour market as well as supporting existing members faced with the cost of living squeeze.
1.30pm: European data offers some encouragement
The Footsie is holding in positive territory albeit off earlier best levels aided in some part by some encouraging economic data from Europe plus the warmer weather which has seen energy prices fall.
As Fawad Razaqzada,|market analyst at City Index and FOREX.com noted: "In Europe, sentiment has been boosted because of warmer-than-expected weather at the start of the winter season, which has reduced fears about gas shortages."
"What’s more, data from Eurozone has improved, albeit from a very low base."
"Today, for example, the latest services PMI data from Spain and Italy beat expectations, while the Eurozone final PMI was revised up a touch – though still remained just below the boom/bust level of 50.0. What’s more, German import prices slumped 4.5% month-over-month, in a further sign that inflation may have peaked."
Elsewhere, there was also a fall in French inflation numbers which came on the back of a drop in Germany yesterday.
12.54pm: Wilko secures funding lifeline according to Sky
Wilko, the general merchandise retailer and high street stalwart, has secured a £40mln funding lifeline from one of the high street's most prolific investors.
Sky News has learnt that the company, which last year warned that it could run out of cash, has obtained a loan from Hilco UK, the owner of Homebase and Cath Kidston.
Sky News has learnt that the company, which last year warned that it could run out of cash, has obtained a loan from Hilco UK, the owner of Homebase and Cath Kidston https://t.co/SEZ038xty0— Sky News Business (@SkyNewsBiz) January 4, 2023
Details of the loan deal were filed at Companies House late last month, and come amid expectations of a challenging trading environment for retailers in 2023, Sky said.
Wilko employs roughly 15,000 people and trades across the UK from about 400 stores.
12.35pm: Culture secretary advises against Channel 4 privatisation in latest U-turn
Culture Secretary Michelle Donelan has advised against the privatisation of Channel 4 in a letter to the prime minister that has leaked online.
In the letter, obtained by Lewis Goodall of the News Agents podcast, Ms Donelan said there were "better ways to ensure Channel 4's sustainability" than privatisation.
???? THE NEWS AGENTS EXCLUSIVE ????The Culture Secretary recommends that Channel 4 privatisation does NOT go ahead. More on the podcast later... https://t.co/NFDAflSx0V
— The News Agents (@TheNewsAgents) January 4, 2023
Her predecessor Nadine Dorries planned to sell the government-owned channel.
But Ms Donelan wrote: "I have concluded that pursuing a sale at this point is not the right decision."
A spokesperson for the Department for Digital, Culture, Media and Sport (DCMS) did not confirm the U-turn. "We do not comment on speculation," they said.
Dorries was quick to respond to the rumored U-turn.
Three years of a progressive Tory government being washed down the drain. Levelling up, dumped. Social care reform, dumped. Keeping young and vulnerable people safe online, watered down. A bonfire of EU leg, not happening. Sale of C4 giving back £2b reversed. Replaced with what?— Nadine Dorries (@NadineDorries) January 4, 2023
12.02pm: Concurrent Technologies jumps after trading update
In amongst what little corporate news there has been today was a welcome update for investors in Concurrent Technologies PLC.
Shares in the company jumped 6.33% as it said that expects to report revenues around 10% ahead of market expectations and profit before tax at least in line with market expectations.
The company had to implement a double shift throughout quarter four to deal with a recent surge in demand resulting in record revenues in November and December 2022.
It also reported an order intake for the fiscal year 2022 in excess of £31mln, an increase of over 25%, and expects to run double shifts throughout the first quarter of 2023, maintaining its increased capacity.
11.45am: Wall Street seen higher
Wall Street is expected to open higher after a shaky start to 2023 as traders look to the minutes from the latest Federal Open Market Committee (FOMC) meeting for direction.
Futures for the Dow Jones Industrial Average rose 0.27% in Wednesday pre-market trading, while those for the broader S&P 500 index gained 0.4% and the Nasdaq added 0.59%.
After a positive open on Tuesday, stocks faltered as falls in a number of tech heavyweights and weak manufacturing PMI data dented the mood.
“US markets were off to a shaky start for the year, with mixed economic data and disappointing developments from heavyweights Apple (NASDAQ:AAPL) and Tesla eroding initial gains,” commented Richard Hunter, head of markets at interactive investor.
Tesla toppled 12%, hitting its lowest level since August 2020, following weaker-than-expected fourth-quarter deliveries, while Apple shed 3.7% on reports that it will cut production due to poor demand. A broker downgrade by Exane BNP Paribas (EPA:BNPP) added to the downbeat mood surrounding the iPhone maker.
At the close, the Dow Jones was down 0.04% at 33,135, the S&P shed 0.41% to 3,824 and the Nasdaq fell 0.76% to 10,387.
“A weaker than expected manufacturing PMI print which remained in contractionary territory perhaps offered some early hope that the economy was beginning to respond to a tightening monetary environment, with weaker demand and production in evidence,” Hunter added.
“However, a later release showed that construction spending ticked up slightly in November, which would usually signal that the sector could be recovering."
Turning to today, the main event is the FOMC minutes, according to Naeem Aslam, chief market analyst at AvaTrade.
“Traders and investors will closely watch it, and every word of the minutes is likely to be looked at by the market players twice as they will draw their conclusion about the Fed’s monetary policy,” he said. “It is widely anticipated that the Fed isn’t done with its monetary policy yet.”
Apart from the FOMC minutes, Deutsche Bank (ETR:DBKGn) strategist Jim Reid highlighted the latest ISM Manufacturing PMI and JOLTS report today, which includes job openings and the quits rate.
“This is one that Fed officials focus on, and has continued to point to an incredibly tight labour market by pre-pandemic standards,” Reid said.
11.25am: Fall in mortgage approvals shows affordability remains stretched
The fall in mortgage approvals shows that affordability is stretched which is likely to keep transactions low and will result in a double-digit fall in house prices.
That is the view of EY ITEM Club which said a decline in gross unsecured lending and another significant increase in household deposits suggests that consumers remain unable or unwilling to push against the pressures of falling real incomes by borrowing more or saving less.
Whether consumers change that approach will be key to the outlook for consumer spending, it suggested.
Martin Beck, chief economic advisor to the EY ITEM Club, said: “On balance, the EY ITEM Club still thinks that consumer savings will come to at least the partial aid of the economy.”
“The financial turmoil from late last year may have encouraged greater precautionary saving, but conditions have calmed on those fronts” he pointed out.
10.40am: WH Smith (LON:SMWH) in favour at Deutsche Bank (ETR:DBKGn)
With retailers in focus ahead of the expected rush of Christmas trading statements WH Smith PLC received a boost as Deutsche Bank upped its price target to 1,690p from 1,390p and reiterated its “buy” rating.
Shares rose 1.5% as the broker noted the high street retailer finished 2022 strongly with a robust recovery across the Travel business, stronger-than-expected momentum in early 2023 current trading, the resumption of the dividend and a pipeline of c.125 units to be opened in 2023 alone.
“Despite our more cautious view of Travel and consumer spending in 2023, we believe the businesses is strongly positioned to continue to take market share with material steps taken to strengthen the business during COVID and a structural benefit from a low absolute ATV” Deutsche said.
9.55am: Energy prices slide
Gas prices in Europe have extended their falls as the warm weather curbs demand and eases pressure on politicians and central bankers.
Mild conditions have spread across the region, with major cities like Berlin earlier recording their warmest start to the year.
While cooler temperatures are expected in some parts next week, central and southern Europe is forecast to remain unseasonably warm.
The warm spell has reduced the need for heating and alleviated concerns over gas inventories being depleted too quickly.
Dutch gas futures were 3.8% lower at €69.57 a megawatt-hour this morning, after dropping 6.1% on Tuesday while UK prices are down 2.8% at 166.36p per therm.
Oil prices were also on the slide pressured by a weakening global demand outlook amid growing fears of a Fed-induced recession in the US and persistent coronavirus-related uncertainties in top consumer China.
A wave of infections and a rising death toll in China has hurt the near-term demand outlook in the world’s second-largest economy, prompting officials to raise export quotas for refined oil products in the first batch for 2023.
Brent crude was trading 2.1% lower at US$80.32/barrel while WTI prices were down 2.05% at US$75.36/barrel.
The falls in prices were reflected in the FTSE 100 with BP PLC down 3%, Shell PLC down 2.6% and Centrica (LON:CNA) PLC, the owner of British Gas, down 2.4%.
9.43am: Mortgage approvals hit lowest level since June 2020
Further signs that the housing market is cooling. Mortgage approvals by lenders in Britain fell in November to the lowest level since June 2020, according to data from the Bank of England.
- UK Mortgage Approvals Nov: 47.075K (est 53K, prevR 57.9K)- Net Consumer Credit Nov: 1.5Bln (est 1.0Bln, prevR 0.7Bln)
- Mortgage Lending Nov:4.358Bln (est 3.7Bln, prevR 3.6Bln)
- M4 Money Supply M/M Nov: -1.6% (prev 0.0%)
- M4 Money Supply Y/Y Nov: 2.5% (prev 4.8%)
— LiveSquawk (@LiveSquawk) January 4, 2023
Lenders approved 46,075 mortgages in November, down from 57,875 in October, the Bank said, against City hopes for approvals of 55,000.
9.28am: FTSE holds firm but oil stocks weigh
London’s blue chips have continued their bright start to 2023 boosted by better than expected inflation figures in France which comes on the back of an improved picture in Germany yesterday.
Victoria Scholar, head of investment, interactive investor said: “The FTSE 100 is extending gains after its first session of the year in which the UK index gained more than 1%.”
“China-sensitive Burberry is trading at the top of the FTSE 100 while commodity stocks like Glencore (LON:GLEN), BP (LON:BP), Shell (LON:RDSa), and Centrica (LON:CNA) are languishing at the bottom on the back of weaker oil and gas prices.”
“European bourses are higher for a third consecutive session with the CAC 40 outperforming. France’s inflation rate eased to 5.9% in December, beating analysts’ expectations for 6.4%.”
J Sainsbury (OTC:JSAIY) PLC received a boost from sales figures from Kantar which showed the food retailer saw growth of 6.2% in the four weeks to December 25 with the figures also lifting Tesco (LON:TSCO) PLC which rose 1.3% as the report showed a 6% increase in sales during the same period.
9.05am: Christmas sales top £12bn according to Kantar
More on the Kantar sales figures which offered some encouragement that food price inflation may have peaked.
Food price rises eased for a second month running with supermarket prices up 14.4% year-on-year in December, compared to 14.6% in November and 14.7% in October, in a signal that price rises are finally starting to slow.
Kantar's Fraser McKevitt said the figures suggested the "worst has now passed", although he added that this remained a "painfully high figure at the current rate, impacting how and what we buy at the shops".
Overall, sales hit a new record at £12.8bn, topping £12bn for the first time, with shoppers spending an extra £1.1bn this December compared to last year, driven higher by a boom in demand for cold and flu medicines.
Consumers continued to trade down to supermarkets’ own-label products this period, with sales rising by 13.3%, well ahead of a 4.7% increase in branded lines.
McKevitt said: “Tesco’s Finest range remains the single largest premium own label line by some distance, while Aldi and Lidl were the biggest contributors to the premium own label sector’s overall growth in 2022.”
Buoyant Christmas sales were enjoyed across the board this month. The traditional grocers still captured most of the Christmas purchasing, with Tesco, Sainsbury’s, Asda and Morrisons accounting for more than two-thirds of all spending.
Asda led this group, with sales up by 6.4%, closely followed by Sainsbury’s and Tesco which achieved sales growth of 6.2% and 6.0% respectively. Despite sales falling by 2.9%, Morrisons had its best performance since June 2021, standing the retailer in good stead for a return to growth in the new year.
Aldi remained the fastest-growing grocer with 27.0% growth taking its market share up from 7.7% this time last year to 9.1%. Lidl’s sales increased by 23.9%, moving its market share up by 0.9 percentage points to 7.2%.
Iceland’s sales grew by 10.2%, with sales of frozen poultry rising by 15% and frozen prepared foods by 18%. This pushed Iceland’s market share to 2.5%. Co-op’s market share now stands at 5.6% while Waitrose has 4.7%. Ocado (LON:OCDO) increased sales by 8.2%, maintaining a market share of 1.7%.
8.15am: Bright start to 2023 continues
FTSE 100 opened higher continuing its bright start to the year even though a survey showed that food price inflation hit a fresh high in December.
Figures from the British Retail Consortium showed annual food inflation leaped to 13.3% in December, up from 12.4% in November, the highest monthly rate since it began collecting data in 2005.
However, a survey from Kantar was slightly more encouraging showing grocery price inflation in December fell by 20 basis points to 14.4%, the second time in a row the rate has dropped.
Take-home grocery sales hit £12.8bn for the four weeks to 25 December 2022, the first time the £12 billion mark has been breached, the report said.
But this failed to dent London’s blue-chip index which at 8.15am was up 10 points at 7,565, while the FTSE 250 advanced 56 points to 19,190.
With corporate news thin on the ground attention will shift to US data later in the day with ISM manufacturing figures and the latest Federal Reverse FOMC meeting minutes among releases expected across the pond.
The ISM Manufacturing index for December is expected to fall further into recessionary territory to 48.5 from 49.0 in November while the FOMC minutes should shed more light on how policymakers are weighing early signals of slowing inflation pressures against the persistently strong labour market data.
Back in London, and the BBC reported business leaders are set to meet the chancellor to discuss the energy support package amid speculation that the government will halve its help.
Further strong gains by the Hang Seng provided support for Prudential PLC (LON:PRU) which rose 1.5% and HSBC Holdings PLC (LON:HSBA), up 0.9%.
Ahead of the expected slew of trading updates from the retail sector WH Smith (LON:SMWH) received support from Deutsche Bank (ETR:DBKGn) which upped its price target to 1,690p from 1,390p and reiterated a 'buy' rating. Shares were up 0.5% in early trading.
7.52am: Chancellor to meet business leaders to discuss new energy package - BBC
The UK chancellor, Jeremy Hunt, is expected to meet with business groups at lunchtime to discuss the government’s energy support after March according to the BBC.
The Federation of Small Businesses, UK Hospitality, the CBI and the British Chambers of Commerce are all expected to attend the meeting, the report said, amid speculation that the government will halve its help with energy bills.
Gas and electricity prices have been fixed for firms until the end of March, but many want the support to continue.
The revised scheme is expected to run for 12 months until March 2024.
The details of the support businesses will receive towards their energy costs are expected to be announced next week, according to the BBC.
7.38am: Food inflation hits new high
UK food price inflation hit a new record high in December according to the British Retail Consortium (BRC) which predicted 2023 would be another tough year for consumers and businesses.
Annual food inflation leaped to 13.3% in December, up from 12.4% in November, according to the figures compiled by the BRC and data firm Nielsen, the highest monthly rate since it began collecting data in 2005.
The BRC said high prices for animal feed, fertiliser and energy fed into increased food prices on supermarket shelves and cautioned that consumers would probably face further hikes this year.
“It was a challenging Christmas for many households across the UK,” said the BRC’s chief executive, Helen Dickinson. “Not only did the cold snap force people to spend more on their energy bills, but the prices of many essential foods also rose as reverberations from the war in Ukraine continued to keep high the cost of animal feed, fertiliser and energy.”
Dickinson also warned that “2023 will be another difficult year for consumers and businesses as inflation shows no immediate signs of waning.”
Inflation in fresh food was even higher with growth in early December hitting 15%, another record high, although the overall annual rate of shop price inflation reported by its members - mostly large retail chains and supermarkets - dropped to 7.3% from 7.4%.
This was driven by a drop in inflation for non-food items to 4.4% from 4.8%.
7.05am: More New Year cheer
FTSE 100 is expected to open higher, building on yesterday’s gains, as US markets closed off their worst levels for the day and despite mixed showings by Asian markets.
Spread betting companies are calling the lead index up by around 20 points.
In the US, Wall Street started the New Year on the back foot, despite a bright start, as falls in a number of tech heavyweights and weak manufacturing PMI figures dented the mood.
At the close the Dow Jones Industrial Average was down 13 points, or 0.04%, at 33,135, the S&P 500 was off 16 points, or 0.41%, to 3,824 and the Nasdaq Composite was 80 points lower, or 0.76%, at 10,387.
Shares of Tesla and Apple (NASDAQ:AAPL) both slipped, weighing on the broader market and continuing the tech sector’s struggles of last year.
Back in London and the corporate news is expected to be fairly quiet while on the economic data front, BRC Shop Price Index, Consumer Credit and Mortgage Approvals figures are due.
In the US later today, all eyes will be on the latest FOMC meeting minutes for an indication as to how the Federal Reserve views its next move on interest rates.