Proactive Investors -
- FTSE 100 lower, down 8 points
- UK economy grew 0.5% in October
- London Stock Exchange rises on Microsoft tie-up
11.10am: BoE to " decelerate" to 50bps rate rise this week - Citi
The Bank of England (BoE) will increase UK interest rates on Thursday but at a slower pace than last month’s 75 basis points rise according to Citi.
The bank forecast the BoE’s Monetary Policy Committee will “decelerate” to a 50 basis points increase this week although it cautioned “75bps remains more likely than 25bps, with the recent data highlighting the ongoing risk of downward real rigidities.”
But it pointed out November’s acceleration primarily reflected credibility issues that have since dissipated in its view.
“With recent data indicating 1) rates already in restrictive territory and 2) slack beginning to emerge, we think there is little in the underlying data compared to September that would now warrant an acceleration” the broker said.
As a result Citi forecast the median voters in the MPC to once again back a 50bps hike, but suggested this could be in the context of a broader four-way vote split.
“From here, we see the risks as increasingly skewed towards smaller increments as the MPC moves from urgent tightening to a more cautious period of close monitoring – especially with respect to the wage data.”
“For the MPC, this effectively means playing for time” it concluded.
The Bank of England will announce its interest rate call on Thursday.
10.44am: ASOS (LON:ASOS) seeking to bolster finance department with restructuring specialist
FTSE 100 has recovered most of its early falls to trade just seven points lower now at 7,469.
On weak featurre is ASOS PLC which weakened following reports the ailing retailer was holding talks with lenders about adding a restructuring expert to its finance department following the departure of interim CFO Katy Mecklenburgh.
Russ Mould, investment director at AJ Bell said the reports hinted “at the level of stress the ASOS balance sheet could be under.”
“The online fashion lender should not be in the mess it is now. Yes, times are tough, but ASOS is coming off the back of favourable trading conditions during the pandemic” he added.
“By ignoring the adage that you should fix the roof when the sun is shining, ASOS has left itself vulnerable to the effects of people returning to shops in person, a greater number of costly product returns to process, rising costs across the rest of the business and a downturn in demand thanks to the weak economic backdrop.”
10.14am: Government to hold Cobra meeting as strikes mount
The government is to discuss contingency plans for upcoming strikes, including using the military and civil servants to cover Border Force staff, at an emergency Cobra meeting later.
The armed forces will also be deployed to hospital trusts ahead of an ambulance strike, the government says.
But industrial action is still expected to cause major disruption.
Cobra is an emergency response committee made up of ministers, civil servants and others.
It comes amid a wave of strikes over pay this month from nurses, paramedics, rail workers, and Border Force staff.
Cabinet Office minister Oliver Dowden, who will chair the meeting on Monday, has urged unions to call off the "damaging" strikes.
10.00am: Trade deficit narrows in three months to October
Some more economic news. The UK’s trade deficit narrowed in the three months to October by £5.1bn to £9.8bn, according to the Office for National Statistics, after adjusting for the effect of inflation.
However, in nominal terms, it grew to £23.9bn, reflecting a huge jump in energy costs in the past year in the wake of Russia's invasion of Ukraine.
The value of goods imports decreased by £1.4bn (2.6%) in October, however when removing the effect of inflation, imports of goods increased by £0.9bn (2.3%).
The underlying total trade deficit widened slightly by £0.1bn to £23.9bn in the three months to October.However, after removing the effect of inflation the deficit narrowed by £5.1bn to £9.8bn.
➡️ https://t.co/R113JPyd66 pic.twitter.com/zFqIPs7CCd
— Office for National Statistics (ONS) (@ONS) December 12, 2022
Goods imports from non-EU countries fell by £3.4bn (11.6%), primarily because of falling gas prices in October 2022 after peaking in September, while goods imports from the EU rose by £2.0bn (8.3%) following a subdued September.
The value of goods exports decreased by £0.7bn (2.2%) in October, with exports to both EU and non-EU countries falling; after removing the effect of inflation, exports of goods decreased by £1.3bn (4.7%).
9.25am: National Grid (LON:NG) fires up coal plants as temperatures plunge
National Grid PLC has given notice to two of its reserve coal-fired power stations to fire up as the network faces a surge in demand as temperatures plunge and much of the country is covered in snow.
The National Grid Electricity System Operator said the emergency plan "should give the public confidence in Monday's energy supply" as millions are expected to work from home and turn up the heating.
We've issued a notification to warm two winter contingency coal units. This measure should give the public confidence in Monday’s energy supply.(1/3)
— National Grid ESO (@NationalGridESO) December 12, 2022
The notice does not mean the coal-fired power stations will be used but means they will be ready to produce energy if called on by the Grid.
Soaring demand sent day ahead UK power prices to an all-time high and National Grid data suggested that power consumption is set to peak at almost 46,700 megawatts at 5pm on Monday, up from Sunday's high of just under 43,000.
9.00am: FTSE lower, bounce in GDP to be short-lived
Footsie has extended its losses, down around 27 points now.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown (LON:HRGV) said: ‘’Caution is in the air in financial markets ahead of a series of crunch central bank meetings around the world this week, with yet more interest rate hikes set to be unwrapped as inflation remains stubborn.”
There was slightly better than expected news on the UK economy which grew 0.5% in October, rebounding after September’s fall but analysts still expect this to be a temporary respite while the chancellor Jeremy Hunt said the UK’s economy was “likely to get worse before it gets better.”
Streeter commented: “The monthly rise of gross domestic product of 0.5% in October is likely to have been more of a temporary upswing rather than the start of a more positive chapter for the economy.“
Danni Hewson, AJ Bell financial analyst said: "the story is unchanged, the economy is still shrinking and recession feels inevitable."
The EY ITEM Club forecast that GDP is likely to be – at best – flat in quarter four, “with a good chance of seeing a second successive quarter-over-quarter fall.”
Housebuilders were a weak feature following the weak survey from Rightmove which pointed to UK home-sellers cutting their asking prices at the quickest pace in four years.
Shares in Bellway PLC (LON:BWY), Persimmon PLC (LON:PSN), Redrow PLC (LON:RDW) and Vistry Group (LON:VTYV) PLC were all marked lower.
8.24am: London Stock Exchange rises on Microsoft tie-up
London Stock Exchange Group PLC (LON:LSEG) is in the news after announcing a 10-year partnership with Microsoft Corp (NASDAQ:MSFT). which has taken a stake of around 4% in the UK bourse operator.
The partnership involves next-generation data and analytics, as well as cloud infrastructure solutions, according to a statement by the LSEG.
It involves a new data infrastructure for the London exchange and analytics and modelling solutions with Microsoft Azure, AI, and Microsoft Teams.
“This strategic partnership is a significant milestone on LSEG’s journey towards becoming the leading global financial markets infrastructure and data business, and will transform the experience for our customers,” David Schwimmer, CEO of LSEG, said in the statement.
The move is forecast to increase LSEG's revenue growth meaningfully over time as new products come on-stream although total incremental cash costs over 2023-2025 of £250mln to £300mln will see a 50 to 100 basis points hit to EBITDA margin over the same period.
There is a contractual commitment by LSEG for a minimum cloud-related spend with Microsoft of £2.3bn over the term of the partnership, reflecting minimum cloud consumption expectations and consistent with existing long-term opex and capex plans, the company said.
8.11am: FTSE lower, London Stock Exchange jumps
FTSE 100 opened lower ahead of a busy week of central bank announcements and economic data despite a stronger-than-expected rebound in UK GDP figures in October.
London’s blue chip index is down by 23 points at 7,454 and the FTSE 250 is 81 points lower at 18,835.
The UK economy grew by 0.5% in October, ahead of City expectations of 0.4% growth, but this is unlikely to stop the economy heading into recession in quarter four according to economists.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics said: “We think that GDP will fall by about 0.3% month-to-month in both November and December, leaving it down 0.2% on a quarter-on-quarter basis.”
“Activity indicators from S&P Global, Lloyds (LON:LLOY) and the CBI, as well as the extremely low level of GfK’s consumer confidence index, all are consistent on past form with falling GDP.”
London Stock Exchange Group PLC jumped 4% in early trading as US tech giant Microsoft Corp. has announced a 10-year partnership and took a stake of around 4% in the UK bourse operator.
The partnership involves next-generation data and analytics, as well as cloud infrastructure solutions, according to a statement by the LSEG.
It involves a new data infrastructure for the London exchange and analytics and modelling solutions with Microsoft Azure, AI, and Microsoft Teams.
7.50am: Further signs housing market is slowing
The average asking price of homes being put on the UK market has fallen by 2.1% over the last month, according to Rightmove, which said it had seen the largest pre-Christmas dip of the last four years.
The UK’s biggest property website said the average asking price was £359,137 in early December, down £7,862 from November, and will be seen as further evidence that the property market is on a downward slope.
Last week Halifax said prices in the UK fell by 2.3% in November, the largest monthly drop on its index since the start of the 2008 financial crisis, while at the start of the month, Nationwide said UK house prices were falling at the fastest pace in almost two and a half years.
Despite this, Rightmove said that at the end of 2022, average asking prices were 5.6% higher than at this time a year ago, only slightly below the 6.3% growth recorded in 2021.
However, it predicted a 2% fall in prices next year as a multispeed, hyperlocal market emerges, with “some locations, property types and sectors faring much better than others”.
“After two and a half years of frenetic activity it’s easy to forget that having multiple bidders immediately lining up to buy your home was the exception rather than the norm in pre-pandemic years, and there will be a period of readjustment for home-movers as properties take longer to find the right buyer,” said Rightmove’s Tim Bannister.
“We’re heading towards a more even balance between supply and demand next year, but we don’t expect a surge in forced sales, which would cause a glut of properties for sale and contribute to more significant price falls in 2023,” he added.
7.36am: RyanAir to pay compensation after dropping appeal
RyanAir Holdings PLC will pay out compensation to consumers hit by strike action in 2018 after deciding not to appeal a court ruling made earlier this year according to the UK’s Civil Aviation Authority (CAA).
In January, following action by the CAA against Ryanair (LON:RYA), the Court of Appeal decided that strike action by airline staff was not an 'extraordinary circumstance'.
Ryanair had secured permission to appeal the decision to the Supreme Court but has decided not to pursue this.
Paul Smith, consumer director at the UK Civil Aviation Authority said: "The Civil Aviation Authority undertook enforcement action against Ryanair due to the belief that strike action by airline staff does not constitute an 'extraordinary circumstance' and, as such, affected passengers should be entitled to compensation where this results in the delay or short notice cancellation of their flight.”
“The judgment by the Court of Appeal supported this view.”
“Ryanair's decision to discontinue the Supreme Court appeal of the Court of Appeal judgment means that affected passengers will now be able to make a claim for compensation from Ryanair if they were impacted by strike action taken by Ryanair pilots in 2018 and we would encourage all passengers on flights that were affected to claim the compensation they are entitled to” he said.
At the time of the disruption, passengers whose short-haul flights to or from UK airports were cancelled within 14 days of the departure date were entitled to up to €250 of compensation based on the timings of alternative flights offered.
7.11am: UK GDP rebounds in October
The UK economy grew in October by 0.5% rebounding from a fall of 0.6% in in September 2022, which was affected by the additional bank holiday for the State Funeral of HM Queen Elizabeth II.
The figure was slightly better than City forecasts for a rise of 0.4%.
Looking at the broader picture, GDP fell by 0.3% in the three months to October compared with the three months to July.
GDP grew 0.5% in October, following a fall of 0.6% in September.However, over the last three months as a whole, the economy fell 0.3%.
➡️ https://t.co/lwx4LuzmjP pic.twitter.com/YBmr67b2ln
— Office for National Statistics (ONS) (@ONS) December 12, 2022
The services sector grew by 0.6% in October, after falling by 0.8% in September; the largest contribution to the growth came from wholesale and retail trade; repair of motor vehicles and motorcycles, which rose by 1.9% in the month.
Output in consumer-facing services grew by 1.2% in October, after falls of 1.7% in September and 1.6% in August.
Production remained broadly flat in October, after growth of 0.2% in September; manufacturing was the only sub-sector to contribute positively to production in October, offset by negative contributions from electricity, gas, steam and air conditioning supply, and water supply, sewerage, waste management and remediation activities.
The construction sector grew by 0.8% in October; this is its fourth consecutive increase after growths of 0.4% in September, 0.6% in August and 0.2% in July.
7.00am: Footsie seen lower eyeing central bank moves
FTSE 100 expected to open lower on Monday ahead of a busy week of central bank announcements from the ECB, the Bank of England and the Federal Reserve.
Spread betting companies are calling the lead index down by around 21 points.
US stocks finished the trading week lower on Friday after hotter-than-expected producer price index data for November sparked further Federal Reserve interest rate hike fears.
At the close, the Dow lost 305 points to 33,476, while the S&P 500 eased 29 points at 3,934 and the tech-heavy Nasdaq fell 77 points to 11,005.
“This late Friday slide in the US looks set to weigh on today’s European open” said Michael Hewson chief market analyst at CMC Markets UK.
“We have an absolute avalanche of data announcements this week not only from the US, but also the UK, starting today with the latest monthly GDP numbers for October, as well as industrial and manufacturing production numbers, which are expected to show that the UK economy is in a poor state of health, despite low levels of unemployment” noted Hewson.