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FTSE 100 firmer but off highs, mixed start seen by US stocks

Published 17/04/2023, 13:00
© Reuters.  FTSE 100 firmer but off highs, mixed start seen by US stocks
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Mixed start seen across the pond

Wall Street is likely to open mixed as earnings season gains momentum in a week that will see companies including Johnson & Johnson, Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS), Netflix (NASDAQ:NFLX) and Tesla, among other large blue chips, report quarterly results.

Futures for the Dow Jones Industrial Average rose 0.1% in Monday pre-market trading and those for the broader S&P 500 index also gained 0.1%, while contracts for the Nasdaq-100 slipped back 0.1%.

Despite a positive start to earnings season on Friday as JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) reported strong first-quarter results, all three major US indices closed in the red as expectations for another interest rate hike increased. The DJIA fell 0.4% to 33,886, while the S&P 500 finished 0.2% lower at 4,138 and the Nasdaq closed 0.4% down at 12,123.

“A robust early showing from US banks could not prevent a market slip as economic data pointed to the near certainty of another Federal Reserve interest rate hike in May,” commented Richard Hunter, head of markets at interactive investor. “The initial relief was palpable as reports from several banks suggested that the recent banking turmoil was not systemic and rather more applicable to smaller, regional banks."

Comments from JPMorgan that consumers were still spending and that businesses remained in good shape were “somewhat undone” by March’s retail sales report which showed a decline of 1% in March, as compared by an expected dip of 0.5%, Hunter said.

“While some of the fall was attributed to the lower cost of fuel, nerves remain on edge towards the consumer, which is a major driver of economic growth in the US, and any softness in further releases could presage a recession to come,” he added.”Meanwhile, an indicator of consumer sentiment saw a slight increase in inflation expectations.

Taken together, the economic picture pointed to an almost certain outcome, namely that the Fed will likely pursue its hiking policy with at least one more rise of 0.25% in May.”

Ahead of results from Bank of America and Netflix tomorrow, Charles Schwab (NYSE:SCHW) and State Street Corp (NYSE:STT) report first-quarter results today.

FTSE holds steady

The FTSE 100 has held steady for most of the day but has just dipped below 7,900 now, up 25 points.

Other stocks on the move today include Tesco PLC (LON:TSCO), up 1.2% to 271.40p. UBS reiterated a buy rating but raised its price target to 300p from 280p.

But Vistry PLC moved in the other direction as the same broker put the housebuilder on its sell list.

Shares slipped 1.3% as UBS noted a de-coupling from the sector with the shares trading at the high end of the peer group. The broker did lift its price targett to 725p from 655p.

Rentokil firmed 0.7% helped by Deutsche Bank (ETR:DBKGn) raising its price target to 676p from 600p.

Reiterating a buy, Deutsche analyst Dominic Edridge said he believes that Rentokil has spent significant time and effort in order to minimise the risk from integrating Terminix.

He suggested there is a clear emphasis on delivering each priority in term: starting with Support Functions and IT and only then the Branch network.

"Given Rentokil's fairly aggressive approach to brand integration we believe that network synergies will be towards the top end of our prior forecasts, which when combined with back office synergies implies there could be upside to overall synergies (current guidance: $200mln)," he predicted.

With 600 branches moving to 400 he believes US$125mln of associated synergies appears conservative.

Packaging firms DS Smith and Smurfit Kappa were also on the rise as Jefferies reiterated its positive stace.

The broker is hosting an investor catch up with CEO, Miles Roberts today.

UK rate rises over most economists believe - Bloomberg

The Bank of England will not raise interest rates again, economists think, as inflation is expected to fall back into single digits later this week.

The latest CPI print in the UK will be released on Wednesday and the figures from the Office for National Statistics is expected to reveal that inflation has dipped back below 10% for the first time since August, having unexpectedly risen the previous month.

Such a fall would ramp up pressure on the Bank of England to halt its programme of 11 consecutive interest rate increases, climbing to 4.25% - the highest since 2008.

More than half of economists in a Bloomberg News survey now think Andrew Bailey and other members of the Monetary Policy Committee will refrain from raising interest rates again.

Broker Citi thinks May’s MPC decision is on a “knife-edge.”

It continues to see a pause as more likely but believes the risks remain skewed in a hawkish direction and believes the inflation data will be definitive.

Citi predicts core CPI inflation to fall by 0.4 percentage points from 6.2% in February to 5.8% year-on-year and sees headline CPI inflation declining to 9.7% to 9.8%.

“For the MPC, we think the hawkish risks surrounding the labour market and PMI data are plausibly greater, with an uptick either in vacancies or wages plausibly sufficient to sow sufficient hawkish doubt,” the bank added.

Read more on Proactive Investors UK

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