Proactive Investors -
- FTSE 100 advances, heading back towards 8,000
- ARM confirms plans to list in the US, shuns London
- UK's service sector returns to growth in February
UK's service sector returns to growth
The UK's service sector returned to growth in February as business activity expands at fastest pace since June 2022, according to the S&P Global/CIPS services PMI report.
At 53.5 in February, up from 48.7 in January, the headline index was above the 50.0 no-change value for the first time in six months with February's data indicating that the UK service sector gained considerable momentum, with business activity and incoming new work both expanding for the first time since August 2022.
Tim Moore, economics director at S&P Global Market Intelligence said: "UK service providers moved back into expansion mode in February as fading recession fears and improving business confidence resulted in the strongest rise in new orders since May 2022."
????????The #UK service sector gained considerable momentum, with business activity and incoming new work both expanding for the first time since August 2022 (headline #PMI at 53.5; Jan: 48.7). Input cost inflation fell to its lowest since June 2021. Read more: https://t.co/dyrtXAp4VT pic.twitter.com/EdkXaHM75y— S&P Global PMI™ (@SPGlobalPMI) March 3, 2023
Mirroring the trend for business activity, service providers indicated that volumes of new work returned to expansion territory during February.
Measured overall, the rate of new business expansion was the strongest since May 2022. Rising export sales contributed to the rebound in total new orders in February.
Higher levels of new work from abroad have been recorded for three months running, with the pace of expansion accelerating throughout this period. Service sector companies often noted stronger demand from clients in the US and western Europe. A modest rise in employment numbers was reported.
Average prices charged by service providers continued to rise sharply in February, and the rate of inflation slowed to a much lesser extent than seen for input costs.
The news supported the FTSE 100 which is just off session highs at 7,961.06, up 17.02 points.
Barclays raises Euro rate expectations
Over in the currency markets and Euro has made early progress against the US dollar after yesterday’s strong inflation data in the Eurozone.
Data showed inflation eased to 8.5% in February but was above the market consensus of 8.2%, while the core rate hit a fresh record high. ECB president Christine Lagarde said that rates will have to rise higher and stay higher for some time to combat inflation.
Barclays has upped its expectations for interest rates in Europe and now expects them to peak at 4% in July.
“We now expect the ECB to raise rates by 50bp in both March and May given the the acceleration in core inflation,” the bank said.
“We expect the June macroeconomic projections to lay the groundwork for a reassessment of the policy stance, justifying a downshifting to 25bp. We forecast a final 25bp in July, for a terminal depo rate of 4%.”
The Euro was up 0.2% against the US dollar at US$1.0616.
Perceived ‘dovish’ comments from Atlanta Fed President Raphael Bostic also supported European currencies. The pound was also higher against the US dollar, up 0.4% at US$1.1994.
ARM confirms plans for US listing
British chip technology firm Arm Holdings, owned by Japan's SoftBank confirmed it would pursue a US-only listing this year, dashing the hopes of the British government that the tech giant would return to the London stock market.
But it did not completely rule out an eventual London listing, saying it intended to consider a subsequent IPO there in due course, without providing further details.
ARM finally confirms it plans (initially at least) to float in NY over London in a massive blow to the UK government’s ambitions to make Britain a “science and technology superpower.”— Katie Prescott (@kprescott) March 3, 2023
ARM chief executive Officer Rene Haas said: "After engagement with the British Government and the Financial Conduct Authority over several months, SoftBank and Arm have determined that pursuing a US-only listing of Arm in 2023 is the best path forward for the company and its stakeholders.”
Sky's Ed Conway reported reaction from the UK government.
Chip design giant Arm is the jewel in the crown of UK tech sector.So its decision to list its shares only in the US, despite energetic lobbying from @RishiSunak & @Jeremy_Hunt is a massive blow. Undermines their promises to make the UK a "new Silicon Valley".
Treasury statement: pic.twitter.com/klSCQrvrq1
— Ed Conway (@EdConwaySky) March 3, 2023
Airlines fly as Lufthansa returns to profit
Stocks in London continue to make headway on Friday with airlines prominent risers in both the FTSE 100 and FTSE 250.
At 9.00am the lead index was at 7,972.36, up 28.32 points, or 0.36% and the broader FTSE 250 stood at 19,919.58, up 67.93 points, or 0.34%.
Sentiment in the sector was lifted by news German carrier Lufthansa returned to profit in 2022 as revenue jumped on doubled passenger numbers, although they remained below pre-pandemic 2019 figures.
The Cologne, Germany-based airline said it made a net profit of €791mln in 2022, from a loss of €2.19bn in 2021. However, this is still 35% lower than a pre-pandemic net profit of €1.21bn achieved in 2019.
Revenue jumped 95% to €32.77bn from €16.81bn and was 10% lower than €36.42bn in 2019. Passenger numbers more than doubled to 101.8mln from 46.9mln, but was 30% below 2019's 145.2mln. The load factor improved to 80% from 62% but was below 83% in 2019.
Shares in Lufthansa jumped 5.5% and helped lift shares in British Airways owner International Consolidated Airlines Group SA by 2% and Wizz Air Holdings PLC by 2.8% and easyJet PLC by 3%.
Elsewhere Pearson fell 2% despite reporting slightly better than expected profits.
Victoria Scholar, head of investment, interactive investor said the lack of a “share buyback announcement is putting pressure on the stock today which is languishing at the bottom of the FTSE 100. Also, a lot of its positive news has already been priced in, weighing on shares in today’s trade.”
Rightmove also remained lower, down 2.5%, after its annual numbers. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) noted the online property website had, “reported a decline in the level of engagement on its site as the housing market cools compared to the pandemic.”
“Consumers paid over 2.3bn visits to the group’s platforms last year, down from 2.5bn.”
She also highlighted a reduction in the number of minutes spent searching for properties.
“This is little surprise given we’ve heard from the major housebuilders who have called out tough mortgage affordability as a reason sales rates are dipping,” she pointed out.
The company itself said it didn’t expect to see a material impact from the slowdown in the property market.
Footise pushes higher
The FTSE 100 made a bright start on Friday taking heart from strong gains in the US and Asia with mining stocks leading the way..
At 8.15am London’s lead index was at 7,957.87, up 13.83 points, or 0.17% while the FTSE 250 advanced to 19,912.18, up 60.53 points, or 0.30%.
In the US, equities rallied late in the session after Atlanta Federal Reserve President Raphael Bostic put the case for a 25 basis point rate increase at the Federal Reserve's next meeting, favouring a slow and steady course of action. He also argued for a pause in raising interest rates in the Summer lifting investor hopes that US rates may not rise as high as feared.
The bright mood continued in Asia where markets rose following better than expected economic data in China. The Caixin services purchasing managers' index rose to 55.0 from 52.9 in January. This was above consensus expectations for a reading of 54.5 and comfortably above the 50.0 mark that separates contraction from expansion.
The good news from China lifted mining and commodity stocks on hopes for increased demand. Rio Tinto Ltd rose 1.6%, Glencore PLC advanced 1.3% and Anglo America gained 1.3%
But results from Rightmove PLC and Pearson PLC failed to inspire investors despite healthy increases in profits at both.
Rightmove said on Friday it does not expect to be materially impacted by the slowing property market other in the “most extreme circumstances.”
The online property website made the forecast as it unveiled a 9% increase in full-year revenue in the 12 months to December 31 to £332.6mln from £304.9mln in 2021 as customers continued to upgrade their packages and increase their use of digital products.
Operating profit rose 7% to £241.3mln from £226.1mln a year ago, earnings per share improved to 23.8p from 21.8p and a final dividend of 5.2p was declared (2021: 4.8p) giving a total payout of 8.5p, up from 7.8p in 2021.
Broker Peel Hunt described the results as "resilient" but noted the forecast operating margin of 73% was slightly lower than the 73.8% achieved in 2022. Shares slipped 1.7%.
Educational publisher Pearson also fell, down 2.3%. Sales increased 12% to £3,841mln (2021: £3,428mln) reflecting underlying performance, portfolio changes and currency movements with operating profit £271mln, up from £183mln in 2021.
The increase in 2022 was driven by operating leverage on revenue growth, property cost savings, and a lower restructuring charge, partially offset by inflation and a reduction in other net gains and losses arising from business acquisitions and disposals, the company said.
Earnings per share reached 32.8p, a big jump from 23.5p a year ago while a final dividend of 14.9p gave a total dividend of 21.5p up from 20.5p.
Elsewhere and utility companies were in focus as the BBC reported energy companies expect the government to change course and maintain its support for households for high gas and electricity bills at or near existing levels after the current package expires in April.
The companies are preparing to amend bills to reflect the current level of support being renewed rather than reduced, the BBC said without naming the companies.
Under the plans announced by the government, its financial help will be scaled back from April, meaning the average energy annual bill will rise to £3,000 per year, up from the current level of £2,500.
Simon French, chief economist at Panmure Gordon, said the chancellor could afford to extend the current energy bill support beyond April.
Speaking on BBC Radio 4 this morning he pointed out that last September, when the energy price guarantee was announced, the wholesale gas price was about three times the level it is today. Shares in Centrica PLC (LSE:LON:CNA), the owner of British Gas, rose 0.5%.
Another utility on the rise was Pennon PLC which advanced 0.8% as Deutsche Bank upgraded its rating to 'hold' from 'sell'.