Proactive Investors -
- FTSE 100 down 66 points at 7,657
- House prices rise for third month in a row
- Endeavour Mining (LON:EDV) slumps after sacking CEO
Eurozone inflation creeps higher but still below forecast
Adding to the nerves that rate cut may come later than the market had hoped Eurozone inflation rose to 2.9%, after six months of decelerating price growth.
Ths will no doubt spark questions over how soon the European Central Bank will start cutting interest rates.
The annual rise of consumer prices was up from a more than two-year low of 2.4% per cent in the previous month but was slightly lower than the 3% expected by economists.
#transitory, apparently.Eurozone inflation rose to 2.9 per cent in December https://t.co/Mk9cu6LMrn via @financialtimes
— Richard Yetsenga 叶森 ???????? ???????? ???????? ???????? (@ricyet) January 5, 2024
The reduction of government subsidies on gas, electricity and food that began last year has triggered a re-acceleration of annual inflation in much of Europe.
This has led investors to scale back their bets on the likelihood of the ECB starting rate cuts as early as March.
Endeavour's CEO departure 'near-term headwind'
UBS thinks the termination of Endeavour Mining CEO’s contract is negative for the investment case as Sébastien de Montessus played an important role in shaping EDV (LON:EDV)'s strategy, growth, and development over many years.
The broker believes his relationships with the investment community/key representatives in host countries (Burkina Faso, Senegal & Cote d' Ivoire) have been critical factors in EDV's success.
But it stressed the decision does not impact EDV's operations or its financial position and it does not expect it to alter its exploration focused growth strategy.
UBS said it was a "near-term headwind but unlikely to impact strategy & execution."
UBS questioned how long his named replacement Ian Cockerill would stay in the role and whether it would be long enough to build long-term relationships.
Nonetheless, UBS retained its ‘buy’ rating.
“In our view it is difficult to find good gold companies; but we like EDV's low cost position, good execution track record, organic growth, dividends, exploration upside and believe this offsets elevated country risks that have historically been well managed,” it said.
Morgan Stanley sticks with May rate cut call, risks skewed to later move
The debate over when interest rates will be cut seems to be dominating the mood this week with over optimistic hopes being pared back.
Russ Mould, investment director at AJ Bell noted “rate cuts now look as if they are going to be a story for the middle of the year and that’s prompted investors to temporarily pause for thought, leading to bouts of profit taking from the recent rally.”
Morgan Stanley (NYSE:MS)’s Bruna Skarica is sticking with her call for the first UK rate cut to be in May but admits risks are “skewed towards a later start to BoE cuts.”
She explained this reflected the ‘house call’ for the Fed and the ECB to move in June, not March/April as the market is currently pricing.
In addition, there is less urgency for the BoE to act with receding chances of a deep recession, she believes.
“And finally, while we believe the near-term disinflation story, given last year's sharp increases in prices around April and May (i.e. the start of the fiscal year), the MPC might want to wait for inflation data over 2Q24 before acting,” she said.
“Hence, while we maintain our base case, we judge the risks to be a bit more hawkish than the market pricing currently implies,” Skarica added.
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