Proactive Investors -
- FTSE 100 closes up 3 points at 7,698
- UK GDP falls 0.1% in third quarter, retail sales rise
- JD Sports hit by downbeat Nike (NYSE:NKE) outlook
1:00pm: Merry Christmas from everyone at Proactive
That is all from the market report today, a huge thank you for reading today, and every day.
On behalf of everyone at Proactive we wish you a happy and healthy Christmas.
Keep an eye out over the coming days for our reviews of the year, top stories from 2023 and also check out what our ‘stock experts’ have tipped for 2024.
Proactive’s own stock guru Billy Farrington plugged Nvidia this time last year, up 242% year-to-date, so it’s well worth a read.
12:45pm: FTSE 100 fails to join the festive mood
The FTSE 100 has ended little changed in the shortened pre-Christmas trading session.
At the close, London's blue-chip index was 2.78 points at 7,697.51 while the FTSE 250 climbed 59.98 points, 0.3%, at 19,630.95.
It's been a quiet session but moves of note included JD Sports Fashion , down 5.3%, after the downbeat update from Nike and Harbour Energy (LON:HBR), up 5.5% afer the positive reaction to its $11.2 billion acquisition.
The mixed economic news seems to have been shrugged aside with the dip in GDP a marginal change from before while the jump in retail sales needs to be put in context of huge volatility in these numbers.
12:05pm: US stock futures lower ahead of US inflation data
The FTSE 100 is trading just in the green, in the shortened session and volumes are light.
Traders will be wary of taking large positions ahead of a key inflation report in the US which will likely dictate the path of US stocks today.
In pre-market trading, futures for the Dow Jones Industrial Average were down 0.3%, while those for the S&P 500 were 0.1% lower and contracts for the Nasdaq 100 futures declined 0.2%.
Joshua Mahony at Scope Markets said markets will be firmly focused on the latest core PCE price index data with mixed messages from the Federal Reserve bringing the need for greater clarity over the direction of US inflation.
“The incessant push for Federal Reserve members to rein in expectations over the pace of 2023 rate cuts does pose a risk for markets given the lofty expectations of 150 basis points worth of downside to the Fed funds rate,” he suggested.
The Fed's favoured inflation gauge is expected to tick lower from the October 3.5% reading, he said, but “bulls will hope to see price pressures abate at a faster clip to the benefit of risk assets.”
“Nonetheless, it is abundantly clear that we will not see this gauge fall back to target by the time markets expect to see the Fed cut rates, highlighting the strong chance that current market pricing is somewhat unrealistic.”
On a busy day of economic news, figures for durable goods orders, consumer sentiment and housing will also be released.
Nike is out of favour, down 11% in pre-market trading after it warned of a softer revenue outlook in its second half and that it planned to cut $2bn in costs over the next three years.
11:40am: Rail fares to rise nearly 5% in March
Regulated rail fares in England will rise by nearly 5% in March, the Department for Transport (DfT) said.
The DfT has set a cap of 4.9% for increases to most fares regulated by the Government, which include season tickets on most commuter journeys, some off-peak return tickets on long distance routes and flexible tickets for travel around major cities.
July's RPI measure of inflation, which is traditionally used to determine annual fare rises, was 9.0%.
The previous cap on increases in regulated fares was 5.9%.
Transport Secretary Mark Harper said: "Having met our target of halving inflation across the economy, this is a significant intervention by the Government to cap the increase in rail fares below last year's rise.
Fares will rise on March 3.
11:07am: Prospects brighter for 2024 despite third quarter GDP dip
Martin Beck chief economic advisor to the EY ITEM Club said October's decline in GDP, the growing drag from past rises in interest rates, and industrial action holding back activity “mean the economy in Q4 is likely to flatline at best, with a technical recession a serious possibility.”
But he added prospects for 2024 are improving.
“Inflation is falling faster than had been expected and declines in wholesale gas prices point to a cut in energy bills in the spring, implying a better consumer outlook,” he noted.
Stronger disinflationary pressures are likely to see the Bank of England retreat from its hawkish rhetoric, meaning interest rates could be cut earlier and more significantly than many had been anticipating, he pointed out.
“So, a worse-than-expected performance this year should be balanced by a better outlook for 2024 and 2025,” he reasoned.
Back to the quarter three figures. As The Sun's Business Editor Askey Armstrong pointed out when an economy is chugging along recession is always a possibility.
Simon French at Panmure Gordon said "it's squeaky bum time" as to whether the UK avoids a technical recession or not.
Time will tell.
That's right from @AArmstrong_says - when chugging along at low growth a dip below the line for 2 quarters is a higher possibility. The ledger for Q4 (stronger car production, rebounded retail sales, consumer confidence & services PMI) looks better, but will be "squeaky bum time" https://t.co/QtAYc025eb— Simon French (@shjfrench) December 22, 2023
10:37am: FTSE edges higher, JD Sports continues to wallow
AJ Bell's Danni Hewson said it’s no surprise to see a whole host of retailer’s shares tumbling this morning with JD Sports and Frasers group two of the biggest losers.
“Both are also likely to be feeling the whiplash from Nike’s dismal predictions and its plans to shave a whopping $2 billion of costs in a bid to shore up its finances," she said.
“Sales over the last quarter have looked rather subdued as retailers kept backroom stock levels low and the Chinese consumer turned to domestic competitors as relations between the US and China remained frosty," she noted.
“Nike has an incredibly powerful brand but it has saturated the market, so cutting back on the number of products it makes would seem sensible and could create more hunger for its products from an uber savvy consumer.”
JD Sports continues to struggle, down 5.6%.
10:11am: MS's Gorman reckons markets will "take off" on rate cuts
Morgan Stanley (NYSE:NYSE:MS)’s outgoing chief executive James Gorman thinks financial markets will “take off” once investors are sure that the Federal Reserve has finished lifting interest rates.
Speaking to the Financial Times, Gorman said: ”The shock of the rate increase recently has put a damper on banking deals [and] capital markets deals.”
“And that is [because] everybody doesn’t really know what their cost of financing is.”
“The minute the Federal Reserve has concretely signalled that they’ve stopped raising rates, let alone the point at which they first do a rate cut, these markets will take off,” he added.
Gorman also said the banking system had become much safer in his 14-year tenure, leaving “their own stupidity” as one of the biggest threats still facing banks.
9:36am: Habour Energy's Wintershall deal "compelling"
Harbour Energy remains in demand after the $11.2bn acquisition of Wintershall with shares up a further 3.3% today.
Jefferies described the strategic rationale as “very compelling,” and while there “is a long path to 4Q24 completion, proforma valuation metrics suggest a discount to peers of scale.”
Barclays (LON:BARC) noted it marks the fourth major acquisition in the group's history and as CEO Linda Cook states is the "most transformational step yet in our journey."
It explained that a key part of the Harbour investment case has been to deliver value through acquisitions.
The bank highlighted that Harbour anticipates an increase in the dividend of 5% per share upon completion, with the "potential for additional returns" post completion over and above the base dividend.
The broker noted on the conference call after the deal was announced Cook stated that Harbour remains well placed to look for further potential opportunities, but that this needs to be done with “discipline and patience. “
Cook said on the call "nothing else could compete" with the Wintershall transaction when looking at other opportunities presented in the recent past.
Jefferies said it “would view the Harbour - Wintershall deal as bringing to the market a quite compelling International-focused E&P investment case.”
Barclays rates Harbour Energy ‘overweight’ and Jefferies has a ‘buy’ rating.
9:02am: FTSE 100 off lows in shortened session
The FTSE 100 has rallied from its early lows, down down just 3 points 7,692
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) said the lead index "has caught a mild cold on the final trading day before Christmas," following the drop min GDP."which was slightly worse than expectations of a flat reading."
She noted a drop in services outstripped construction and production.
Personal spending has taken a dive, she pointed out, including on things like jewellery, restaurants and hotels.
The contraction in the economy increases the chances of an official recession coming down the pipes in the new year, "but a lot will rest on just how much of a merry Christmas we’ve had," she added.
8:33am: JD Sports hit by downbeat Nike outlook
JD Sports Fashion PLC (LSE:LON:JD.) and other leading European sportswear retailers fell sharply after Nike gave a downbeat outlook for 2024.
Shares in the US retail giant fell 11.5% in after hours trading after it warned of a "softer" second-half revenue outlook.
Alongside its second quarter results, Nike said it expected full-year revenue to rise about 1% after declines in the current quarter and a modest increase in the subsequent one.
Chief Financial Officer Matt Friend said on the company’s conference call that the new outlook reflects a challenging environment “particularly in Greater China and EMEA.”
He added there are “indications of more cautious consumer behaviour around the world.”
Nike is also planning to cut costs by $2 billion.
Shares in JD Sports slumped 4.9% while adidas and Puma fell 6.0% and 4.8% respectively.
Fraesers Group, which owns Sports Direct (LON:FRAS), is 1.2%.
8:15am: FTSE 100 slips after UK economy shrinks third quarter
The UK is at risk of a mild recession after figures showed economic growth shrank in the third quarter.
At 8:15am, London’s blue-chip index was down 14.04 points, 0.2%, at 7,680.69 while the FTSE 250 was down 33.55 points, 0.2%, at 19,537.42.
The 0.1% fall in real GDP between July and September may mean the mildest of mild recessions started in the third quarter, said Ashley Webb, UK economist at Capital Economics.
“But whether or not there is a small recession, the big picture is that we expect real GDP growth to remain subdued throughout 2024,” Webb added.
Samuel Tombs at Pantheon Macroeconomics think that GDP will hold steady in the fourth quarter, before then rising at an average quarter-on-quarter rate of 0.3% during 2024.
Richard Carter, head of fixed interest research at Quilter (LON:QLT) Cheviot said the figures show "just how much of a strain there currently is on the UK economy."
“Growth is weakening and interest rates are really beginning to bite and while a recession has just been avoided to date, there is no guarantee one will be avoided in 2024," he added.
He said the figures would "ratchet the pressure up on the Bank of England to cut interest rates."
7:54am: HSBC (LON:HSBA)'s Canada sale gets government approval
It’s a quiet morning as you would expect for company news but one big deal is a step closer to completion.
HSBC said the sale of its business in Canada to Royal Bank of Canada (TSX:RY) has been approval from the Canadian minister of finance.
HSBC and RBC announced had announced the agreement in November last year.
Toronto-headquartered RBC will buy all the shares of HSBC Bank Canada for C$3.5 billion in cash.
HSBC expects the deal to close in the first quarter of 2024 which is likely to lead to a special dividend for shareholders.
“HSBC remains committed to considering the payment of a special dividend of USD0.21 per share as a priority use of the proceeds from this sale in the first half of 2024," the Asia-focused lender said.
7:31am: Retail sales bounce back in November
There was better news on retail sales which rebounded in November, according to the ONS.
Retail sales increased by 1.3% last month with October’s figure revised to no growth from a fall of 0.3%.
Economists has predicted growth of 0.4%.
Retail sales increased 1.3% in November 2023, from no growth in October.When we look more broadly, sales fell 0.8% in the three months to November when compared with the previous three months.
➡️ https://t.co/o5Sbq4Djgm pic.twitter.com/ShLqgV9VV6
— Office for National Statistics (ONS) (@ONS) December 22, 2023
For the three months to November, sales fell by 0.8% when compared with the previous three months.
Non-food store sales rose by 2.3% in November, following a 0.2% increase in October boosted by earlier Black Friday sales and wider discounting.
Food store sales rose by 0.8% in November, from an increase of 0.1% in October 2023 while fuel sales rose by 0.6% in November as fuel prices fell.
Non-store retailing (predominantly online retailers) sales rose by 0.2% in November, following a rise of 0.5% in October.
7:12am: UK economy shrank in third quarter
The UK economy shrank int he third quarter increasing the danger of a mild recession, figures showed today.
UK gross domestic product is estimated to have fallen by 0.1% between July to September, revised down from a first estimate of no growth, the Office for National Statistics said.
GDP is estimated to have fallen by 0.1% in Quarter 3 (July to Sept) 2023, revised down from the previous estimate of no growth.Meanwhile GDP is now estimated to have shown no growth in Q2, revised down from the previous estimate of +0.2% growth.
➡️ https://t.co/KjTIdncntf pic.twitter.com/xb7H0dRZKD
— Office for National Statistics (ONS) (@ONS) December 22, 2023
UK GDP is now estimated to have shown no growth in the second quarter (April to June), revised down from a previously estimated increase of 0.2%, while growth in the first quarter was unrevised.
In output terms, there was a 0.2% fall in the services sector in the third quarter, which offset a 0.4% increase in construction output and a 0.1% increase in the production sector.
7:00am: FTSE 100 seen lower ahead of UK GDP and US inflation
The FTSE 100 is expected to open lower on Friday, despite some festive cheer on Wall Street, as investors look ahead to a key US inflation reading and UK GDP and retail sales data.
Spread betting companies are calling London's lead index down by around 16 points after closing down 20.95 points at 7,694.73 on Thursday.
In the US on Thursday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.9%, the S&P 500 up 1.0% and the Nasdaq Composite up 1.3%.
After the London close, investors will be keeping an eye on a key US personal consumption expenditures price index print which is the Federal Reserve's preferred metric of inflation.
Stocks to watch include JD Sports Fashion after a downbeat outlook from Nike.