Proactive Investors -
- FTSE 100 up 24 points at 7,449
- Direct Line jumps, Synthomer (LON:SYNTS) (LSE:SYNT) plunges
- Pets at Home, CVS tumble on CMA probe
Pound weakens after Bailey, US services sector strength
One factor behind the FTSE 100's rally is a further fall in terling with the majority in the lead index dollar earners.
The pound has extended its falls after yesterday’s dovish comments from the Bank of England governor, Andrew Bailey, and strong services sector figures in the US.
Susannah Streeter, head of money and markets at Hargreaves Lansdown (LON:HRGV), said Bailey’s comments are “a glimmer of light for UK borrowers”.
“Comments from Andrew Bailey have sent the pound sharply lower, below $1.25 to a level not seen since June.”
“Speaking to MPs, he said the UK is much nearer now to the top of the cycle.“
“So, not only is the Bank of England forecast to go softer on rate hikes going forward, with this month’s expected increase now potentially the last, the bets are that the Fed might step back on the pedal after a brief pause.”
“This marks a considerable reversal of expectations compared to just a few weeks ago, as data has filtered through showing a sharper weakening of business activity in the UK, while in the US the services sector is still pumping.”
The ISM's services PMI registered 54.5 points in August, up from 52.7 points in July.
This was the eighth month of consecutive growth, ISM noted, while the August read came in above FXStreet-cited consensus of 52.5 points.
James Knightley chief international economist at ING Economics, noted the figures "surprised to the upside" and while not at very high levels are consistent with US growth accelerating in the third quarter.
"There are doubts as to how sustainable this will be, but the rise in the inflation component will keep hawks wary even if they do indeed go with the majority and vote for a pause on rate hikes in two weeks," he felt.
UK firms expect slower price rises
UK businesses expect to raise their prices at a slower rate over the next 12 months, new data from the Bank of England shows.
The BoE’s latest Decision Maker Panel, out today, shows that businesses expect output price inflation to fall over the next year.
Bank of England puts a lot of weight on the DMP survey and its signalling inflation pressures continue to ease. Year ahead inflation expectations down to 4.9% from 5.4%, anticipated wage settlements broadly unchanged though at 5% https://t.co/imgyKhtOfp— Jack Barnett (@__JackBarnett) September 7, 2023
Year-ahead output price inflation was expected to be 4.9% in the three months to August, down 0.5 percentage points compared to the three months to July.
The survey of Chief Financial Officers also found that CPI inflation is forecast to be 4.8% in a year’s time, down from the 5.4% expected a month ago.
Firms expect to raise pay by 5%, the same as last month.
Eurozone growth revised down
The eurozone economy grew by less than first estimated in the second quarter of 2023, according to official data.
According to Eurostat figures, seasonally adjusted gross domestic product in the single currency area increased 0.1% in the second quarter of 2023 from the first quarter. In the first three months of the year, it had also grown 0.1% from the final quarter of 2022.
Euro area #GDP +0.1% in Q2 2023, +0.5% compared with Q2 2022 https://t.co/n24kQF4rK8 pic.twitter.com/lXNN5qUyBW— EU_Eurostat (@EU_Eurostat) September 7, 2023
The second quarter reading was revised downwards from an initial estimate of 0.3%.
On an annual basis, seasonally adjusted GDP rose 0.5% in the second quarter, which was downwardly revised from the previous estimate of 0.6%. This follows the 1.1% annual growth seen in the first quarter.
Whitbread and Flutter in Morgan Stanley (NYSE:NYSE:MS)'s top leisure picks
Morgan Stanley (NYSE:MS) has highlighted its top picks in the leisure sector following a review of data trends over the Summer.
The UK listed stocks it favours are Whitbread (LON:WTB), Flutter (LON:FLTRF), Compass (LON:CPG), SSP (LON:SSPG), Compass (LON:CPG), RyanAir (LON:0RYA) and Wizz Air (LON:WIZZ).
The investment bank noted demand trends are settling down after a period of high turbulence post Covid.
“While this means YoY growth rates are slowing, performance over the summer and Q3 to date is generally tracking stronger than Q2 on a comparable baseline, and stronger than our forecasts,” it noted.
For hotels, RevPAR remains strong across EU/UK/China, and similar in the US in recent weeks, and RevPAR is tracking 200-400bps stronger than Q2 on the same baseline for the hotel stocks MS covers.
For airlines, summer air passenger traffic was solid in Europe and at record levels in the US, and forward capacity plans suggest more passenger growth is expected.
Holiday searches continue to run at /above pre-Covid levels for the tour operators.
Pub & restaurant sales accelerated over June/July (though August likely dipped due to bad weather in Europe), while betting margins look encouraging, the bank said.
“The only real area of weakness is in workplace activity and public transport volumes which were weaker in August, potentially affecting contract caterer,” the bank added.
In hotels, Morgan Stanley (NYSE:MS) likes Accor (EPA:ACCP) (luxury transition, cash return potential, non-core disposals) and Whitbread (UK market share gains, German transition to profit, cash return potential, non-core disposals).
In gambling, it like Flutter (US leadership and profit inflection, cash return potential) and Lottomatica (structural market share opportunity from gaming multichannel, cheap valuation).
In catering, MS likes Compass and SSP (both offering strong contract wins, margin upside, buyback potential).
In airlines the bank likes Ryanair (LON:0RYA) (cash return potential) and WizzAir (industry-leading growth at an undemanding multiple).
All these were rated overweight by Morgan Stanley while Carnival (NYSE:CCL) was kept at underweight.