Proactive Investors - FTSE 100 falls on stubborn inflation, Middle East tensions
The FTSE 100 opened lower after stubborn inflation figures raised the possibility of another interest rate increase by the Bank of England while rising tensions in the Middle East saw the oil price jump once more.
At 8:15am, London’s blue-chip index was down 24.25 points, 0.3%, at 7,650.96 while the FTSE 250 was down 80.28 points, 0.5%, at 17,609.18.
Inflation remained unchanged in September, dashing hopes for a further fall, as rising fuel costs maintained the pressure on the Bank of England to keep interest rates high in its efforts to curb price growth.
The consumer prices index rose by 6.7% in the 12 months to September, the same rate as in August, confounding hopes for a fall to 6.5%, according to figures from the Office for National Statistics.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.1% in the 12 months to September, down from 6.2% in August, compared to forecasts of a fall to 6.0%.
But Nathaniel Casey, investment strategist at wealth manager Evelyn Partners said: “Despite the recent rise in crude oil prices pushing fuel prices higher, and this pause in monthly falls in annual inflation, we think the broad downward trend in inflation remains intact.”
“The cooling labour market conditions are reducing the risks of a wage price spiral materialising.”
Casey noted money markets continue to price in a 50/50 chance of one more rate hike at some point over the coming quarters.
“Regardless of whether they deliver one more hike or not, we’re unlikely to see rate cuts materialise before the tail end of 2024,” Casey added.
In company news, Whitbread (LON:WTB) rose 3% after the Premier Inn boosted the dividend, launched a £300 million share buy-back as it reported better-than-expected profit expectations.
Shore Capital said it was a “strong performance,” and it anticipates “further upgrades to forecasts (our fourth of the year) post today’s update”.
“We continue to see such valuation as too low given the robust trading, leading market position, freehold rich and debt-free estate, attractive return metrics and medium-term opportunities,” the broker said.
Inflation still expected to fall in coming months
Samuel Tombs at Pantheon Macroeconomics said the strength in inflation figures today reflected a sharp, one-off price rise in two components.
Motor fuel prices leapt by 3.6% month-to-month in September, in response to the jump in oil prices, while the education CPI rose by 1.8%, driven by a 6.0% hike in private school and nursery fees, well above last year’s 3.7% increase.
In both cases, September's momentum will not be sustained over the coming months, Tombs said.
By contrast, food prices fell while consumers will also benefit in October from the 7% reduction in Ofgem’s energy price cap, which will subtract 0.3 percentage points from the all-items index.
“All told, then, we continue to think that consumer prices will rise slowly enough over the coming months to drag down the headline rate of CPI inflation to an average rate of 4.5% in Q4 and 4.0% in Q1.”
“Then we expect the headline rate to hover between 2.0% and 3.0% for the rest of 2024. If so, then the MPC needn’t leave Bank Rate at 5.25% for very long next year,” Tombs said.
Barratt Development trading in line, tough market conditions
Barratt Developments PLC (LON:BDEV) said it continued to trade in line with expectations despite a difficult trading environment.
David Thomas, chief executive said: “We have continued to trade in line with the expectations set out in our announcement in September. The trading environment remains difficult, with potential homebuyers still facing mortgage challenges.”
Thomas said against this backdrop the firm is focused on driving revenue whilst continuing to manage build activity and carefully control its cost base.
The housebuilder said between July 1 and October 8, net private reservations per average week were 169 compared to 188 the year before and net private reservations per active outlet per average week were 0.46 against 0.55.
Rising mortgage rates and the absence of Help to Buy reservation activity which accounted for 12% of private reservations in the prior year period, dented figures.
Reflecting the slower reservation rate, total forward sales totalled 9,221 homes, down from 13,314 homes last year.
It continues to expect to deliver total home completions of between 13,250 and 14,250 homes in financial 2024, including c. 650 home completions from JVs and c. 750 completions for the private rental sector.
All other guidance remains unchanged, the firm said.
Barratt said the “outlook for the year remains uncertain with the availability and pricing of mortgages critical to the long-term health of the UK housing market.”
The FTSE 100 housebuilder was updating investors ahead of today’s AGM.
Whitbread hikes dividend 40%, new buy-back
A bullish update from Whitbread PLC which boosted the dividend 40% as it reported strong demand lifted half-year revenue and profits.
The owner of Premier Inn also launched a new £300 million share buyback as it expressed confidence in its hopes for 2024 and beyond.
The firm reported revenue in the first half of the financial year rose 17% to £1.57 billion from £1.35 billion the year before while adjusted pre-tax profit jumped 44% to £391 million from £272 million.
Adjusted basic EPS rose 37% to 146.1p from 107.0p and the interim dividend was increased by 40% to 34.1p from 24.4p.
Premier Inn UK saw total UK accommodation sales 15% ahead of last year and 55% above the first half of 2020, with strong revenue per available room growth in both London and the regions.
UK hotel demand is strong and supply is not now expected to return to pre-pandemic levels for at least five years, Whitbread said, adding it is seeking opportunities to grow its pipeline towards a long-term potential of 125,000 rooms across the UK and Ireland.
UK adjusted pre-tax margins increased to 27.5% from 24.4% and UK return on capital employed improved to 14.9% from 11.0%, well ahead of pre-pandemic levels.
In Germany, the company said it continues to make good progress, reconfirming previous guidance for the year.
Whitbread increased its capex guidance to £500-£550 million from £400-£450 million before but left other guidance unchanged.
“We remain optimistic about the outlook; leisure and business demand remains strong as evidenced by our forward booked position; favourable supply dynamics are set to continue for some time with the continued decline of independent hotels and constrained UK room supply growth,” Whitbread said.