Proactive Investors -
- FTSE 100 falls after rise in government borrowing
- UK PMI hits 24-month low but expectations improve
- Airlines fly as Deutsche and Liberum raise price targets
9.54am: Eurozone PMI shows growth in January
Better news over in Europe though.
S&P Global's flash PMI rose to 50.2 in January, better than the 49.8 reading predicted by economists and the first time since June that the gauge was above the 50 threshold that separates expansion from contraction.
The #eurozone crept back into growth territory in January, according to preliminary #PMI data (50.2; Dec: 49.3), as services firms signalled a modest recovery in business activity and the downturn in manufacturing eased. Read more: https://t.co/fLNwNvVghO pic.twitter.com/GEys9mgKhu— S&P Global PMI™ (@SPGlobalPMI) January 24, 2023
A variety of factors including slowing inflation, a warmer-than-usual winter in energy-strapped Europe and an easing of supply-chain constraints are fanning optimism in the 20-member currency zone.
Chris Williamson, chief business economist at S&P Global Market Intelligence said that while the steadying of the economy adds to evidence the region might escape a recession, "the region is by no means out of the woods yet".
ING Economics said the figures indicate that the economy is performing better than expected.
“Businesses are experiencing fewer cost pressures than before, but selling prices remain high. For the ECB, this should seal the deal for a 50 basis point hike next week” it suggested.
ING added whether “this is a recession or not is almost semantics at this point.”
9.44am: UK composite PMI hits 24-month low
Not much optimism in the latest UK PMI figures although there was one crumb of comfort.
The headline seasonally adjusted S&P Global/CIPS flash UK PMI composite output index registered 47.8 in January, down from 49.0 in December, and below the neutral 50.0 threshold for the sixth consecutive month – a 24-month low.
????????#UK’s private sector faced the strongest downturn in 2-years as high interest rates and low consumer confidence continue to squeeze household spending. The headline flash #PMI index dropped to 47.8 (Dec: 49.0) @cipsnews. Read more: https://t.co/Jdz8ZhSTP2 pic.twitter.com/gzivPCBgjH— S&P Global PMI™ (@SPGlobalPMI) January 24, 2023
A faster overall drop in private sector output mostly reflected a weaker service sector performance, with business activity falling at the steepest pace for two years (index at 48.0, down from 49.9 in December).
Manufacturing production meanwhile decreased considerably in January (index at 46.6), but the rate of contraction was the least marked since July 2022.
Commenting on data, Chris Williamson, chief business economist at S&P Global Market Intelligence said: “Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession.”
“Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year.”
“Jobs also continued to be lost as firms tightened their belts in the face of these headwinds, though many other firms reported being constrained by an ongoing lack of available labour.”
In an otherwise downbeat survey one positive sign was an improvement in business expectations which continued to rebound following the low point seen in October 2022, with the latest reading pointing to the strongest degree of optimism for eight months.
The improving global economic backdrop and falling inflationary pressures were the main drivers behind the improvement.
9.20am: Deutsche and Liberum lift airline price targets
Airlines were flying high in early exchanges as analysts at Liberum and Deutsche Bank raised price targets across the sector with shares in International Consolidated Airlns Grp SA, the owner of British Airways, Wizz Air Holdings PLC and easyJet PLC all higher.
"The airline industry is in the early stages of recovery from the pandemic" according to Liberum.
Positives are relatively careful capacity growth plans, stabilising jet fuel prices and encouraging forward booking commentary, it said.
Despite the deteriorating macro picture Liberum sees headroom for the demand/supply balance to remain favourable with capacity mostly still below 2019 levels.
"We increase our target prices on easyJet (500p from 430p), IAG (220p from 145p) and Ryanair (LON:RYA) (€17 from €16) and retain our 'buy' recommendations" the broker said.
Over at Deutsche Bank and analysts have also updated their price targets.
In a sector review Deutsche analysts said the key changes have been “higher fares near term.”
Updating its targets the bank said it has assumed the strong pricing environment that was in evidence in the September quarter of 2022 persists throughout quarter four and the first half of 2023.
It also assumed ticket yields that are flat year-on-year for the low cost carriers and -5% year-on-year for the Network Airlines.
The target for easyJet has been hiked to 410p from 330p although it remained a ‘sell’, for IAG (hold) to 180p from 155p and for Wizz Air (hold) to 3,150p from 2,550p.
Shares in IAG advanced 1.5%, easyJet rose 1.9% and Wizz Air jumped 0.5%.
9.05am: Record December borrowing unsettles Footsie
FTSE 100 continued its downbeat start to the day, underperforming its European peers, as a record December UK borrowing number triggered fresh concerns as to the health of the UK’s finances.
Public sector borrowing in December was £27.4bn, ahead of City expectations, and a record number for the month reflecting the cost the energy support package and rising debt interest payments.
Flash PMI figures are also being digested with the UK ‘s latest data due at 9.30am.
Victoria Scholar, head of investment, interactive investor noted: “So far, the French manufacturing flash PMI for January pushed back above the key 50 boom-bust divide to hit 50.8 versus 49.2 in the previous month.”
“However, services fell back to 49.2 hitting a 22-month low from 49.5 in December.”
“Conversely in Germany, services improved from 49.2 to 50.4 surpassing the 50 threshold, while manufacturing slipped back slightly from 47.1 to 47” she pointed out.
Falls in pharmaceuticals weighed on the blue-chip index with AstraZeneca PLC (LSE:NASDAQ:AZN) top of the FTSE 100 fallers and GSK PLC (LSE:GSK, NYSE:GSK) and Haleon PLC (LSE:HLN, NYSE:HLN) also lower, while oil majors and index heavyweights, BP PLC (LON:BP.) and Shell PLC (LON:RDSa) also declined in early exchanges.
Associated British Foods (LON:ABF) remained lower, down 0.7%, despite a strong trading update.
Shares in the Primark owner rose yesterday ahead of the update and analysts at Shore Capital described it as a “sound and moderately encouraging trading statement.”
Elsewhere, shares in Senior PLC (LON:SNR) jumped some 10% in Tuesday’s early deals in London after the aerospace and defense components maker told investors that it expects results for 2022 will beat expectations.
https://www.proactiveinvestors.co.uk/companies/news/1004147/senior-says-it-will-reveal-expectation-beating-full-year-results-1004147.html
Another company on the up was Yü Group PLC (AIM:YU.) which rose more than 10% in Tuesday’s early deals after the corporate energy supplier reported a "record-breaking" performance for 2022, against a backdrop of soaring prices.
The company in a trading update following the close of the year said that its fiscal 2022 had surpassed market expectations.
8.43am: Government borrowing hits record December high
Public sector borrowing (PSNB ex) in December 2022 was £27.4bn, the highest December figure since monthly records began in January 1993, according to figures from the Office for National Statistics (ONS).
The rise which was above City expectations was largely because of a sharp rise in spending on energy support schemes and an increase in debt interest the ONS said.
December’s borrowing was £16.7bn higher than December 2021 and £9.8bn higher than the latest official forecast published by the Office for Budget Responsibility (OBR); largely because of student loans assumptions made by the OBR, the ONS said.
Central government debt interest payable was £17.3bn in December, the highest December figure since monthly records began; the increase largely reflecting the effect of Retail Prices Index changes on index-linked gilts.
In the financial year-to-December 2022, the public sector borrowed £128.1bn, £5.1bn more than that borrowed in the same period last year, but £2.7bn less than forecast by the OBR.
Public sector debt at the end of December 2022 was £2,503.6bn or around 99.5% of GDP with the debt to GDP ratio at levels last seen in the early 1960s.
Susannah Streeter senior investment and markets analyst, Hargreaves Lansdown (LON:HRGV) said: “The government was forced to borrow £27.4 billion in December, the highest figure for the month since records began in 1993. Excruciatingly high debt interest is also taking its toll because index-linked gilts are pegged to scorchingly high RPI inflation.”
“It’s the third month in a row that borrowing has exceeded expectations, and faced with this deteriorating deficit, it will leave the government with no wriggle room for any quick tax giveaways in the March Budget and it’s likely that a very tight grip will be kept on spending.”
8.17am: FTSE 100 dips at the open
The FTSE 100 took a turn for the worse, after a rise in UK borrowing figures, and as investors nervously awaited the latest PMI prints across the globe.
At 8.15am the lead index was down 33 points at 7,752 while the FTSE 250 was up 20 points at 19,823.
Public sector borrowing (PSNB ex) in December 2022 was £27.4bn, the highest December figure since monthly records began in January 1993, largely because of a sharp rise in spending on energy support schemes and an increase in debt interest according to figures from the Office for National Statistics.
Ruth Gregory, senior UK economist at Capital Economics said: "December’s public finances figures provided more evidence that the government’s fiscal position is deteriorating fast."
"And high government spending in the early months of 2022/23 and the pressures from the weakening economy implies borrowing will come in at about £175bn, broadly in line with the OBR’s forecast of £177bn, but a huge £52bn above the 2021/22 total."
But analysts at the EY ITEM Club said although December's outturn for public sector net borrowing was much higher than a year earlier, “the fiscal deficit is running below the OBR's month-by-month forecast, particularly once differences around the treatment of student loans are factored in.”
It added: “The recent fall in energy futures prices is expected to mean that borrowing in 2023-24 is significantly lower than the OBR forecast.”
In company news Associated British Foods PLC (LSE:ABF) was little changed today, after rising yesterday, as it reported strong Christmas sales at Primark.
Richard Hunter, head of markets at interactive investor, said: “The group’s diversity continues to play its part, while Primark is back with a bang given changing shopping habits.”
He noted that as with so many other retailers, especially over the Christmas period, “there has been a marked return to physical shopping.”
Trading updates gave support to Saga PLC which extended yesterday’s gains, rising a further 1.5%, as it said profits would be in line with expectations as the cruise and travel industries continue to recover post-pandemic while investors raised a glass to Marston’s PLC with shares up 5.8% as it reported strong Christmas trading.
Elsewhere and budget airline operators, easyJet PLC and WizzAir PLC, were flying high in the early exchanges as Deutsche Bank raised price targets for both.
7.57am: A merry Christmas at Marston's
Marstons PLC reported like-for-like sales for the 16-weeks to 21 January grew 12.9% compared to last year which was hit by the Omicron variant.
The pub operator said momentum improved throughout the period with sales up 6.8% in the first eight weeks followed by a 19.2% increase in the following eight weeks.
For the five key festive days like-for-like sales were up 26% on last year and 12.9% compared to 2019/20.
Total retail sales in the group's managed and franchised pubs were up 14.0% on last year with drink sales continuing to outperform food sales.
Electricity costs are now hedged for the entirety of fiscal year until the end of September 2023, with no change to earnings guidance, the company said.
Andrew Andrea, CEO, commented: “Our primary focus remains to meet our strategic goals of achieving £1bn sales and reducing our debt to below £1bn with all the subsequent benefits that both of those milestones will bring to our shareholders."
7.40am: AB Foods holds guidance, Saga rallies post-pandemic
A couple of bits of trading news.
Associated British Foods PLC, the owner of Primark, said group revenue for the 16 weeks to 7 January 2023 was £6,698mln, 16% higher at constant currency.
"We continue to encounter significant cost pressures but inflation has become less volatile and recently some commodity costs have declined" the company said, while "consumer spending has proven to be more resilient in this trading period than anticipated at the start of the financial year."
"To date, Primark trading has been good in all our markets and was ahead of expectation. We had a very strong Christmas period" the company added.
AB Foods said Primark sales were up 15% in the 16 weeks to 7 January.
As a result, the FTSE 100-listed group said full year expectations for the group is unchanged with a significant growth in sales, and adjusted operating profit and adjusted EPS lower than the previous financial year.
Saga PLC (LSE:SAGA) said the rebound in cruise and travel revenues, post-pandemic, has continued to drive revenue growth.
As a result, the company which specialises in products and services for people over 50, remains on track to report underlying pre-tax profits between £20mln and £30mln, in line with previous guidance.
In a trading update covering the period from 1 August 2022 to 23 January 2023, Saga said revenue is expected to be between 40% and 50% ahead of last year, driven by the cruise and travel recovery following the Covid crisis.
The company said its Ocean Cruise business achieved strong load factors and per diems in the second half of the year with an encouraging pipeline of bookings.
7.00am: Upbeat start
The FTSE 100 is expected to open slightly higher on Tuesday, after gains in the US and Tokyo and ahead of PMI readings for many of the world's major economies.
Spread betting companies are calling London’s blue chip index up by around 15 points.
In the US the Nasdaq led the charge higher on Monday as the markets looked to start off a busy week of earnings and economic data on a positive note.
At the close, the Dow was up 0.8% at 33,630 points, the S&P 500 gained 1.2% to reach 4,020 and the Nasdaq gained the most - 2% - to close at 11,364 points.
Meanwhile In Tokyo, the Nikkei 225 index rose 1.5%, as preliminary survey results showed the Japanese private sector returned to growth in January.
In London, a trading update from Primark owner Associated British Foods PLC (LON:ABF) will be in focus while flash PMI figures are expected to show a slight improvement in the overall composite figure.
Michael Hewson, chief market analyst at CMC Markets said: “In the UK, manufacturing has struggled over the past three months and looks set to continue to do so, while services have been slightly more resilient.”
“As we head into 2023 the challenges for business will be whether we see new investment, and a pick-up in economic activity, after the rising pessimism seen at the end of last year. Manufacturing is expected to remain subdued at 45.5, while services could slip back from 49.9 to 49.5.”
Over in the US and results are due from tech giant Microsoft Corp (NASDAQ:MSFT).