Proactive Investors -
- FTSE 100 down but off lows, down 16 points
- UK economy stalls in fourth quarter, avoids recession
- FAB denies "evaluating" bid for Standard Chartered (LON:STAN)
9.38am: Solvency II rules could be fast tracked - reports
The Government is understood to be in talks to speed up the introduction of insurance reforms that would release £100bn for investment after months of clashes over the slow pace of the changes.
The Treasury is in active discussions with the Prudential (LON:PRU) Regulation Authority and insurers to find ways to quicken the process, sources told the Financial Times.
Officials could look to implement the reforms to the EU's Solvency II rules in two stages, it said.
It would see insurers soon allowed to swap the need to hold bonds for assets such as green technology or housing, with other changes such as reporting requirements implemented more slowly.
Shares in life insuers Aviva PLC (LON:AV.) and Legal & General PLC were lower in early exchanges reflecting the weaker market mood while the FTSE 100 is now at 7,894.78, down 16.37 points, or 0.21%.
9.31am: Gains in oil majors limit FTSE falls
The FTSE is still the wrong side of the line but index heavyweights, BP PLC (LON:BP) and Shell (LON:RDSa), are limiting the downside taking the top two positions in the risers in the lead index, up 2.7% and 1.5% respectively.
The gains came as Brent crude futures jumped on Friday after Russia announced its plans to cut output by 500,000 barrels a day in March.
The comments came from Russia’s deputy prime minister Novak who said the country will cut output by 500,000 barrels from March to boost a “recovery in market relations”.
The unexpected move is a retaliation against the European ban on seaborne imports and price caps for Russian oil products, causing a wave of volatility in oil markets.
The international oil benchmark is now up almost 8% this week, as concerns about tight global supplies come at a time when demand is likely to rebound.
Earlier this week, a crucial oil terminal in Turkey suspended operations due to the recent earthquake, while a key oil field in Norway unexpectedly shut down.
Brent crude is currently up 2.5% at $86.56/barrel with the FTSE 100 now at 7,896.03, down 15.12 points, or 0.19%.
9.00am: FTSE down, but off lows
The Footsie remains in negative territory, but off earlier lows, now at 7,899.15, down 12.00, points, or 0.15% following the GDP numbers with Standard Chartered PLC (LSE:STAN) top of the fallers as FAB said it is not evaluating a bid for the London-listed lender.
The Asian-focused bank was also hit by falls in the Hang Seng, which dropped 2%, after a rise in inflation in China unsettled the markets.
Victoria Scholar, head of investment, interactive investor said: “China’s inflation rate jumped to a 3-month high of 2.1% in January versus 1.8% in December but shy of analysts’ expectations for 2.2%.”
She noted “The easing of its covid restrictions and Lunar New Year celebrations boosted demand and provided a tailwind to prices of both food and non-food items.”
But the will they, won’t they story surrounding FAB was the main driver behind the share price move.
Susannah Streeter, head of money and markets, Hargreaves Lansdown (LON:HRGV) noted FAB has large exposure to commercial real estate debt in China, with related impairment charges chipping away at profit's full potential which may “be part of the reason why FAB is for now steering clear.”
She also suggested “it’s also likely to be down to takeover rules. After FAB first announced in January it was stepping away from any offer, a six-month cooling off period kicked in, which means it is not meant to do any more deal work.”
There is “clearly is a great deal of speculation that First Abu Dhabi may move again, once the cooling off period ends in July,” Streeter added.
Elsewhere and Saga PLC (LSE:SAGA) rose 3.4% after it confirmed exclusive discussions with Open Insurance Technologies over the sale of its Acromas Insurance business following recent media coverage.
The firm, which offers cruises, package holidays, insurance, and financial services to the over-50s, is looking to pay down its debt pile.
But news of a new CFO at ASOS (LON:ASOS) failed to impress investors and shares in the fashion retailer lost around 2.8%.
Another share on the way down was JD Sports Fashion PLC (LON:JD) which dipped 1.2% after Germany's Adidas (ETR:ADSGN) flagged that it expects a high single-digit decline in sales this year. Analysts had been a rise of 4% in 2023.
The sports retailer said it is discontinuing the sales of its existing Yeezy stock which could result in a €1.2bn hit this year and a reduction in operating profit of around €500mln.
8.37am: Industrial production improves in December
Industrial production in the UK improved slightly at the end of 2022, data on Friday showed, while manufacturing output stalled, according to the Office for National Statistics (ONS).
According to the ONS, industrial production saw a month-on-month improvement, rising 0.3% in December, after a revised 0.1% increase in November.
"The monthly increase in output resulted from growth in two of the four production sectors, with electricity and gas rising by 5.2% and water supply and sewerage by 0.7%; this was partially offset by mining and quarrying, which fell by 4.6%," ONS said.
From a year before, industrial production was down 4.0% in December, easing slightly from a revised fall of 4.3% the month before.
Manufacturing production was flat on a monthly basis in December, having fallen 0.6% in November.
The manufacture of food products, beverages and tobacco fell 0.12 percentage points but this was offset by a positive contribution of 0.13 percentage points from manufacture of basic pharmaceutical products and pharmaceutical preparations.
8.15am: FTSE heads lower at the open
The FTSE 100 opened lower on Friday as latest figures from the Office for National Statistics showed the UK economy stalled in the fourth quarter with no growth in GDP between October and December although this meant it narrowly avoided going into recession.
At 8.15am London's blue-chip index was at 7,886.10, down 25.05 points, or 0.32%, while the FTSE 250 was down 83.54 points, or 0.41%, at 20,193.80.
Laura Suter, head of personal finance at AJ Bell, commented: “The UK has avoided a recession by the narrowest of margins. The final three months of 2022 brought no growth but no contraction, meaning the UK has dodged the technical definition of a recession by a hair’s breadth.”
“But while we can’t slap the badge of ‘recession’ on the economy, it’s clear the UK is struggling and everyone is feeling the effect of the malaise in the country’s economy. This economic no-man’s land of no contraction or no growth won’t have people celebrating in the street, particularly considering GDP is 0.8% below its pre-pandemic level.”
“December was a gloomy month for the UK’s economy, with Christmas failing to bring the economic boost it usually delivers. The economy contracted by 0.5% in the month, a sharp fall from November’s relatively rosy result of rising by 0.1%. If the UK economy can’t get off the floor in the biggest spending month of the year, January’s figures are likely to paint a pretty bleak picture,” she suggested.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics pointed out the UK is still “the only G7 country in which GDP has not recovered fully yet to its pre-Covid Q4 2019 level.”
“Looking ahead, we continue to expect GDP to decline by almost 1% between Q4 2022 and Q2 2023, in response to the simultaneous tightening of both monetary and fiscal policy, which will squeeze households’ real disposable incomes further, spur businesses to cut employment and investment, and trigger a sharp decline in residential investment,” he added.
Standard Chartered PLC (LSE:STAN) switched from top of the risers to top of the fallers in the FTSE 100 after First Abu Dhabi Bank denied a report on Bloomberg yesterday that it was set to bid for the Asian-focused lender.
In a statement FAB reierated it “is not evaluating a possible offer for Standard Chartered.”
Shares fell 5.9% to 722.40p.
7.56am: UK dodges a recession for now - contraction seen in Q1
A poor December GDP figure makes a first-quarter contraction in output look fairly inevitable, according to ING economist, James Smith.
The figures released earlier by the Office for National Statistics showed the UK economy showed no growth between October and December although Smith said “in truth it’s a quarter where the underlying picture was particularly noisy.”
He explained December’s 0.5% contraction in monthly GDP, which was worse than expected, can be largely blamed on either strikes or, more bizarrely, a lack of Premier League football games in December due to the World Cup.
“That was enough to drive the recreation/entertainment category down almost 8%, though admittedly this is a volatile series,” he pointed out.
So Smith felt that following a couple of months of distortion surrounding the Queen’s funeral last September, it’s hard to discern “the true underlying trend in the economy from this data.”
“The reality is probably a very gradual deterioration in activity levels,” he suggested.
But as the fourth quarter’s weakness was heavily concentrated in December it means the starting point for the first quarter is pretty low, and means we’ll almost certainly get a contraction in the first quarter, Smith predicted.
“Following this data, we’re pencilling in a 0.3-0.4% decline in GDP over that period, and this will probably be followed by a very modest hit in the second quarter too,” he said.
“That suggests recession, or at least a technical one, remains the base case, especially if we include the contraction in the third quarter of last year. But this looks like it is going to be very mild by historical standards, helped of course by the collapse in wholesale gas prices,” Smith thought.
Smith didn’t feel the data would impact policymakers at the Bank of England with more emphasis likely to be placed on the wage and price data next week.
7.37am: ASOS names new interim CFO
ASOS PLC has bolstered its finance team by naming Sean Glithero as interim chief finance officer.
Glithero, who has already joined the business, will take over from Katy Mecklenburgh who leaves in May, until a permanent CFO is appointed.
The retailer said Glithero was a highly experienced CFO with a track record of delivery across a range of digital and fashion businesses.
“During his 28-year finance career, including ten years as a CFO, Sean has led large finance functions at businesses including Auto Trader Group, Funding Circle Holdings and, most recently, MatchesFashion,” the FTSE 250 listed firm said.
ASOS said a reinforced leadership and refreshed culture are core enablers of the company's strategy.
Over the last four months, ASOS has taken action to simplify the decision-making processes within the organisation while also building a stronger new Leadership Team with greater depth in critical areas, it said.
This 12-person team will be focused on the delivery of the Driving Change initiatives with 75% of these roles now filled.
7.21am: First Abu Dhabi Bank denies Stanard Chartered bid reports
First Abu Dhabi Bank (FAB) has denied reports that is set to bid for FTSE 100-listed lender Standard Chartered PLC (LSE:STAN).
The bank reiterated “that it is not evaluating a possible offer” for the Asian-focused bank after a report on Bloomberg yesterday said FAB, which is worth about twice as much as Standard Chartered, was exploring an all-cash bid of in the range of US$30bn to US$35bn, citing sources.
Bloomberg reported: “Under the code name Silver-Foxtrot, officials at the Abu Dhabi bank are working under the radar on a possible bid once a cooling off period required by UK takeover rules elapses, according to people familiar with the matter.
But in a statement to the London Stock Exchange FAB denied this was the case.
In January, shares in Standard Chartered soared, and then fell in a matter of minutes, as FAB said it had been considering a move for the bank but had decided not to proceed at that time.
7.07am: UK narrowly avoids recession but economy stalls in fourth quarter
The UK avoided a technical recession in the fourth quarter but a 0.5% fall in December meant there was no growth between October and December, according to figures from the Office for National Statistics (ONS).
GDP was flat (0.0% growth) in Quarter 4 (Oct to Dec) 2022:▪️ services saw 0.0% growth
▪️ production fell 0.2%
▪️ construction saw 0.3% growth
➡️ https://t.co/xc7Gc9nZeq pic.twitter.com/n51FBeRQkl
— Office for National Statistics (ONS) (@ONS) February 10, 2023
November’s figure was unrevised at growth of 0.1%.
The economy had shrunk by 0.3% between July and September.
A recession is typically defined as when the economy shrinks for two consecutive quarters.
In output terms, the services sector slowed to flat output on the quarter driven by falls in the education, and transport and storage sub-sectors.
Elsewhere, growth of 0.3% in construction was offset by a 0.2% fall in the production sector in the quarter.
In expenditure terms, growth in real household expenditure, government expenditure and gross fixed capital formation was offset by a fall in international trade flows.
Compared with the same quarter a year ago, the implied GDP deflator rose by 6.6%, primarily reflecting higher cost pressures faced by households.
The level of quarterly GDP in the quarter is now 0.8% below its pre-coronavirus (COVID-19) level, the ONS said.
6.57am: FTSE set to open lower, GDP figures awaited
FTSE 100 is expected to open Friday on the backfoot after the record breaking exploits of yesterday with the big question will the UK avoid a technical recession.
Spread betting companies are calling the lead index down by around 26 points ahead of the latest GDP figures which will show whether the UK economy contracted for a second quarter in a row.
Michael Hewson chief market analyst at CMC Markets UK said: “Whatever the outcome of today’s GDP numbers it’s likely to be a close-run thing, but with the September decline of -0.8% set to drop out of the rolling 3-month numbers the UK might avoid a technical recession, depending on how the economy performs in December, with monthly GDP expected to contract by -0.3%.”
“What we do know is that any growth is likely to be anaemic, and 2023 is still likely to be very challenging,” he added.
In the US, the Dow closed Thursday down 249 points, 0.7%, at 33,670, the Nasdaq Composite lost 121 points, 1%, to 11,790 and the S&P 500 dropped 36 points, 0.9%, to 4,082. The benchmarks all ended lower after starting the session in the green.
In Asia on Friday, the Nikkei 225 index closed up 0.3%, while the Shanghai Composite index was down 0.3% and the Hang Seng in Hong Kong shed 2.0%. The S&P/ASX 200 in Sydney closed down 0.8%.
On the corporate front, a trading statement from speciality chemicals firm Victrex (LON:VCTX) and annual results from insurer Lancashire Holdings are in the diary.