Proactive Investors -
- FTSE 100 makes strong progress, up 34 points
- Smiths Group (LSE:LON:SMIN) gains after strong third quarter
- US markets expected to open slightly higher
1.01pm: US futures point to modest gains in the US
US stocks are expected to open slightly higher on Friday morning, carrying on a good rally over the past few sessions amid investor optimism surrounding the debt ceiling situation.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) added 0.2%, while those for the S&P 500 also gained 0.2%, and contracts for the Nasdaq-100 rose 0.1%.
The major Wall Street indexes look to extend Thursday's advances which saw the DJIA rise by more than 115 points, or 0.3% to 33,535, while the S&P 500 and Nasdaq Composite jumped 0.9% and 1.5%, respectively, to hit their highest closing levels since August.
Thursday’s moves boosted the major averages’ weekly gains, with the DJIA up 0.7%, while the S&P 500 is ahead 1.8%, and the Nasdaq Composite up 3.3%, with the last two on track for their best weekly performance since March 31, 2023.
News connected to the debt ceiling continues to dominate investors’ attention as June 1, the earliest day the US could default, fast approaches. Comments from House Speaker Kevin McCarthy on Thursday seemed to suggest a potential deal could come as soon as next week.
Friday marks a light day for economic data, although comments from Federal Reserve chair Jerome Powell and New York Fed president John Williams will be eyed given the other focus remains on interest rates.
Richard Hunter, head of Markets at interactive investor, commented: “Growing optimism for a resolution to the debt ceiling negotiations lifted sentiment, although the mood was slightly tempered by question marks over the Federal Reserve’s next move on interest rates.
"The mood music from the politicians involved in brokering a deal to raise the debt ceiling and avoid an unthinkable US default was more positive, with investors reacting with cautious optimism until such time as a deal is finalised. In the meantime, the subject is an unwelcome distraction as the market grapples with the economic direction of the US over the next few months."
He added: "The weekly initial jobless data showed that fewer than expected citizens filed claims, suggesting that the labour market remains tight. The latest reading raises the conflicting issues of whether the economy is headed for a soft landing before the end of the year, but also how the Federal Reserve could react.
"Indeed, comments from several members over recent days have revealed that the Fed’s next decision will remain data-driven, with more inflation data and a non-farm payrolls release both due before the next meeting in June. Speculation had been that the Fed would choose to pause rate hikes at that meeting, but the Fed has clearly not got the memo.
"The possibility of a hike in June has edged higher, although the consensus remains stuck in the 'pause' camp. At the same time, any hopes for an interest rate cut before the end of the year are diminishing rapidly as the spectre of inflation continues to loom large in the Fed’s thinking."
On the corporate front, Ross Stores (NASDAQ:ROST) shares inched lower in overnight trading after the off-price retailer beat on earnings but shared a cautious outlook, while Applied Materials (NASDAQ:AMAT) lost about 1.4% despite an earnings beat.
The tail-end of earnings season continues on Friday with results from Deere and Foot Locker (NYSE:FL) due before the bell.
12.31pm: Semiconductor investment welc ome but "small change"
The government's long awaited national semiconductor strategy has been met with a lukewarm response from industry and commentators amid ongoing shortages.
“The £1 billion committed to developing the domestic semiconductor industry in the UK looks like pocket change compared with the $50 billion and €43 billion recently committed by the US and EU respectively," said AJ Bell's Russ Mould.
The chair of the House of Commons Business Select Committee, Darren Jones, told media the initial £250mln "is a very small amount of subsidy compared to other countries."
"Quite frankly flaccid" is how the founder of the only company in the world capable of making a component to mass produce semiconductor chips described the content.
"It is a long way from addressing the needs of UK chipmakers," Dr Simon Thomas of Paragraf said.
It does not address "any of the fundamental challenges British chipmakers face", Dr Thomas added.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) commented: "As the UK continues to fight to be seen as a high-growth hub, it will be viewed as disappointing that the government’s pockets aren’t deeper."
"The £1bn investment is less than the cost of setting up a microchip factory, or fabrication plant," she explained.
"In that sense, the planned investment could be taken as a token, rather than a steep commitment to the wider industry."
12.15pm: Rising food prices will overtake energy as driving force of inflation
The rising cost of food will overtake the price of energy as the driving force behind inflation over the summer, hitting poorer households the hardest, according to the Resolution Foundation.
The thinktank noted grocery bills that had rocketed by almost 20% during the past year would continue to increase, replacing energy prices that were expected to begin falling over the next few months.
The thinktank said it was not clear that politicians were prepared for another year of food price rises or that “policy debates have caught up with the scale of what is going on”.
Official figures released next Wednesday are predicted to show that the annual rate of inflation fell in April by about two percentage points from the 10.1% figure for March.
The Resolution Foundation’s report, Food for Thought, says food prices are expected to contribute “more to overall inflation than energy” in the months ahead.
Three key findings from our latest report, which explores how the growing role of food prices (up 25% over the past year & a half) means food price shock is set to overtake energy bills as the biggest hit to family finances: https://t.co/xXSY8rMF6r pic.twitter.com/W5jQvi6YC1— Resolution Foundation (@resfoundation) May 19, 2023
“Between March and September 2023, food prices are expected to contribute around 2 percentage points to inflation each month, while the contribution of energy prices is set to fall from 3 percentage points to less than 1,” the report estimates.
11.15am: Dax closes in on all-time high
Over in Europe and the briighter mood has seen the Dax in Frankfurt close in on all-time high.
Currently 100 points higher at 16,263.46, it is within touching of the all-time record of 16,290 high set in November 2021, as investors were encouraged by further signs that inflation was cooling.
The country’s producer price index for April showed that the annual rate of inflation had fallen to 4.1% compared with 6.7% in March.
However, this was still a touch above the 4% expected.
In Paris, the Cac 40 jumped to 7,499.79, up 52.90 points, or 0.71% while back in London the FTSE 100 is up 34 points at 7,776.58.
10.40am: Smiths Group (LSE:SMIN) remains in "good shape" - Jefferies
Smiths Group (LSE:SMIN) remains in the green after what investment bank Jefferies said was "another good update."
The broker expects "another top-line guidance upgrade will likely be well-received by investors, although we are not expecting much change to consensus EBITA post this update."
Analysts at the bank said John Crane (NYSE:CR) & Detection remain the key drivers of growth although both will likely see a moderation of growth in the financial fourth quarter but Flex-Tek growth remained healthy, despite concerns about US construction slowdown.
"The group remains in good shape, but there is also plenty of improvement potential to come, and a strong balance sheet to play with," the broker noted.
Jefferies has a buy rating and 2,040p price target on Smiths. Shares were trading up 0.7% at 1,717p on Friday.
9.51am: UBS expects further gains in sterling
UBS is forecasting further gains in the pound against the US dollar while it expects “more of the same” against the euro.
The Swiss ban pointed out sterling has been the best performing G10 currency against the USD this year but feels there is more to come.
“In our view, more gains are likely over the next 12 months, supported by a still attractive valuation, and a central bank that has recently taken a more hawkish shift.”
“This is in contrast to the US Fed which is likely to hit pause on the rate hiking cycle when it next meets,” UBS said.
The bank thinks although UK inflation is set to fall quickly in the coming months, this is unlikely to convince the Bank of England to pause its hiking cycle.
Taken together with a still cheap valuation, this should continue to attract buyers to the pound, the bank thinks.
UBS has raised its March 2024 forecast for £/$ to $1.35 from $1.33 although it has nudged down its September estimate to $1.29 from $1.31.
The pound is flat against the dollar today at $1.2407.
The broker’s €/£ forecast are little changed at €0.86 for March.
Barring the odd short-lived episode, EURGBP has been rangebound for the past five years, UBS explained.
“Improving economic data, and hawkish central banks are common to both sides of the English channel,” UBS said.
“With little to distinguish between the UK and Eurozone economies, we don’t see that sterling’s valuation discount alone will be enough to drive the EURGBP pair lower.”
“Likewise, we see few catalysts to drive the pair higher in the near term.”
9.22am: C&C CEO steps aside after cider maker takes €25mln charge, shares slide
Over in the FTSE 250 and C&C Group PLC (LSE:CCR) shares have tumbled 17% after it announced a rejig of its leadership team and said it encountered "significant challenges" in implementing a complex enterprise resource planning system upgrade for the Matthew Clark and Bibendum, or MCB, businesses in the UK.
C&C, the owner of cider brands such as Orchard Pig, Magners and Blackthorn said: "The implementation process has taken longer and been significantly more challenging and disruptive than originally envisaged, with a consequent material impact on service and profitability within MCB," the firm commented.
C&C currently expects a one-off impact of around €25mln associated with ERP system disruption in the 2024 financial year, reflecting the cost associated with restoring service levels and lost revenue.
There is expected to be a consequential increase in working capital.
But the company re-affirmed guidance given March and expects to report operating profit of €84mln in the 2023 financial year.
C&C also said CEO David Forde is stepping down with immediate effect and will be succeeded by Patrick McMahon, Group CFO.
Ralph Findlay, Chair, has been appointed Executive Chair to support the management transition. A new CFO is to be appointed.
The FTSE 100 continues to tick along nicely, posting gains of 22 points.
8.55am: Miners underpin gains in London
The FTSE 100 is holding onto its modest gains, now up 17 points, at 7,760.
Richard Hunter, Head of Markets at interactive investor, commented “Growing optimism for a resolution to the debt ceiling negotiations lifted sentiment, although the mood was slightly tempered by question marks over the Federal Reserve’s next move on interest rates.”
Two more Fed officials indicated rate rises may not be done across the pond with markets pricing in an increased likelihood of a further 25 basis point increase next month.
Mining firms are leading the way in London with Anglo American (LON:AAL), Rio Tinto PLC (LSE:LON:RIO) and Glencore (LON:GLEN) taking the top three spots in the lead index with Antofagasta (LON:ANTO) not far behind.
A spike in the oil price supported BP PLC (LSE:LON:BP.) and Shell (LON:RDSa) PLC (LSE:SHEL, NYSE:SHEL), up 1.1% and 0.9% respectively, but Burberry remained out of fashion, falling a further 2.2%, after yesterday’s results.
Elsewhere, shares in Unbound Group PLC (AIM:UBG) fell 20% to a new all-time low of 2.6p after the owner of the Hotter Shoes chain said it was launching a strategic review and simultaneously putting itself up for sale.
8.15am: Bright start in London
The FTSE 100 made steady progress when trading opened Friday encouraged by gains in the US and Asia and an improvement in consumer confidence.
At 8.15am London’s lead index advanced to 7,767.49, up 25.19 points, or 0.33% while the FTSE 250 rose to 19,313.81, up 15.56 points.
US markets rose strongly on growing optimism that a deal on the debt ceiling will be struck, with tech stocks particularly strong.
Top US Republican Kevin McCarthy said he saw "the path" to a breakthrough in talks to avert a looming debt default – suggesting a vote would be possible as early as next week.
Deutsche Bank (ETR:DBKGn) said: “It was quite easy last week to suggest that the debt ceiling was having minimal negative impact on markets.”
“But this week's more positive sentiment on the topic has moved bond markets a lot and sent the S&P 500 and Nasdaq to highest levels since late-August, indicating that maybe more risk was priced in than we thought.”
Back in London and there was a further improvement in consumer confidence in May according to research from GfK.
The widely followed Index rose by three points in May to minus 27, from April’s minus 30., the fourth consecutive increase.
GfK client strategy director Joe Staton said: "The cost-of-living crisis has been part of our daily financial reality for a long time, with double-digit inflation and record high food prices.”
"But despite those pressures, May sees an encouraging three-point uptick in consumer confidence.”
Smiths Group (LSE:SMIN) PLC was an early riser with shares advancing 1.0% after the engineering firm raised guidance for organic revenue growth to 10% for the financial year after a strong third quarter.
The FTSE 100-listed firm said organic revenue rose 13.4% in the nine months to April 30, in line with the 13.5% reported in the first half of the financial year.
“As a result of the Group's continued strong performance, we are raising FY2023 guidance to around 10% organic revenue growth with moderate margin improvement,” the company said in a statement.
Paul Keel, Group Chief Executive, commented: "Q3 was another strong quarter for Smiths, building on the record performance we achieved in the first half.”
Gambling operator Entain PLC (LSE:LON:ENT) was in the news as Business Insider reported the firm was near to closing a deal to buy London-based pricing and analytics company Angstrom Sports.
Citing three people familiar with the discussions, Business Insider said the deal could be worth around $200mln, though the terms have not yet been agreed.
While Angstrom is based in the UK, it focuses mainly on US sports.
Shares slipped 1.3%.
7.50am: Nationwide customers to share in £340mln payout
Nationwide Building Society (LON:NBS) will put £100 into customer accounts after announcing a 40% jump in annual profits.
The UK’s largest building society launched what it called ‘Nationwide Fairer Share Payment’, returning £340mln directly to eligible members, around £100 each.
Kevin Parry, Chairman, Nationwide Building Society, said: “Our financial strength has allowed the Board to declare an inaugural distribution - the Nationwide Fairer Share Payment. Eligible members will receive a £100 payment into their current accounts in June 2023.
The building society intends to make further payments if financial circumstances allow.
Debbie Crosbie, Chief Executive, Nationwide Building Society, said: “We can do this because we’re a building society, not a bank, and our profit is reinvested for our members’ benefit.”
Underlying profit increased to £2,233mln from £1,604mln and statutory profit increased to £2,229mln (2022: £1,597mln) driven by income growth.
Rising interest rates supported growth in total underlying income to £4,673mln (2022: £3,867m) while the net interest margin improved to 1.57% from 1.26%.
7.28am: Smiths Group (LSE:SMIN) lifts guidance after strong third quarter
Smiths Group (LSE:SMIN) PLC has raised guidance for organic revenue growth after reporting a continued strong performance in the third quarter.
The FTSE 100-listed firm said organic revenue rose 13.4% in the nine months to April 30, in line with the 13.5% reported in the first half of the financial year.
“As a result of the Group's continued strong performance, we are raising FY2023 guidance to around 10% organic revenue growth with moderate margin improvement,” the company said in a statement.
Paul Keel, Group Chief Executive, commented: “"Q3 was another strong quarter for Smiths, building on the record performance we achieved in the first half.”
“We've now delivered eight consecutive quarters of growth, enabled by our strategy of accelerating growth, improving execution, and investing in our people.”
The third quarter performance was driven by both good volume and price growth, with strong demand in most end markets.
John Crane continued to see significant demand across all segments, with strong conversion of orderbook to revenue in the quarter while Smiths Detection delivered a particularly strong quarter reflecting the timing of some large original equipment deliveries.
In Flex-Tek, strong growth in the aerospace segment more than offset the expected slowing in the US construction business but Smiths Interconnect declined in the period reflecting softness in some end markets.
7.13am: Consumer confidence improves for fourth month in a row
UK consumer confidence improved in May for the fourth month in a row despite the cost of living crisis but remains low, according to GfK.
The widely followed consumer confidence Index rose by three points in May to minus 27, from April’s minus 30.
GfK client strategy director Joe Staton said: "The cost-of-living crisis has been part of our daily financial reality for a long time, with double-digit inflation and record high food prices.”
"But despite those pressures, May sees an encouraging three-point uptick in consumer confidence.”
"Of course, the headline score of minus 27 means we're still deep in negative territory and a long way from any 'sunny uplands'. However, the overall trajectory this year is positive and might reflect a stronger underlying financial picture across the UK than many would think.
Confidence in personal finances over the coming 12 months saw a "robust" five-point jump to minus 8 – 17 points higher than this time last year.
Expectations for the general economic situation over the next year increased by four points, remaining at a firmly negative minus 30 but 26 points higher than last May.
The major purchase index, an indicator of confidence in buying big ticket items, also rose four points to minus 24, 11 points higher than a year ago.
7.00am: FTSE seen higher after US gains
Good morning. The FTSE 100 is likely to advance when trading starts on Friday after US markets rose strongly into the close on Thursday on growing optimism that a deal on the debt ceiling will be struck, with tech stocks particularly strong.
Spread betting companies are calling London’s lead index up by around 21 points.
The Dow Jones Industrial Average rose 115.14 points, or 0.3%, to 33,535.91. The S&P 500 gained 39.28 points, 0.9%, at 4,198.05 while the Nasdaq Composite jumped 188.27 points, 1.5%, at 12,688.84.
Top US Republican Kevin McCarthy said he saw "the path" to a breakthrough in talks to avert a looming debt default – suggesting a vote would be possible as early as next week.
In Asia, the Nikkei 225 was higher once more in late trading rising 0.7%, taking its gains for the week to 4.2%.
"The outperformance of Japanese markets has taken place almost unnoticed until this week, with the Bank of Japan's currently loose monetary policy helping to underpin recent gains," said Michael Hewson at CMC Markets.
Back in London and the early focus will be results from Smiths Group (LSE:SMIN).