Proactive Investors -
- FTSE 100 continues bullish run, up 45 points
- UK GDP rises unexpectedly in November
- BA's owner, IAG, soars after strong American Airlines (NASDAQ:AAL) numbers
9.30am: FTSE in touching distance of record high
Could the FTSE 100 reach a new all-time high? It’s certainly giving it a good go with another strong rise today, up another 45 points today.
Neil Wilson at markets.com suggested “you have to think bulls will make a charge at it if not today then early next week.”
Today’s gains leave the FTSE in touching distance of its all-time high of 7,903 reached in May 2018 and Wilson pointed out “The UK bluechip index still has valuation on its side, trading around 10x forward earnings vs 15x for global equities.”
He thought the latest gains in the current macro environment “probably reflects a bit of defensiveness among global investors, a hunt for yield, relative cheapness and a weaker pound (in dollar terms we are a long way off the all-time high), a belief the Fed is almost done with rate hikes as inflation peaks, and hopes that China’s reopening will drive the commodity and energy sectors.”
He also noted traders have also pared bets on the peak Bank of England rate to the lowest since November with the top seen at 4.5% - “certainly the BoE is loathe to hike too far and may actually begin cutting this year” he said.
9.15am: Inchcape rises, JP Morgan sees around 50% upside
JP Morgan has given a push to shares in Inchcape PLC (LON:INCH) today restarting coverage with an overweight rating and a June 2024 price target of 1,300p offering upside of around 50%.
The bank has taken a look at the Derco acquisition and thinks “this deal leads to a step-change in Inchcape’s position in the Americas and, in turn, its growth prospects.”
It pointed out the group now has a "leading market position, expedited bolt-on M&A opportunities and access to significant untapped potential in vehicle lifecycle services.”
JPM said the company continues to make progress on strategic objectives and create value for shareholders.
While there are many inefficiencies in the traditional ways of car distribution and the linked value chain, Inchcape is accelerating the digital and data disruption in the industry, in the broker’s opinion.
Shares are 2.5% higher in early exchanges.
9.00am: FTSE and BA owner flying high
FTSE 100 is flying high once more, up 48 points, to 7,842 and British Airways owner, International Consolidated Airlines Group (LON:ICAG) SA (LSE:IAG), is top of the blue chip risers, up 2.8%, boosted by strong results from American Airlines Group (NASDAQ:AAL) Inc. yesterday.
The US airlines share price soared nearly 10% after raising its fourth quarter guidance citing strong demand and high fares boosting others in sector with United Airlines up 7.1%, Delta Air Lines (NYSE:NYSE:DAL) Inc. up 3% and Southwest Airlines (NYSE:NYSE:LUV) Coup 2.5%.
Elsewhere, British Gas owner Centrica PLC (LON:CNA) rose a further 1.5% as Credit Suisse (SIX:CSGN) raised its price target to 135p from 130p and reiterated an outperform rating.
The broker noted that yesterday the company upped its EPS guidance to >30p/share, from c20.6-26p. In reaction, the broker has lifted its EPS forecast to 31.2p (from 24.2p) and forecast an additional c£500mln working capital outflow.
Marks and Spencer Group PLC (LON:MKS) was another early riser, up 1.7%, as the market gave further reaction to yesterday’s trading update.
Citi has increased its price target to 150p from 125p and raised its current year pre-tax profit forecast to £430mln from £410mln.
“We believe M&S's clothing & home growth in store (+12.8%) and online (+0.7%) was ahead of the market (and its peer, Next) in both channels, highlighting the present differential in channel growth as we lap the impact of Omicron” the broker commented.
Elsewhere, DFS Furniture PLC (LSE:DFS) jumped 1.5% as it held its full-year guidance and said current order intake remained strong while ITV PLC (LON:ITV) advanced after it said its new streaming service, ITVX, has boosted the number of hours watched on its websites by over 50%, or 29% if the recent Qatar World Cup was excluded.
8.30am: Vodafone reportedly set to announce job cuts
Vodafone Group PLC (LON:VOD) is reportedly planning to cut several hundred jobs, most of which are located at its London headquarters, according to the Financial Times.
The news comes on the back of the telco’s November announcement that it was seeking cost-saving measures worth €1bn in the wake of a deteriorating market outlook.
Since then, the company's boss, Nick Read has stepped down, after seeing the telecom group's share price nearly halve during his reign.
Vodafone employs about 104,000 people globally and 9,400 people in the UK.
8.23am: GBP seen higher, as USD declines after inflation figures hit the mark
As expected, US inflation eased for the sixth straight month in December, according to Thursday’s data dump.
The greenback, hoping for something hotter, didn’t like this. The US Dollar Index (DXY) ended the Thursday trading session 0.9% lower at 101.86, and it continued falling to 101.83 this morning.
GBP/USD ended 60 pips higher 1.221, though the pair fell back to 1.220 in this morning’s Asia trading window.
Sterling likely felt the pinch from underwhelming gross domestic product figures released today. While a contraction was to be expected, a year-on-year expansion of 0.2% was below market forecasts of 0.3%.
Cable falls back on GDP contraction – Source: capital.com
EUR/USD has a strong session yesterday, having moved to a nine-month high of 1.085, where it has so far remained this morning.
Traders should keep an eye out for the balance of trade figures due later. Forecasts point to a narrower deficit of -€-21.1bn.
EUR/GBP closed 0.4% higher at 88.88p, the strongest position since September 2022, though the pair has fallen 10 pips back to 88.78p this morning.
8.12am: FTSE marches higher
The Footsie has opened above 7,800 maintaining its bright start to the year as it continues to push towards recording a fresh record high, lifted by a better than expected performance by the UK’s economy in November.
At 8.10am London’s blue chip index was up 32 points, at 7,826, while the FTSE 250 rose a more muted 28 points, to 19,869.
UK GDP unexpectedly increased by 0.1% in November, confounding City forecasts for a fall of 0.2%, as the services sector received a boost from the World Cup.
But as Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown (LON:HRGV) pointed out the “broader picture still poses challenges.”
“On a three-monthly basis, the UK still shrank, and a 0.1% gain on a monthly basis smells heavily of stagnation, rather than real growth. The idea that the UK will formally enter a recession soon is still very much a likelihood” she suggested.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said it was hanging in the balance as to whether the UK economy already is in recession, following November’s slightly stronger than anticipated figures.
He calculated GDP would rise by 0.1% on a quarter-on-quarter basis in quarter four, if it was simply unchanged from November’s level in December.
“Put differently, GDP would have to fall by at least 0.4% month-to-month in December, for it to drop by 0.1% quarter-on-quarter” in quarter four, unless the past data are revised.
But a drop of that magnitude in December is “certainly possible” he felt, given that all the main business surveys point to falling production, and both heavy snowfall and, to a lesser extent, rail strikes, are likely to have weighed temporarily on activity.
Looking ahead, he still expects GDP will drop substantially in quarter one and quarter two of 2023.
Michael Hewson, chief market analyst at CMC Markets UK agreed it was likely to be a “close-run thing” as to whether the UK posts negative growth for the quarter.
With September’s “decline of -0.8% set to drop out of the rolling 3-month numbers when the December numbers are released in a months’ time the UK might avoid a technical recession, if this week’s positive retail updates are any indication, but any growth is likely to be pretty anaemic” he suggested.
“Nonetheless today’s numbers do offer some hope the UK economy may be more resilient than first feared, and may give the Bank of England slightly more flexibility when it comes to rate policy” he said.
George Lagarias, chief economist at Mazars suggested we should not “perform a victory lap for the UK economy just yet.”
“The wider picture is that macroeconomic variables have become increasingly unpredictable. We see this trend continuing and possibly exacerbating over the foreseeable future” he said.
Taylor Wimpey PLC (LON:TW.) was little changed after its trading update which confirmed the tough conditions in the UK housing market as indicated by sector peers, Persimmon PLC (LON:PSN) and Barratt Developments PLC (LON:BDEV) earlier in the week.
Inchcape PLC was in favour in early exchanges, up 0.5%, as JP Morgan restarted coverage of the group with an overweight rating and June 2024 price target of 1,300p, offering upside of around 50% but Pennon Group PLC (LON:PNN, OTC:PEGRY) fell 2.3% as Deutsche Bank (ETR:DBKGn) downgraded the stock to sell from hold with a 870p price target..
7.45am: Taylor Wimpey holds guidance
Taylor Wimpey PLC reported the ongoing market uncertainty means that sales remain significantly below levels seen prior to the rise in mortgage rates in quarter three 2022 echoing sentiments from fellow housebuilders Persimmon PLC and Barratt Developments PLC earlier in the week.
In a trading statement the group said it enters 2023 with a lower private order book than in recent years and expects overall volumes to reduce in 2023.
For 2022 group completions for the full year were broadly in line with the prior year and it expects to report full year operating profit in line with expectations.
7.20am: UK economy grows unexpectedly in November
The UK’s economy grew unexpectedly in November, according to the Office for National Statistics (ONS) boosting hopes that the UK could escape a technical recession.
Darren Morgan from the ONS told BBC Radio 4 that for the economy to post a negative quarter GDP would have to fall by 0.6% in December.
Monthly real GDP is estimated to have grown by 0.1% in November 2022, following growth of 0.5% (unrevised) in October although for the three months to November GDP fell 0.3%, although this included a sharp fall in September which was distorted by the Queen’s State Funeral.
Economists had predicted a fall 0f 0.2%.
The services sector grew by 0.2% in November 2022, after growth of 0.7% (revised up from 0.6%) in October; the largest contributions came from administrative and support service activities and information and communication.
Output in consumer-facing services grew by 0.4% in November 2022, following growth of 1.5% (revised up from 1.2%) in October; the largest contribution to growth came from food and beverage service activities in a month where the FIFA World Cup started.
Production output decreased by 0.2% in November 2022, after a fall of 0.1% (revised down from flat) in October; manufacturing was the main driver of negative production growth, partially offset by a positive contribution from mining and quarrying.
The construction sector was flat in November 2022 after growth of 0.4% (revised down from growth of 0.8%) in October.
7.00am: Further gains seen in London
The FTSE 100 is set to start the last trading day of the week on the front foot once more pushing above 7,800 ahead of the latest estimate of the strength of the UK economy and as the US reporting season gathers pace - and just over 100 points from the index's all-time highs.
Spread betting companies are calling London’s blue chip index up by around 18 points.
US markets closed higher as in line inflation figures gave investors encouragement that pricing pressures were falling reducing the pressure on the Federal Reserve to keep hiking rates aggressively.
At the close the Dow Jones Industrial Average was up 216 points, or 0.64%, to 34,189, the S&P 500 was up 13 points, or 0.34%, to 3,983 and the Nasdaq Composite rose for the fifth day in a row, up 69 points, or 0.64%, topping the 11,000 mark at 11,001.
Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank said that
“following two significant downside surprises in October and November, the December print was in line with expectations but still represents an important step in unwinding the pandemic-driven surge in inflation.”
Back in London, and the latest monthly assessment of the UK’s economy is due with November’s figure expected to show a fall in GDP after October’s rise.
A trading update is due from housebuilder Taylor Wimpey PLC but the main corporate interest will be in the US where the results season begins in earnest with reports from Wall Street banking giants including Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), and Citigroup (NYSE:C).
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