Proactive Investors - The FTSE 100 remains under pressure with renewed falls in banking stocks dragging the index lower.
The renewed falls came as Deutsche Bank (ETR:DBKGn) came under pressure after a sharp jump in the cost of insuring against the risk of default fuelled concerns about the overall stability of Europe's banks. Prices swung wildly in late trading in the US and the nervous mood has continued into the sesion in Europe.
Credit default swaps, a form of insurance for a company’s bondholders against its default, leapt to 173 basis points on Thursday night from 142 basis points the previous day.
???? BREAKING NEWS ????Deutsche Bank 5 year credit default swaps are going parabolic.
Up from 415BPS to 525BPS up by 110.00BPS today alone.
A default looks to be on the cards for @DeutscheBank pic.twitter.com/nR8Q9ULdqb
— ????☠️ G-MAN ????☠️ (@GavinClimie) March 23, 2023
In London, the FSE 100 is down 1.2%, while in Europe the Dax has slipped 1.6% and in France the Cac-40 has fallen 1.5%.
Standard Chartered (LON:STAN), NatWest (LON:NWG) and Barclays (LON:BARC) are all prominent fallers, down 3.9%, 3.7% and 3.5% respectively.
In Europe, the Euro Stoxx 600 banks index, which contains the region’s biggest lenders, fell 1.9%. Deutsche Bank fell 7.8%, Commerzbank (ETR:CBKG) 4.7%, Société Générale 4% and BNP Paribas (EPA:BNPP) 3.2%.
Bailey calls on business to set prices in line with expected fall in inflation
Bank of England Governor Andrew Bailey urged business leaders to bare in mind inflation is expected to fall sharply this year when setting prices.
Speaking to the BBC’s Today programme Bailey said: “I would say to people who are setting prices. Please understand if we get inflation embedded interest rates will have to go up further.”
“When companies set prices I understand that they have to reflect the costs that they face.”
“But what I would say please is that when we are setting prices in the economy and people are looking forwards we do expect inflation to come down sharply this year and I would just say please bear that in mind.”
Bailey warned otherwise interest rates would rise again if prices continued to increase.
“We’ve got to get inflation down. Inflation is too high at the moment. Now we think that it will fall sharply really from the early summer throughout the rest of the year. And we’re pretty confident about that.”
Bailey spoke to the BBC the day after the BoE raised interest rates to 4.25%, their highest level for 14 years, after stronger than expected inflation figures on Wednesday.
He said he had not yet seen evidence of companies putting up prices more than necessary, and said that he understood they needed to "reflect the costs they face".
Bailey said prospects for the UK economy had improved “and it is reasonable to say that there’s a pretty strong likelihood that we will avoid a recession this year.”
“But we’ve still got to put in place the conditions for much stronger growth in the economy and sustainable growth in the economy.”
FTSE 100 tumbles despite rise in retail sales
The FTSE 100 headed lower at the open on Friday despite a bounce in retail sales as falls in Asia and a volatile session in the US weighed.
At 8.15am London’s lead index was down 69.90 points, or 0.93%, at 7,429.70 while the FTSE 250 fell to 18,577.60, down 152.36 points, or 0.81%.
Retail sales increased by 1.2% in February, following a rise of 0.9% in January (revised from 0.5%) although when compared with the same month a year earlier sales volumes were 3.5% lower.
The figure topped City expectations for a rise of 0.2% and was the biggest monthly rise since October.
The figures were boosted by a rise in non-food stores sales volumes which increased by 2.4% over the month because of strong sales in discount department stores.
But the mood of UK consumers remains subdued according to a survey from GfK.
The closely watched barometer of UK consumer confidence improved by two points in March to minus 36 as ongoing concerns about personal finances remained.
Gabriella Dickens, senior UK economist, at Pantheon Macroeconomics suggested despite the rise in retail sales it was “too soon to claim that a recovery has taken hold.”
She pointed out sales volumes fell in the three months to February by 0.3% compared to the previous three months and noted the GfK survey showed consumer confidence “remains very weak, despite edging up in March.”
She added GfK’s composite index still was in the bottom 3% of all past readings since 1974, and its major purchases index rose by just 4-points to -33, well below its -7 average level in the 2010s.
“All told, then, we think that retail sales likely will merely hold steady in Q2, and then will recover only gradually in the second half of this year,” she concluded.
Shares in TUI AG (LON:TUIT) fell 9.3% after unveiling a €1.8bn fund raising. Europe’s largest tour operator will use the proceeds from the share sale to cut its debt pile and reduce interest costs.
The capital raise will the firm to repay bailout money from the German state, which was a lifeline during the pandemic.
Some €1bn will be cut from Tui’s debt pile, which stood at €3.4bn as of September last year, the company said in a statement. Interest payments will also fall by between €80mln and €90mln.
Pub chain JD Wetherspoon cheered the market as it swung back into profit at the half-year stage. Shares rose 5.9% in early exchanges.
The pub chain’s gregarious chair Tim Martin highlighted the improvement came despite “ferocious” inflationary pressures.
But he noted “Supply or delivery issues have largely disappeared, for now.” For the 26 weeks to January 29, 2023, Wetherspoon’s said like-for-like sales were up 13.0%, compared to the six-month period ended 23 January 2022 and were up 14.9% for the first seven weeks of the second half of the financial year, compared to the same period in 2022.”
Revenue rose to £916.0mln in the period compared to £807.4mln a year ago and the firm a pre-tax profit of £4.6mln was achieved compared to a loss of £26.1mln last time.
Smiths Group (LON:SMIN) was another share on the rise. The engineering firm lifted its full-year forecasts after first-half profit climbed 27% boosted by strong demand for its products from customers in the oil, gas, airports, ports and defence sectors.
For the 12 months to July 31, Smiths said it now expected organic revenue growth of at least 8%, up from guidance given in January for growth of at least 7% after its first-half results beat expectations.
Headline operating profit came in at £241mln for the first-half, 27% higher than the same period last year, and above a consensus forecast, on organic revenue growth which stood at 13.5% in the period.