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Index climbs 100 points after Fed rate cut, Next and Ocado hike guidance

Published 19/09/2024, 11:22
© Reuters.  FTSE 100 live: Index climbs 100 points after Fed rate cut, Next and Ocado hike guidance
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Proactive Investors -

  • FTSE 100 climbs 100 points
  • Pound rises as US Fed cuts rates by 50bps
  • Next and Ocado (LON:OCDO) hike full-year guidance

What to watch in the Bank of England decision

The Bank of England's monetary policy committee (MPC) decision is due in less than an hour, with no press conference afterwards.

Rate setters delivered an initial rate cut at their previous meeting in August, but it was a close 5-4 vote in favour.

"This time around it’s widely expected that they’ll leave rates unchanged at 5%," said Deutsche Bank (ETR:DBKGn).

DB’s UK economist said the particularly interesting feature of today’s decision will be the vote on the pace of quantitative tightening for the next 12 months, to reduce the size of the bank's bloated balance sheet.

He thinks that there’ll be a QT increase of around a wider range between £107-127 billion, implying a quarterly sales target of £5-10 billion from the current £100 billion envelope.

With no press conference today, Kathleen Brooks at XTB said "traders will be parsing the BOE’s statement and minutes from this meeting, to see what the BOE could do next".

As well as the QT another thing worth watching is the UK’ s growth outlook, which "could take the shine off sterling".

If the rate of QT is tightened it "looks like the BOE will be giving with one hand (expected future rate cuts) and taking away with another (reducing the money supply)", she says, predicting the reaction to the MPC decision could be mild.

Francesco Pesole at ING said there is a notion that the BoE is treading more carefully than the Fed, and in general not giving away much in terms of guidance, which he says "is contributing to gilt underperformance and ultimately GBP strength.

"That shouldn’t change after today’s meeting. Some focus will be on the plans for quantitative tightening, which will be announced today. The consensus is probably for the pace of balance sheet reduction to be kept the same (£100bn over the next year)."

Pesole and his colleagues think GBP/USD "can end the week higher" on the back of the Fed-BoE divergence, attempting another break above $1.33.

"EUR/GBP could slip back below 0.8400 after the BoE, but we remain more reluctant to a sustainable outperformance of the pound over the euro beyond the near term."

CMA expenses

The Competition and Markets Authority staff have been filing some hefty expenses claims, including £25,000 for two staff to take business class flights and stay in a hotel for a conference in San Francisco and £177 on a taxi fare in Durham.

Expenses logs for the antitrust watchdog have been highlighted by Financial News this morning, with chief executive Sarah Cardell responsible for the San Fran conference as well as another £6,500 on US flights, and technology chief Karen Croxson expensing over £11,000 for the trip to San Francisco, plus almost £7,000 on another US trip.

Conference organisers reimbursed a portion of the costs for CMA staff.

Another senior CMA staffer expensed for “funeral attendance”.

FTSE 100 is soaring

The FTSE 100 is soaring now, up 91 points or 1.1% to 8,344.7.

Top of the leaderboard is Burberry Group PLC (LON:BRBY), up almost 5%, followed by JD Sports Fashion PLC (LON:JD) at 4.5%.

US-focused equipment hire group Ashtead Group PLC (LON:AHT) and a group of miners, led by Anglo American PLC (LON:AAL), are next.

Analysts at Saxo noted that China is "widely expected" to trim its main lending rates on Friday, which may be seen as a boost for luxury stocks like Burberry that generate a large proportion of sales from Asia, and also miners with China being the biggest importer of metals.

Also this morning, the pound is up 0.5% against the US dollar at $1.3276 and flat against the euro at £0.8414.

Planning permission at decade low

Planning permissions for new homes in England fell to the lowest in a decade, according to figures from the Home Builders Federation that it said illustrated a "mounting housing crisis".

The housebuilding body said it illustrates "the scale of the challenge the new government faces as it looks to increase housing supply", though Labour has pledged to reform the planning system to stop it being an impediment to building new homes.

In the three months to June, 53,379 homes were approved in England, the lowest quarterly figure since 2014, while approvals across Great Britain fell 12% over the 12 months to June, with social housing approvals down 27%.

“The steep fall in planning permissions starkly illustrates the challenge the new Government faces to boost housing supply,” said Neil Jefferson, HBF chief executive.

Amid higher interest rates he called for "more support for buyers" in the upcoming budget from chancellor Rachel Reeves, as "creating demand for new homes provides the confidence the industry needs to invest and deliver both private and affordable homes".

Sorrell moves to react to challenging ad market

Shares in Sir Martin Sorrell’s S4 Capital PLC (LON:SFOR) have tumbled another 11.5% following a disappointing interim trading update, bringing year-on-year market losses to nearly 50%.

Analyst Jessica Pok at Peel Hunt (LON:PEEL) noted that revenue fell 15.6%, EBITDA declined 17.5% and net debt grew to £183 million from £109 million amidst "ongoing weakness in large tech client spend".

The analysts said she is reducing her LFL net revenue decline from -5% to -11%, leading to a 7% reduction to net revenue estimates, while keeping EBITDA estimate broadly unchanged.

"Despite adding a 'whopper' in the period, the trading environment remains challenging. Management has been swift to react with effective cost-cutting measures that should protect profitability. However, given the backdrop, we retain our Hold rating for now."

Next 'rediscovering mojo'

Next's interim results confirmed that the strong progress already highlighted by the previous sales updates in May and August and "a stronger than hoped for start to H2, as UK weather turned more seasonal", says Jefferies analyst James Grzinic.

"The emergence of new growth drivers are starting to increasingly detach NXT from domestic demand conditions, but it looks like all stars started aligning in recent weeks."

Next share trade at "close to historic cyclical peaks", says Grzinic, but the shares have added 1.3% this morning as the upgrade to guidance today was well received.

"In our mind, historic highs are less of a fundamental impediment as the group rediscovers its growth mojo," the analyst says.

More support needed, say car makers

European automobile manufacturers have urged the EU to "come forward with urgent relief measures", including bringing forward regulation reviews to 2025, after figures showed the continued trend of shrinking market share for battery electric cars.

New car registrations were down 18.3% in August and the battery electric (BEV) market share was down by almost a third.

In August, BEV cars accounted for 14.4% of the EU car market, down from 21% the previous year.

For the seven months to the end of July, fully electric vehicles made up 12.5% of the total of new car registrations in the bloc, the European Automobile Manufacturers’ Association (ACEA) said, which it said "sends an extremely worrying signal".

The auto industry has invested billions in electrification to bring vehicles to market, it noted, but "the other necessary elements for this systemic shift are not in place", the industry body said, with "the rapid erosion of the EU’s competitiveness" a key factor.

“We are missing crucial conditions to reach the necessary boost in production and adoption of zero-emission vehicles: charging and hydrogen refilling infrastructure, as well as a competitive manufacturing environment, affordable green energy, purchase and tax incentives, and a secure supply of raw materials, hydrogen and batteries," it said.

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