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16:45 Fri 14 Apr 2023
At the close, the FTSE 100 was once again in positive territory, finishing the day up 0.4% to close the week at 7,872 points
At the close, the FTSE 100 was once again in positive territory, finishing the day up 0.4% to close the week at 7,872 points.
The UK’s blue-chip index echoed European markets and ended the week with more gains.
“The FTSE 100 and other European indices have rounded off the week with some more gains, taking their cue from better US earnings which show that the banking crisis of March is now a memory,” IG’s Chris Beauchamp said.
“In London bank stocks have been the chief gainers, leading the way higher for the index as a whole, backed up a host of UK focussed names that have been the beneficiaries of a more optimistic outlook on the UK economy, a view backed up by the strength of sterling.”
Economists at Bank of America (BofA) are forecasting that UK consumer price inflation will drop to 3.8% by October, a big slide from February’s rate of 10.4%.
Nevertheless, they think that whether the Bank of England will hike interest rates again in May is a “close call” as demand is holding up better than expected following February’s inflation rise surprise.
The BofA economists see the consumer price index slowing to 10% in March, then to 7.6% in April, and down to 3.8% by October.
“We can be confident that inflation will fall sharply because utilities, petrol, food and goods account for the majority of inflation, and the drivers of those components point to slowing sequential inflation,” they noted.
However, a drop in inflation to 3% would be the “easy” part, thanks to base effects, while getting below that pace of increases would be harder and take longer, the economists think.
Indeed, as a result of the slight firming in wholesale energy costs, the BofA economists raised its forecast for CPI inflation in 2023 by 30 basis points to 6.6%. The forecast for the retail price index was bumped up by 10 basis points or one-tenth of a percentage point to 8.7%.
The FTSE 100 index eased further from highs as US stock indexes retreated as investors assessed more economic data.
The University of Michigan’s closely-watched headline US consumer confidence index came in at 63.5 for mid-April, which was up from 62.0 at the end of March, confounding forecasts for a fall to 61.8.
A sub-index tracking views on current economic conditions rose to 68.6 from 66.3, while that for expectations edged up from 59.2 to 60.3. Inflation expectations looking 12 months ahead, however, jumped from 3.6% to 4.6%.
Joanne Hsu, the survey’s director, commented: “While consumers have noted the easing of inflation among durable goods and cars, they still expect high inflation to persist, at least in the short run. On net, consumers did not perceive material changes in the economic environment in April.”
“Uncertainty over short-run inflation expectations continues to be notably elevated, indicating that the recent volatility in expected year-ahead inflation is likely to continue,” Hsu added.
Oil prices were higher, on course for a fourth straight week of gains after the International Energy Agency (IEA) said it expected global demand to rise to a record high this year on the back of a recovery in Chinese consumption.
Brent crude futures were up 05% to $83.10 a barrel, while West Texas Intermediate (WTI) crude futures added 0.8% at $82.92. Brent is set to post around a 1.8% weekly gain, while WTI was up 2.75%.
In its monthly report on Friday, the IEA said world oil demand is set to grow by 2 million barrels per day (bpd) in 2023 to a record 101.9 million bpd, driven in most part by stronger Chinese consumption after the lifting of COVID restrictions. Jet fuel demand accounts for 57% of the 2023 gains, it added.
The IEA also warned that the surprise output cuts announced by OPEC+ producers last week could exacerbate an oil supply deficit and hurt consumers.
The FTSE 100 index hovered around the 7,900 level as US stock indexes edged higher on Friday as investors digested weaker retail sales data and a big batch of US banking earnings.
Around 15 minutes after the New York open, the Dow Jones Industrial Average was up 34 points, or 0.1% at 34,064, while the broader S&P 500 index added 0.2%, and the tech-laden Nasdaq Composite was up 0.1%.
Shares of JPMorgan, Citigroup and BlackRock had added 6.2%, 3% and 1.6% respectively just after the market open.
FOREX.com market analyst Fiona Cincotta said this quarter’s bank earnings were under the spotlight more than usual given the recent turmoil in the sector.
“While the fallout was contained quickly and fears of a more serious financial crisis had eased, the market is looking to these earnings for any further clues of cracks in the sector,” she said.
“Stronger-than-expected results from Citigroup and Wells Fargo, plus JP Morgan crushing estimates, have helped ease those concerns.”
Meanwhile, US retail sales fell more than expected in March, down 1% month-over-month, continuing the trend of softening US data seen this week.
US retail sales fell by a seasonally adjusted 1% in March from the prior month, the Commerce Department said on Friday. Sales were revised in February to a milder 0.2% decline from a previous estimate of down 0.4%.
Commenting on the data, Ryan Brandham, head of Global Capital Markets, North America at Validus Risk Management, said: “Headline numbers were weaker than expected, coming in 1% down MoM and continuing the recent market theme of softening US data.
“Excluding autos, gas and the control group, the numbers were stronger than expected, which may cloud the market reaction and potential positioning squaring into the weekend by market participants.”
Citigroup Inc completes the trio of big US banking results today, with its shares climbing after the lender reported first-quarter earnings which beat Wall Street estimates handily on the back of rising net income and better-than-expected revenue.
For the period ended March 31, 2023, the New York-based banking giant reported earnings of $2.19 per share on revenue of $21.45 billion, compared to the consensus earnings estimate of $1.66 per share on revenue of $20.1 billion.
Investors reacted to the news, sending Citigroup shares up 0.81% to $47.30 in pre-market trading session.
Spectral MD Holdings Ltd (AIM:SMD) shot up a further 22% following yesterday’s announcement of a reverse merger into a Nasdaq-listed SPAC that will see the medtech company delist from AIM
Kodal Minerals PLC (AIM:KOD) added 17% on news that Chinese authorities have approved the US$118mln funding package from Hainan Mining for development of the Bougouni Lithium Project.
Bradda Head Lithium Limited (AIM:BHL, OTCQB:BHLIF, TSX-V:BHLI) rallied 24% to 6p after the North America-focused lithium development company announced the 100% acquisition of three inlier lode claims in the middle of its Central San Domingo claim block in Arizona.
Van Elle Holdings PLC (AIM:VANL) (Van Elle Holdings PLC (AIM:VANL)) saw its shares tumble 8.7% to 45.67p in early deals on Friday after the ground engineering contractor pointed to a softening in trading and investment delays since the half-year end.
Mirriad Advertising PLC (AIM:MIRI, OTCQX:MMDDF) plummed by a third to 0.96p after providing an update on the strategic review and formal sale process announced in January. The board has concluded that there is no prospect for an offer and has accordingly decided to terminate the formal sale process.
Wall Street is likely to give back some of Thursday’s strong gains when the market opens as investors anticipate the first quarterly earnings from the US’s largest financial institutions since the failure of Silicon Valley Bank and Signature Bank in early March, while the latest retail sales numbers will give further insight into the health of the US consumer.
Futures for the Dow Jones Industrial Average (DJIA) were up 0.1% in pre-market trading while those for the broader S&P 500 index were flat at 0.04% down and contracts for the Nasdaq-100 shed 0.47%.
The US benchmarks rallied on Thursday after the Producer Price Index (PPI) for March came in lower than expected, boosting hopes that the US Fed could put a pause on rate hikes next month.
That followed Wednesday’s Consumer Price Index (CPI) release which revealed sticky core inflation. The Nasdaq jumped 2% to 12,166, while the DJIA gained 1.1% to 34,030 and the S&P 500 added 1.3% at 4,146.
“Another big fall in US inflation, this time in headline PPI for March as well as core prices is fuelling optimism that we could start to see a similar effect filter down into the CPI numbers in the coming months, thus bringing us closer to possible rate cuts later this year,” commented Michael Hewson, chief market analyst at CMC Markets UK.
“This may well be true, however with the US labour market still holding up reasonably well it’s hard to imagine the Federal Reserve will be in any rush to cut rates while the US economy continues to hold up reasonably well on the jobs front.”
March’s retail sales number will indicate how consumer sentiment has fared in the wake of the banking turmoil, with the latest US retail sales numbers, along with the latest first-quarter updates from JPMorgan, Citigroup, and Wells Fargo, Hewson noted.
“After a strong start to the year US retail sales stalled in February slipping -0.4%, in the aftermath of the 3.2% surge seen in January. Personal spending also saw a similar slowdown in the same months, slowing from 2% in January to 0.2% in February,” Hewson added.
“With all the concerns over bank runs in the US during March and consumers shifting their funds from smaller US banks to the biggest ones, consumer confidence managed to hold up pretty well. That doesn’t necessarily mean that we’ll see a similar pickup in retail sales. Expectations are for another weak reading of -0.4%.
“The bigger test, however, will be in how the US banks fared in the first quarter and more importantly, how lending to US businesses and consumers held up during what was a turbulent quarter for the sector,” he said.
FTSE 100 has welcomed positive news among the US banks and looks set to close the week higher.
The index is up 46 points, or 0.59%, to 7,889.
Banks are on top with Standard Chartered, HSBC and Barclays leading the way, up 3.7%, 2.7% and 2.6% respectively.
Wells Fargo and JPMorgan got the US bank earnings season underway, with the sector and wider market hoping it acts as a bellwether for what is to come.
The fourth-largest lender in the US, Wells Fargo, reported a profit of US$4.99bn in the quarter to 31 March, compared with a profit of US$3.79bn in the same period a year earlier.
However, the bank did set aside US$1.2bn to cover potential loan losses, compared to a release of US$787mln a year earlier.
Included in that was a US$643mln increase in the allowance for credit losses that reflected an uptick for commercial real estate loans.
JPMorgan, on the other hand, reported a 52% increase in profit to US$12.6bn in the first quarter, although set-aside provisions rose by 56% to US$2.3bn.
While revenues climbed 80% to US$5.2bn in its consumer and community banking unit, its Wall Street investment arm was weighed down by a damp market for mergers and acquisitions.
FTSE 100 reacted positively to the news and shot up sharply, with the index now up 35 points, or 0.4%, to 7,878.
Lloyds was up 0.7%, Barclays gained 0.9%, Natwest jumped 0.9% and HSBC added 0.3%.
Premier Inn owner Whitbread saw shares gain over 2% to 3,078p after analysts at Peel Hunt upgraded the hotel owner to a Buy from an Add while hiking its target price to 4,000p from 2,850p.
Peel Hunt said the basis for the upgrades is built on a belief that Whitbread will update the market positively with its prelims on 25 April.
Demand for UK budget hotels remains strong with leisure while “white collar” demand is still recovering, Peel Hunt added.
Cost inflation has also reached its peak, the broker said, and Whitbread may see some upside from lower energy costs further down the line, although for this year it is already hedged at 75%.
In the medium term, Peel Hunt believes Whitbread will begin to reap the rewards of its investment in technology in the form of higher revenues and more efficient marketing.
Longer term, Premier Inn Germany is expected to become the largest hotel chain in the country, proving its investment case and becoming a material contributor to profit.
BAE Systems’ £656mln contract extension from The Ministry of Defence to work on its Tempest fighter jet is the latest sign that the UK is pushing forward with the aim of producing the aircraft by 2035.
The funding will build on the research and engineering completed in the first phase of the contract already delivered by the UK Tempest partners, which also include jet engine maker, Rolls-Royce, Leonardo UK and MBDA UK.
The aircraft is designed to be an innovative stealth fighter with supersonic capability and equipped with cutting-edge technologies, including state-of-the-art sensing and protection capabilities.
Shares were little moved on the news, with the stock changing hands at 1,018p.
Food inflation fell slightly to 20.6% in February, the latest CGA figures show.
That figure is below the record high of 22.9% in December, and the CGA said there was “clear evidence” of price increases beginning to slow.
James Ashurst, the chief executive of business management consultancy Prestige Purchasing said that pressure on margins will continue for operators during 2023.
“Although the rate of increase will slow, supplier food prices will continue to increase during the year,” Ashurst said.
Sainsbury’s was down 0.5% to 276p, while Tesco gained 0.7% to 266p.
Supermarkets have long lamented soaring prices, although they have remained coy as to why they have stayed elevated, especially given that commodity prices largely across the board have been falling for the last 12 months.
Prices of key ingredients, such as wheat, palm oil, and oat are all down significantly over the last 12 months, leaving customers scratching their heads as to why their purse strings are being stretched.
Standard Chartered gained 1.7% to 627p on the bank of an upbeat Jefferies note, making it the second largest riser behind Premier Inn owner Whitbread on the FTSE 100.
Analysts at the US bank said a 22% share pullback since March seems “harsh” in the context of favourable operation trends.
Specifically, Jefferies believes Standard Chartered can improve its return on tangible equity by 4% to 11% in 2024 as revenues grow, the company generates positive operating leverage and extends share buybacks by a further US$3bn.
The broader FTSE 100 was up 0.2% to 7,861.
Prices for iron ore cargoes with a 63.5% iron core content delivery in Tianjin were at US$120, hovering close to the three-month low of US$119.5 touched on 7 April.
Tropical cyclones in Australia missed iron ore export hubs, which eased worries that producers would need to pause shipments.
Elsewhere, lower steel output in China also helped maintain the pressure on prices,
Shares in Rio Tinto were down 0.56%, while BHP gained 0.24%.
Iron ore pellet producer Ferrexpo was up 1.28%, shrugging off the low prices.
FTSE 100 was 20 points, or 0.26%, to 7,863.
The pound hit a 10-month high against the dollar, with £1 getting you US$1.2517.
General US dollar weakness sent sterling higher as it becomes increasingly likely that the Fed will end its fiscal tightening soon.
However, the Bank of England is likely to continue to raise interest rates further to combat inflation, which has remained above 10% in the last six months.
Last week, the central bank’s chief economist Phil Huw said it could not be sure that it had raised interest rates enough to tame inflation.
To murky the waters further, Britain’s GDP ground to a halt in February.
FTSE 100 continued to trade in positive territory, with the index adding 19 points to 7,862 points.
Ocado was on top, up 1.8%, as the online retailer and robotics company experienced some positive read-across from AO World’s results which provided a rosier outlook for purely online players.
Shares in ASOS and Boohoo were both also up, gaining 1.4% and 0.9%.
The white goods online player was able to upgrade profit guidance for the year, expected to come in at the top of the range of £37.5mln.
With a lack of economic news in the UK, all eyes head to the US, with a retail sales announcement set for midday.
However, the major news today likely to impact markets are earnings from US banks.
Today’s results from the likes of JPMorgan and Citigroup are the first since the collapses of SVB and Credit Suisse and will shine the spotlight on the health of lending.
Major bourses across Europe also continued to tread higher as investors are increasingly betting that central banks are about to end their aggressive rate hike policies.
DAX in Germany gained 0.35% on Friday, while the CAC 40 in France continues to break record highs despite the ongoing strikes in the nation, up 0.3%.
Stoxx 600, which represents 600 companies of different sizes across the continent, gained 0.3% while the Spanish Ibex 35 lagged slightly behind its peers, up 0.17%.
Following softer inflation figures from the US earlier in the week, investors have bet on central banks, especially the US Federal Reserve, on ending interest rate hikes.
Singapore, Australia, Canada, India and South Korea are already some of the nations that have halted further hikes, at least for now.
FTSE 100 was up 12 points to 7,854.
FTSE 100 started on the front foot, making gains of 17 points to 7,861.
Fresnillo and Glencore lead the index, up 1.08% and 0.91%, as copper prices continue to hover above US$4.1/lbs.
At the other end, National Grid is dragging the index having shed 1% after it said new government tax treatments are expected to have a “net adverse impact” on its underlying earnings in years to come.
The UK’s introduction of “full expensing” relief for capital expenditure, which runs to March 2026 is set to be “economically neutral” overall to National Grid.
However, the company said the rule changes will result in reduced revenues in UK Electricity Transmission and UK Electricity Distribution businesses, alongside a corresponding increase in deferred tax liabilities calculated to IFRS standards.
These impacts will result in a net adverse effect on statutory and underlying earnings but are not expected to affect the company’s results for the year just gone.
Some news across the broader market, and Superday issued a profit warning after it said sales grew at a pace slower than it had anticipated. The fashion brand added it might turn to the market to raise equity.
Elsewhere online electrical retailer AO World upgraded guidance thanks to positive traction from its efforts to reduce costs and improve margins and expects profits to come in at the top end of £37.5mln.
Gold continues to flirt with year highs as investors await what looks to be a busy day with a raft of US banks releasing earnings, including JPMorgan and Citigroup.
The precious metal reached a year high in trading late yesterday at US$2,048 and has held levels above US$2,040 since.
On the banks, it will be the first time US lenders will have reported earnings in the wake of the SVB and Credit Suisse collapses, with all eyes firmly on how lending to businesses and consumers has held up.
“When JPMorgan reported at the end of its last fiscal year, the bank set aside a rather large reserve build of $1.4bn, as a result of a big increase in credit costs to $2.3bn on the back of a deterioration in the economic outlook, with the bank saying that they have a baseline assumption of a mild recession,” said Michael Hewson, chief market analyst at CMC Markets.
“These concerns can only have risen further in light of recent events with the main focus on this US bank earnings season on how much the recent turmoil has hit the sectors profit numbers, not only in terms of the impact of loan demand, whether it be in mortgages or credit card lending, but also in terms of deposit inflow.”
FTSE 100 is expected to start the final day of the trading week on the front foot with Dechra Pharmaceuticlals PLC in the spotlight after it confirmed receiving a bid approach after the London market close on Thursday.
Spread betting companies are calling London’s lead index up by around 19 points.
Dechra said that it has entered into discussions with private equity firm EQT for a possible cash offer for the veterinary pharmaceutical company.
Under the terms of the possible offer, Dechra shareholders would receive 4,070 pence per ordinary share in cash, around a 49% premium to Thursday’s closing price of 2,733.53p.
Dechra said it has informed EQT that it will recommend the possible offer if EQT announces a firm intention to make an offer.
In the US, stocks marched higher on Thursday, led by technology heavyweights.
The Dow Jones Industrial Average closed up 383.19 points, or 1.1%, at 34,029.69. The S&P 500 firmed 54.27 points, or 1.3%, to 4,146.22, while the Nasdaq Composite surged 236.93 points, or 2.0%, at 12,166.27.
Big-cap tech stocks performed strongly with shares of Amazon up 4.7%, Google-parent Alphabet up 2.7%, while Meta and EV manufacturer Tesla were both up 3.0%.
Back in London and the early focus will be updates from betting firm 888 Holdings and recruitment group, Hays.
While later today the US reporting season gets into swing with results from banking giants Wells Fargo, JPMorgan and Citigroup.
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