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FTSE 100 closes higher ahead of Federal Reserve meeting

The focus is now on the Federal Reserve meeting later. The interest rate announcement is set for 7.00pm, UK time
Traders staring at screens
The policy meeting at the Fed is in focus
  • FTSE 100 closes higher

  • Coke top Footsie riser

  • Inmarsat falls to earth on concerns over decline in Maritime revenue

FTSE 100 finished the day in positive territory but not by much as traders await the Fed policy meeting.

The UK premier share index closed up around 23 points, or 0.33% at 7,140.

Meanwhile, FTSE 250 added nearly 110 points to stand at 19,257.

Top riser on Footsie was Coca-Cola HBC (LON: CCH), which fizzed up 5.13% to 2,376p after the drinks titan  reported slightly higher-than-expected quarterly revenue growth.

"Stock markets are mixed as the bullish sentiment in the wake of the US midterms fades," said David Madden, at CMC Markets.

"The European Commission predicts that growth in the eurozone will cool in the next two years.

"The organisation also predicts that the UK economy will see the smallest growth in all of the EU countries in the next two years. Uncertainty over Brexit was cited as reason for the downbeat forecast, but the British economy has outperformed many eurozone nations in recent years, so a cooling of growth isn’t a surprise."

4pm: Footsie ahead 

Of the major European indices, the Footsie was the only one to make ground today ahead of the US interest rate announcement today.

The FTSE 100 was up 29 at 7,146, having flirted with the 7,150 level for most of the day.

The top-three blue-chip performers – Astra (+5.3%), Coca-Cola HBC (+4.6%) and Burberry (+3.4%) – all had trading statements today.

The FTSE 250, which is generally regarded as being more representative of the UK economy, also had a good day, rising 64 points to 19,211, led by Sophos Group PLC (LON:SOPH), which rose 10.2% to 357p, bouncing back from the negative reaction to yesterday’s interims, which saw its shares plummet to 324p from 456p.

Today, Liberum cut its target price for the provider of cloud-enabled end-user and network security solutions but stuck with its ‘buy’ rating.

“With full-year guidance lowered again, we believe markets have lost faith in management's forecasts, sparking the price reaction. We acknowledge that growth may not be as strong as initially expected, but we believe Sophos is not alone in navigating through tough comps [comparatives],” the broker said.

“The company continues to deliver high-quality cybersecurity products and has a substantial billings book to support growth,” the broker added.

At the other end of the FTSE 250, satellite launcher Inmarsat Plc (LON:ISAT) fell to earth after its third-quarter results.

The shares shed 37p, or 8%, at 423.4p after JP Morgan cut its price target to 580p from 615p.

1.45pm:FTSE 100 finds breaching 7,150 a challenge

The 7,150 mark definitely seemed to be some sort of resistance level for the Footsie today.

The FTSE 100 was up 32 at 7,150, having risen as high as 7,154 at one point.

Across the pond, the Dow Jones was expected to open at around 26,134, down 46 points on last night’s close, as investors wait for the Federal Reserve’s interest rate decision, due out at 7.00pm, UK time.

The expectation is that there will be no change to interest rates at this meeting but next month could be another matter...

“The thought of a pre-Christmas rate hike – alongside further raises [sic] in 2019 – is set to drag the Dow Jones lower,” declared Connor Campbell at Spreadex.

“However, that still leaves the larger chunk of its post-election gains intact, with the index at its best levels in nearly a month,” he added, in a glass-half-full sort of way.

Hussein Sayed, the chief market strategist at FXTM, said, “While no rates hikes are expected to take place today, the tone of the statement is what matters”.

“Last week’s employment report showed the economy remained on a solid footing with jobs increasing by 250,000 and wage growth reaching a near decade high; however, the housing market started showing signs of cracks, consumer spending slowed, and business investment decelerated. So, expect the statement to reveal a more doveish than hawkish tilt,” Sayed added.

Today has been dubbed “super Thursday” for retailers, with eight companies making updates.

Recently-listed Theworks.co.uk PLC (LON:WRKS), which describes itself as one of the UK's leading multi-channel specialist retailers of value gifts, arts, crafts, toys, books and stationery, came out top of the heap with an 8.1% increase to 140p.

The retailer posted a 3.8% year-on-year gain in like-for-like sales in the 26 weeks to October 28.

Game Digital PLC (LON:GMD) was not far behind on the leader-board, rising 5.6% to 30.4% after its full-year underlying earnings (EBITDA) rose by over 25%.

The group reported that its adjusted EBITDA for the year was £10.1mln, up 26.3% on the prior year despite a 0.1% decline in revenues to £782.3mln.

Broker Liberum said the video games and hardware flogger was making “strong progress in a tough retail market”.

“Operational efficiencies have realised material costs savings as planned. These, together with an improvement in Events, Esports & Digital, have more than offset the challenges in a tough retail market. Recent trading is encouraging, but we prudently trim our EBITDA forecasts by c.5% given the uncertainty in retail generally. Strong net cash underpins the valuation and continues to support investment to accelerate diversification into additional, long-term revenue streams,” Liberum said.

 

12.45: Top-shares index regains momentum

It looks like the Footsie was, metaphorically, tying its shoelace when it returned close to last night’s level circa 10.40am, as the advance has resumed.

The FTSE 100 was up 22 at 7,151, with banks prominent among the risers.

Clothing and luxury goods firm Burberry Group PLC (LON:BRBY) was back in fashion after its interims were deemed “absolutely fabulous, dahling”.

Excluding the beauty wholesale business which was sold off last October, revenue rose 3% to £1.22bn (H1 17: £1.19bn) in the six months to the end of September, in line with forecasts.

Adjusted operating profits dipped to £178mln (H1 17: £185mln), slightly better than expected, while margins remained steady at 14.6% (H1 17: 14.6%).

“Luxury retailer Burberry’s interim figures today were reassuring if not spectacular. The company said the debut collection from its chief creative officer Riccardo Tisci had received an exceptional response,” said Ian Forrest, an investment research analyst at The Share Centre.

“The figures were slightly better than expected and Burberry’s CEO confirmed that the company was on track to achieve cost savings of £100m and meet expectations for both next year and 2020.

“Despite a sharp drop in the share price over the past two months the shares have still outperformed the market so far this year, and they rose modestly again this morning in response to the results. With the forward price-earnings ratio looking more demanding we continue with our ‘hold’ recommendation for investors who are seeking a balanced return and willing to accept a medium to higher level of risk,” Forrest said.

Naeem Aslam, at thinkmarkets.com, said the update from Burberry proved that hiring the right person for the right job matters a lot.

“What Burberry has realised that it needs to create FOMO [fear of missing out] among its customers and have more limited lines is the way forward,” Aslam suggested.

“In order to create the buzz and keep it going, it needs to be more active on social platforms like Instagram. Burberry still needs to address the growth equation because its competitors like Gucci and LVMH are far ahead of the game. In other words, their growth is nearly in double-digit and Burberry has a lot to catch up,” Aslam claimed.

Elsewhere in the retail sector, Halfords Group plc (LON:HFD) back-pedalled after its interims, shedding 1.8p

Liberum Capital Markets, which rates the shares a ‘buy’, said there were no real surprises in the headline numbers, with full-year guidance confirmed.

“Utilising data, and increasing service location points, points to a much more focussed customer strategy and by exiting non-core stock lines, accompanied by a store refresh programme, should make a customer visit much more specialised and focussed thereby hopefully delivering greater resonation across the UK,” Liberum said.

“Clearly these strategies have to be funded, but the group will not see debt rise above 1x EBITDA [underlying earnings] and the dividend will be maintained. There is ample room to fund prospective M&A [mergers & acquisitions]... as Halfords targets doubling its cycling business. On valuation, the shares are very cheap, trading on a FY1 of 10.8x PE for little-to-no earnings growth, and offer a 5.9% dividend yield. If the plan comes together, earnings growth should be underpinned in the outer years,” Liberum declared.

The shares were down 0.6% at 308.2p.

Gattaca Plc (LON:GATC), the recruitment firm focused on the specialist engineering and technology (information technology & telecoms) sectors, lost one-ninth of its value after reporting a loss for the year just ended.

The statutory loss before tax was £24.9mln, compared to a profit of £11.5mln the year before.

Stripping out the £33mln write-down – a non-cash charge - of the value of goodwill and intangibles associated with the acquisition of Networkers, where the company closed some of its international operations, made the bottom line look better; even so, the underlying profit before tax fell to £12.7mln from £16.1mln the previous year.

11.15am: Footsie falters

The confident morning has turned into a bit of a taciturn, hesitant one with the Footsie barely clinging on to gains.

The blue-chip index was up just 8 points at 7,125, with the slide setting in as it became apparent that US futures were pointing to a soft opening on Wall Street.

“The post-election bounce was strong but short-lived, with US futures slightly in the red ahead of the open as traders turn their attention to today’s central bank announcement,” said Craig Erlam of Oanda.com.

“The first of the week’s two major risk events – from a US perspective – may have passed without any disruption but there’s still one more to come before investors can fully relax. The feared blue tsunami turned out to be more of a shallow wave, which investors are more than content with. Rather than contemplating a possible reversal of tax cuts, we’re weighing up the prospect of infrastructure spending which has bipartisan support; it’s no wonder we saw a relief rally on Wednesday,” Erlam opined.

“The Fed meeting was always the lesser of the two risks but investors will still be following it extremely closely.

“It was Jerome Powell that appeared to be the catalyst for the recent stock market sell-off when he suggested that interest rates were not close to neutral and could become restrictive, which got investors worried about the economic ramifications of such a move. The Fed may seek to clarify this in the statement today, although given the lack of a press conference I wonder whether they will instead hold off and see if the situation settles down on its own,” Erlam continued.

“It would make much more sense, given the recovery we’ve seen in the market, for the Fed to address the interest rate path in December when it is widely expected to raise again. This would give them the opportunity to clarify anything in the press conference that follows and lay out clear plans, alongside the dot plot, for the coming years. Instead today it may just emphasise the cautious and gradual approach to rate hikes,” he said.

To a small extent, the Footsie is being weighed down by Marks & Spencer Group PLC (LON:MKS), which was down 1% at 297.9p after brokers passed judgement on yesterday’s trading update.

HSBC cut its price target for M&S to 285p from 300p and Goldman Sachs trimmed its price target to 265p from 270p.

Lending its support to the Footsie’s faltering advance was AstraZeneca PLC (LON:AZN). The drug giant’s shares were up 1.7% at 5,958p after a trading update covering the three months to the end of September.

“On the face of it these numbers are far from pretty, with profits down 13% and operating profits off 26% - ouch!” exclaimed Nicholas Hyett, an equity analyst at Hargreaves Lansdown.

“But scratch the surface and Astra is far from sickly. Its new drugs are flying off pharmacy shelves, particularly in oncology where the failure of the MYSTIC trial last year is a distant memory.

“Of course actually making and selling your own drugs is a more expensive source of sales than simply selling drugs to rivals, and the loss of externalisation revenue is hitting margins and profits hard. Product sales are some way off making up the shortfall and that’s pushing up an already formidable debt pile.

“The balance sheet isn’t in need of emergency surgery though, and with revenue and profits on an increasingly stable footing things look more manageable. Astra still needs to get debt back under control before it can start growing returns to shareholders, but CEO Pascal Soriot isn’t wrong when he says today is an important day for Astra,” Hyett added.

9.30am: FTSE 100 makes a title at 7,150

The FTSE 100 briefly rose above 7,150 this morning following yesterday’s heavy US gains before experiencing a small nosebleed and retreating a little.

The top-shares index was up 29 at 7,146 after the removal of some political uncertainty in the US following the mid-term elections prompted US investors to pile into equities.

“While the US mid-terms eventually delivered the result that pollsters had suggested – a GOP-controlled Senate and a Democrat-controlled House – the removal of uncertainty was welcomed by investors,” Daiwa Europe noted, adding that US equity futures have been steady since Wall Street closed.

Back in Blighty, Argos is proving an unlikely “ace up the sleeve for Sainsbury’s in a tough retail environment”, according to Laith Khalaf at Hargreaves Lansdown.

READ: Sainsbury's profits drop as it takes hit related to proposed Asda merger

The supermarket chain posted a 40% drop in pre-tax profit for the first half, reflecting costs stemming from its proposed merger with Asda, the integration of Argos and the restructuring of its retail operations.

Nevertheless, the shares rose 1.5% to 324p.

“The World Cup and barbecue weather over the summer provided a welcome shot in the arm for the supermarket, though without this seasonal stimulus, sales growth from existing outlets wouldn’t look great,” Khalaf said.

“Grocery growth came from online orders and convenience stores, reflecting new shopping trends, which were probably exacerbated during the World Cup by football fans popping to their local shops for bangers and beers. Sales from the bigger supermarkets, by contrast, actually fell by 0.5%.

“However Sainsbury’s is using excess supermarket space to its advantage by installing Argos outlets in its stores. That’s feeding through to the bottom line, with £160 million of synergies from the purchase of Home Retail Group achieved nine months early. It’s also a pretty canny move when you consider that many consumers will like the idea of combining their Christmas grocery shop with picking up some gifts from Argos at the same time,” Khalaf suggested.

Neil Wilson at markets.com said the results from the retailer were “not awful”.

“Sales growth picked up in the second quarter from the dismal first three months of the year but we have seen Morrisons enjoying a very strong last couple of quarters and the comparison is not particularly flattering. The good summer was a boon for the whole sector, whilst Sainsbury’s has been notable in lowering prices,” Wilson observed.

“Retail underlying profit growth of 23% is eye-catching but is due almost entirely to those Argos synergies. The 36bps jump in retail margins to 2.25% is a healthy sign but there's still work to be done here. If you leave out Argos things don't look so good in grocery and persistent problems with margins linger.

“Which takes us to the proposed Asda merger. Purely defensive it's all about boosting margins, and Sainsbury's has to hope the CMA [Competition and Markets Authority] takes a very benevolent attitude, as unless that deal goes through there [are] not many places Sainsbury's can go. Sainsbury's is the squeezed middle, losing market share to discounters and simultaneously losing out to more premium brands. The worry is it has no credible plan except this merger,” Wilson claimed.

Lee Wild at interactive investor said the Asda merger – should it be approved – would be “a real game changer for the industry” and a huge test for Sainsbury’s chief executive, Mike Coupe, and his team.

On the plus side, observes Wild, “the Sainsbury's team has made a success of the Argos acquisition and stand a good chance of pulling off this much larger deal, too”.

8.40am: Positive start for Footsie

The FTSE 100 enjoyed the tail-end of the rally prompted by the US mid-term elections, which, for a change, delivered the result priced in by the market.

The index of blue-chip stocks advanced 27 points in early trade to 7,143.92 as all eyes turned to the US Federal Reserve meeting. A quarter-point hike in the base rate has been priced in for next month rather than November.

“We expect the tone of the FOMC statement to remain unchanged or be slightly more dovish in reflection of the marginally weaker US economic data across the month,” said Jasper Lawler of London Capital Group.

“Whilst the labour market is booming, there has been weakness in consumer spending, manufacturing and inflation this month which could be reflected in a subtly more negative tone to the statement.

“However, any dollar reaction could be limited as there is no press conference after this meeting and it comes after a meeting when rates were raised and ahead of a meeting when rates are widely expected to be raised.

“The Fed aren’t going to change their current trajectory of rate rises on the outcome of the election. They will stick to their current path until the data or financial conditions suggest to them otherwise.”

Back here in the UK, the post-results sell-down of Marks & Spencer (LON:MKS) continued as the stock fell a further 1.5% after what can best be described as a set of lacklustre results from the department store group Wednesday.

Sticking with the retail sector, Sainsbury’s (LON:SBRY) update received a slightly better reception than Marks’. It told the market the integration of Argos is going to plan while making soothing noises on the trajectory of its ASDA merger. The shares advanced 1.2%.

Markets.com analyst Neil Wilson has some reservations about the Sainsbury story: “Problems in grocery are a serious concern. Standards have slipped.

“It's hard to see how merging with Walmart [ASDA] will help much on that front. Argos remains the success story. Cost synergies have been delivered nine months ahead of schedule.”

Finally, AstraZeneca (LON:AZN) was bid up 2.1% after quarterly results revealed the underlying business was now in growth mode.

Proactive news headlines:

Immotion Group PLC (LON:IMMO) has signed a revenue sharing deal with Rank Group PLC (LON:RNK) which will see it roll out its virtual reality (VR) machines at some of the casino giant’s sites.

NetScientific PLC (LON:NSCI) said its portfolio company, Vortex BioSciences, has presented a study demonstrating how its technology can combine with impedance spectroscopy to improve the analysis of circulating tumour cells (CTCs).

AdEPT Technology Group PLC (LON:ADT) has signed an agreement to acquire UK-based unified communications services provider ETS Communications Holdings Limited.

Financial services group Tavistock Investments PLC (LON:TAVI) saw funds under management (FUM) rise for the 16th quarter in a row in the three months to the end of September.

Pragmatism and conservatism continue to be key tenets for Anglo African Oil & Gas PLC’s (LON:AAOG) drill programme at the Tilapia field in the Republic of the Congo, where progress has paused in order to avoid risking damage to target horizons. The company told investors it has insisted upon the replacement of two rig parts – which were found to be worn – as they will be critical for the deeper sections of the TLP-103C well.

88 Energy Ltd (LON:88E, ASX:88E) revealed it aims to raise £5.9mln of new capital through a share placing, as it continues to countdown to new conventional oil exploration activities in Alaska. The placing follows on from a right issue which raised £2.02mln, of a possible £7.96mln, and, will see the remainder of the new shares (around 593mln of them) sold to investors at a price of 1p each.

Plexus Holdings PLC (LON:POS) has described a period of “considerable progress” as it released full-year results. Significantly, in the year, it sold its wellhead business in a £42.5mln to TechnipFMC (with an initial £14.1mln received in the period).

Galantas Gold Corp (LON:GAL, CVE:GAL) has announced the results of the analysis of two channel samples taken from the Kearney vein at its Omagh mine. One channel sample returned a grade of 7.1 grams per tonne (g/t) gold, with 10.6 g/t silver over a true vein width of 1.8 metres and the other returned a grade of 10.4 g/t gold and 22.4 g/t silver over a true vein width of 3.2 metres.

Allergy Therapeutics PLC (LON:AGY), the fully integrated specialty pharmaceutical company specialising in allergy vaccines, has announced the appointment of Scott Leinenweber to the company's board as a non-executive director, nominated by Abbott Laboratories Inc. (NYSE:ABT) in replacement of Jeff Barton who retires from the Board, both effective after close of business on 7 November 2018.

Aggregated Micro Power Holdings PLC (LON:AMPH), the specialist provider of distributed heat, power and renewable fuels, said it has issued a call to commence the early redemption of its Convertible Loan Notes (CLNs). The group said the total number of CLNs currently outstanding is £10.01mln, with the directors and management of the company currently holding in aggregate, £2.22mln nominal, which they have committed to convert into new ordinary shares. It added that maximum potential cost of redemption at par is £7.79mln, plus expected interest due of approximately £0.13mln.

Tower Resources PLC (LON:TRP), the AIM-listed oil and gas company with its focus on Africa, has announced that an updated corporate presentation will be available from today on the company's website.

6.45am: Front foot start predicted

The FTSE 100 is expected to start Thursday on the front foot as equity markets continue to find positivity in the wake of the American mid-term election results.

CFD and spread-betting firm IG Markets sees the London index some 37 points higher, making the price 7,137 to 7,141 with just over an hour to go until the open.

It comes after Wall Street’s Dow Jones index rallied 545 points or 2.13% to close Wednesday’s trading session at 26,180.

The S&P 500 similarly gained 2.12% to finish at 2,813 and the Nasdaq rose 2.64% to end the day’s trading at 7,570.

“Wall Street experienced a phenomenal session on Wednesday, jumping over 2%, in its best post-midterm election session since 1982,” said Jasper Lawler, an analyst at London Capital Group.

“Democrats flipping the house was the outcome the markets had been expecting. Stocks surged on the prospect of political gridlock, easing any fears of quick changes to policy going forward.

“As the dust settles following the midterms, the reaction in the dollar has been minimal. After some volatility in early trade on Wednesday, the dollar index closed the session just 0.15% lower, which it has already regained and more in trading overnight. Whilst political gridlock is expected, the markets are also cheering Trump’s more collaborative tone since the results.”

The positive trend continued in Asia, where Japan’s Nikkei climbed 401 points or 1.82% to 22,486 and Hong Kong’s Hang Seng was up 127 points of 0.49% to 26,277. The Shanghai Composite, meanwhile, was in negative territory, trading down 0.19% to 2,636.

Around the markets

Sterling: US$1.311, up 0.04%

Brent Crude: US$72.21 a barrel, up 0.11%

Gold: US$1,225 an ounce, down 0.06%

Bitcoin: US$6,469, down 0.77%

Headlines

Russia aims to boost oil output unless Saudi Arabia deal is struck – Financial Times

UK property market at its weakest for six years, says Rics – The Guardian

How would Instagram stars save M&S? – BBC News

House prices 'to fall' next year if no Brexit deal – BBC News

Elon Musk says ‘Tesla dies’ without 100-hour work weeks of ‘excruciating effort’ – Metro

ECB chooses Italy’s Andrea Enria for top banking watchdog job – Financial Times

5G will let users ditch fixed-line home broadband, says Three – BBC News


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