- FTSE 100 down 24 points
- Gold makes mini surge
- Shell wins legal case
4.40pm: FTSE closes lower
UK stocks failed to get a lift from more encouraging US inflation data, with the FTSE 100 closing down 0.4% at 7,732 points.
Signs of weakening US inflation might have helped the Nasdaq, but have done little for European markets, said Chris Beauchamp, Chief Market Analyst at online trading platform IG.
“The FTSE 100, and European markets generally, have failed to join the Nasdaq in its rally this afternoon, crimped by a stronger pound (and euro), while worrying that the BoE and ECB still have further to go given the greater strength in inflation on this side of the Atlantic," said Beauchamp.
"Having bested their US counterparts in the first quarter, it looks like investors are being pickier about chasing the rally in the FTSE 100, Dax and others.”
3.35pm: Gold makes a brief rally
Gold prices made a brief charge towards US$2,050 per ounce immediately after the release of US inflation figures, before retreating to US$2,034.
The precious metal has consistently traded above US$2,000 for the last month, supported by economic uncertainty and renewed concerns about the strength of the banking sector.
FTSE 100 was down 35 points to 7,738.
2.53pm: John Lewis' chair survives vote
John Lewis’ chair, Sharon White, was left bruised but not defeated following a de-facto vote of her leadership credentials today.
Employees, also known as partners, held two non-binding votes on White’s decisions over the past year, and the confidence of her leadership moving forward.
The 61 partners that form the partnership council voted in favour of the direction of the company but were not too pleased with choices made over the last 12 months.
Partners may have expressed their unhappiness of employees not receiving a bonus and the ditching of its ‘never knowingly undersold’ slogan in favour of ‘For all life’s moments’.
White had also previously hinted at outside investment to aid the retailer which posted a loss of £234mln last year, which would have brought an end to its 73 years of 100% employee ownership.
However, she ruled out this option, stating: “The John Lewis Partnership will always be an employee-owned business.”
A move into the ‘build to rent’ property business has begun as it looks to diversify revenue streams which have taken a battering amid the backdrop of Covid and the cost-of-living crisis.
2.27pm: Pound hits 12-month high
The British pound hit US$1.267, a 12-month high, as traders digest US inflation figures and look ahead to tomorrow’s Bank of England interest rate decision.
Policymakers are expected to raise rates by 25 basis points to 4.5% as core and headline inflation rates remain stubbornly high.
FTSE 100 was up 4 points, or 0.051%, to 7,768.
2.08pm: Shell wins Supreme Court case
Shares in Shell bounced after the UK Supreme Court ruled in favour of the FTSE 100 giant in a case concerning a 2011 offshore Nigeria oil spill.
The stock gained 1.5% to 2,415p.
Nigerian claimants had attempted to sue two Shell subsidiaries over a spill they claimed had a devastating long-term impact on the coastal area where they lived.
Residents of Niger Delta, an oil-producing area, bought the claims after roughly 40,000 barrels of crude oil leaked during the loading of a tanker in the Bonga oil field, roughly 120km off the coast.
The Supreme Court ruled against 27,800 individuals who had argued the spillage polluted lands and waterways as the case was presented six years after the leak, which is deemed the legal deadline for bringing such an action.
1.39pm: US inflation falls
Annual inflation in the US edged lower to 4.9% in April, the lowest level in two years, from 5% in March.
Wall Street had forecasted inflation to remain flat last month.
Core price inflation, which excludes volatile items such as food and energy, fell to 5.5% in April from 5.6%, in line with market expectations.
FTSE 100 inched into the black, up three points to 7,766.
1.30pm: London's movers
A quick glance at some of London’s movers.
Risers
Cellular- up 169% to 1.62p
Shares rocketed after winning the group announced a product placement deal with Sephora, the multinational beauty retailer.
Fallers
Polymetal- down 27% to 201p
Polymetal tanked after the Russian and Kazakhstan gold and silver miner said it plans to leave London for a primary listing on the Astana Stock Exchange.
The move has been prompted by the Ukraine war and sanctions initiated by both the West and Moscow.
Unbound- down 57% to 3.06p
Shares tanked after the retailer said trading worsened in the first quarter, leading Marwyn Investment Management to pull out of a potential funding deal.
1.00pm: US futures edge lower ahead of US inflation numbers
US stocks are expected to open lower ahead of inflation data due later today which will show whether predictions of an interest rate cut are off the mark.
Concerns about the US debt ceiling are also likely to keep investors nervous, with US president Joe Biden and House Speaker Kevin McCarthy so far unable to reach a decision.
Futures for the Dow Jones Industrial Average fell 0.2% in pre-market trading, while those for the broader S&P 500 index lost 0.1% and contracts for the Nasdaq-100 were also down 0.1%.
The Dow closed Tuesday down 57 points, 0.2%, at 33,562, the Nasdaq Composite slumped 77 points, 0.6%, to 12,180 and the S&P 500 declined 19 points, 0.5%, to 4,119. The small-cap Russell 2000 index fell 3 points, 0.2%, to 1,752.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that the crucial inflation data could influence trading on Wednesday, adding that core inflation is expected to have eased back to 5.5% in April from 5.6%, while headline inflation is seen holding steady at 5%.
"Whatever we see in the US CPI report today, it's important to note that inflation expectations are falling," she said.
"For today, a CPI report in line with expectations will keep focus on the debt ceiling, but a report that diverges from expectations could give an extra spin to market pricing," she added.
A softer-than-expected reading could stoke rate cut expectations but a strong reading is hardly likely to boost bets on more rate hikes, said Ozkardeskaya.
Regarding the US debt ceiling, so far there has been no extension to September and this is a cause for worry.
"The leaders will meet again on Friday. Debt ceiling discussions will certainly extend toward the last minute, and the chances are that we see a last-minute goal to a very possible US government default. Until then uncertainty will loom and risk appetite will likely remain limited," added Ozkardeskaya.
12.31pm: First Citizens posts $9.8bn gain from SVB acquisition
First Citizens Bank, the US lender that acquired much of Silicon Valley Bank following its collapse, reported a more than 30-fold increase in the first quarter, benefiting from a gain from its purchase of the failed California-based lender.
The bank reported a preliminary gain on the acquisition of $9.82bn as it posted net income in the three-months to March 31 of $9.5bn, or $653.64 a share, up from $264mln, or $16.70 per share, in the same quarter last year.
Adjusting for this gain, net income was $306mln, ahead of forecasts for $292.8mln.
The bank said despite the macroeconomic challenges and uncertainties, "we continue to operate with solid capital and liquidity positions."
Shares were marked 2.3% higher in pre-market trading.
Meanwhile, the FTSE 100 is trundling along, now down 13 points, remaining in a tight trading range ahead of the US data.
12.15pm: Aviva first quarter a prelude for catalysts later in the year
Aviva PLC (LSE:AV.)’s first quarter trading update is likely to be the prelude to further catalysts later in the year, according to Deutsche Bank.
Analyst Rhea Shah does not expect the update itself to act as a driver to the share price but will nonetheless show “mostly positive momentum continuing for the group.”
Shah has raised the price target for Aviva to 560p from 535p and retains a buy rating.
The Deutsche analyst sees Aviva as being in a quieter act - with a wait until operational improvement starts to show (likely with first half results) and the next piece of news-flow on capital return (likely with the full year results).
“We continue to view the shares as attractive, trading on 2024e cash-flow, dividend, and total return yields of 12%, 8%, and 11% respectively,” Shah stated.
Shares, after opening higher, were little changed around midday in London.
11.47am: “We have been wrong” on sterling says Citi
A leading City forecaster has ripped up a previous prediction for the direction of the pound after admitting he got it wrong.
In a note on Tuesday, Vasileios Gkionakis, head of European foreign exchange strategy at Citi said “We have been wrong, plain, and simple.”
“The reality is that, while inflation exhibits some idiosyncratic persistence, contrary to what we expected, activity has proven far more resilient.”
He now reckons sterling could rise as high as US$1.30 at the start of next year after previously predicting it would drop to parity in the wake of the mini-Budget.
The pound is currently trading close to a one-year high against the dollar at US$1.26 after a boost from strengthening economic activity and a more resilient housing market.
Gkionakis said that its predictions of a “material correction” in house prices and a collapse in consumption had not come to pass.
This view was echoed by analysts at NatWest, while Goldman Sachs (NYSE:GS) said earlier this month that it had adopted an “outright constructive stance” on sterling in what it described as a “new era” for the currency as the Bank of England is expected to keep raising interest rates to keep a lid on inflation.
Kamakshya Trivedi, head of global foreign exchange at Goldman, said: “Essentially, we think that the same factors that acted as headwinds on sterling in 2022—mostly natural gas prices and the relative stance of Bank of England policy—have turned to tailwinds.”
The Bank of England is expected to raise interest rates for the twelfth consecutive time to 4.5% on Thursday.
Not long now until the US inflation figures. Ahead of those, the FTSE 100 is down 15 points, trading in a narrow range.
11.15am: Airbnb tumbles on cautious outlook
Across the pond now and shares in Airbnb plunged 13% in after hours trading after the home vacation rental company forecast a slow down in revenue growth in the second quarter - below Street expectations.
Russ Mould at AJ Bell noted “investors were checking out of Airbnb in numbers in after-hours trading as the good news of better-than-expected quarterly performance was swiftly followed by the bad news of a weak outlook.”
The cautious outlook overshadowed better-then-expected first quarter numbers which saw the firm return to profit with net income of US$117mln compared to a net loss of US$17mln a year before.
Revenue growth in the quarter was 20% totalling US$1.8bn but Airbnb expects this pace of growth to slow in the second quarter to between 12% and 16% with a figure of US$2.35bn to US$2.45 below consensus of US$2.42bn.
Neil Wilson at markets.com felt the share price move was “probably an overreaction,” noting the guidance was “broadly in line with analyst expectations.”
He described the numbers as “good but not good enough.”
But Mould pointed out that both bookings and prices are heading in the wrong direction as far as Airbnb is concerned.
“Perhaps a bigger worry is this could be the first sign that the impressively resilient spending on travel in the wake of the pandemic is coming under greater pressure,” he added.
10.43am: RyanAir wins legal battle to stop legal aid to Lufthansa
Ryanair has won a European Union court challenge which cancels regulatory approval for a €6bn (£5.2bn) cash injection for rival airline Lufthansa amid the pandemic.
The EU General Court in Luxembourg has annulled the European Commission's decision from June 2020 to recapitalise the airline, saying its assessment included "several errors".
It added that it was wrong to consider that Lufthansa "was unable to obtain financing on the markets for the entirety of its needs".
Ryanair also won a separate bid to topple the EU's 2020 approval of similar aid to SAS Airlines.
The commission in June 2020 approved the Lufthansa measures, saying a government plan to take a 20% stake in Europe's largest airline was in line with the bloc's state-aid rules and would prevent the carrier's collapse.
10.11am: Compass buyback beats expectations
Shares in Compass Group PLC (LSE:CPG) continue to trade in the green, up nearly 2%, following its upbeat statement this morning.
Analysts at Barclays expect the release to be taken well with the share buyback of £750mln above expectations of around £500mln.
The bank sees consensus forecasts moving around 2-4% higher after the numbers noting second quarter organic growth of 25.5% was ahead of its 22.3% prediction.
Barclays noted the company is moving to dolar reporting but it does not think this "is a precursor to a US listing."
"We continue to like Compass and view it very much as a good quality compounder now," Barclays said.
9.32am: Permanent recruitment dips but wage pressure remain high
Ongoing uncertainty about the economic outlook and more cautious hiring policies continued to drive divergent recruitment trends in April, the latest REC/KPMG Jobs Report showed.
While temp billings pushed to a seven month high demand for permanent staff contracted at its fastest pace in over two years.
Permanent recruitment activity fell at the fastest pace since January 2021, when the UK was in a Covid lockdown, and for a third consecutive month it was weaker in London than in any other region.
Claire Warnes, partner at KPMG UK, said economic uncertainty had made businesses “cautious about committing to permanent hires”, with many announcing recruitment freezes or delaying decisions, while others still struggled to find candidates with the right skills.
The survey showed demand for permanent staff had weakened across all areas of the economy. However, the public sector was more resilient than the private sector, where recruiters registered the sharpest slowdown in the IT and retail industries, and in hotels and catering.
Vacancy growth fell to a three month low while the survey showed there was a sustained improvement in the availability of candidates.
Starting salaries for permanent workers continued to rise at a historically sharp pace with the rate of inflation hitting a four-month high.
At the same time, temp wage growth improved to the highest since January.
9.12am: Just Group soars as JP Morgan raises price target
Sitting just below JD Wetherspoon in the FTSE 250 risers list is Just Group PLC with shares surging 6.2%.
JP Morgan thinks the market is overlooking the life insurer which "in our view, is the most focused way to play the strong growth potential of the UK pension risk transfer market."
"In spite of its low market cap, Just is clearly punching above its weight and with market share of around 10% in 2022 is now one of the major insurers in this market, with balance sheet strength and Solvency II capital that is comparable with peers," the investment bank said.
The broker feels investor concerns about its mono-line business model and asset risks are more than priced.
JPM forecasts >20% CAGR new business sales growth to 2025 and similarly strong growth in underlying profit.
The bank has lifted its price target to 125p from 115p and reiterated an overweight rating.
8.54am: Asos plunges after worse than expected loss
Not such god news for investors in Asos PLC which slipped to a first-half loss.
Shares tumbled around 9% after the online fashion retailer reported an adjusted loss before tax of £87.4mln in the six months to 28 February 2023, compared to a profit of £14.8mln in the same period last year.
Revenues fell to £1.8bn from £2.0bn, reflecting a challenging trading backdrop and capital allocation towards profitability, while net debt grew to £431.7mln from £62.6mln.
Stifel analysts Caroline Gulliver and David Hughes said: "Asos' journey to a sustainable, profitable business is going to be longer than the market thinks and we see better investment opportunities elsewhere in the sector.”
They noted the January to April trading period was "tough" for Asos, in part due to its "Driving Change" actions, which "has led to a worse-than-expected 1H23 loss and lower expectations for FY23E."
Stifel reiterated a sell rating.
Jefferies analyst Andrew Wade said: "Asos continues to face into significant challenges, with revenue declining more rapidly and net debt higher than anticipated." He reiterated a hold rating.
Despite the company remaining upbeat about the scale of cost savings it is delivering and its ability to move into profit and cash generation from the second half of 2023, "we will need more convincing."
Eleonora Dani at Shore Capital feels there are concerns regarding Asos's ability to protect its "brand's equity," particularly in relation to deep discounting to clean inventory.
"This could pose challenges in selling products at full price in the future," she suggested.
"Consequently, we view ASOS as a particularly vulnerable player in the current context." Dani has a sell rating on Asos.
8.15am: FTSE 100 steady ahead of US inflation numbers
The FTSE 100 edged higher lifted by some positive trading updates although investors may remain wary ahead of the US inflation print later today.
At 8.15am, London’s lead index stood at 7,771.60, up 7.51 points, or 0.1% while the FTSE 250 climbed 11.52 points to 19,288.56.
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: ‘’The extent to which price pressures are still weighing on the American economy is in sharp focus today, with investors watching and waiting for the latest inflation snapshot.”
“This is a big piece of the puzzle for central bank policymakers and will help them decide on whether to press press pause on rate hikes in June.”
Back in London and there was plenty of news for investors to digest.
JD Wetherspoon cheered investors as it said profit would be at the top end of expectations with sales on course for a record year.
The pub chain, run by flamboyant businessman Tim Martin, reported like-for-like sales increased by 9.1% in its third quarter, covering the 13 weeks to 30 April 2023, compared to pre-Covid 2019, leaving year-to-date sales 6.4% higher compared to the same year.
Sales in the Easter week were the highest ever for the company and sales in the current financial year are likely to be a record, JD Wetherspoon said.
The company said the May bank holiday was "exceptionally strong, including our busiest-ever Saturday", with the Coronation "slightly less strong, with a noticeably quiet Saturday".
Peel Hunt said it was upgrading its 2023 pre-tax profit forecast by 31%, from £31mln to £41mln, due to higher price-driven sales.
“A £10-12 share price is feasible over the medium-term, in our view,” the broker said.
Shares rose 5.5% to 785p.
Compass was another share in demand, up 2.3%. The Chertsey-based multinational contract foodservice company raised full-year profit guidance, lifted the dividend by 60% and pledged a further share buyback of £750mln.
The company expects full year operating profit growth of 30%, up from 20%, reflecting organic revenue growth of around 18% (up from around 15%) and an operating margin in the range of 6.7% to 6.8% (from above 6.5%).
At the half-year stage, the FTSE 100-listed firm reported underlying revenue of £15.8bn, up 24.7%, from £12.6bn with balanced growth across all regions with a very strong performance in Europe.
Capita PLC (LSE:CPI) jumped 4.7% after reporting trading was in line with expectations as it said the recent cyber attack would cost the firm up to £20mln.
The outsourcer said trading at the group remains in line with expectations.
Adjusted group revenue for core Capita for the first four months of 2023 was up by 4.8% year-on-year with Capita Public Service up by 5.0% and Capita Experience up by 4.5%.
Sales performance has been strong over the first four months of the year with in-year-revenue wins of £449m, up 16% on the first four months of 2022, Capita said.
7.53am: Cyber attack to cost Capita up to £20mln
Capita PLC (LSE:CPI) expects to incur one-off costs of around £15mln to £20mln associated with the recent cyber incident, comprising specialist professional fees, recovery and remediation costs and investment to reinforce the group's cyber security environment.
Capita has also taken further steps to ensure the integrity, safety and security of its IT infrastructure to underpin its ongoing client service commitments.
The outsourcing specialist said based on its own forensic work and that of its third-party providers, that some data was exfiltrated from less than 0.1% of its server estate.
Trading at the group remains in line with expectations.
Adjusted group revenue for core Capita for the first four months of 2023 was up by 4.8% year-on-year with Capita Public Service up by 5.0% and Capita Experience up by 4.5%.
Sales performance has been strong over the first four months of the year with in-year-revenue wins of £449m, up 16% on the first four months of 2022, Capita said.
7.50am: Melrose trading "materially ahead" of expectations
Melrose PLC which recently spun out Dowlais PLC was also in a positive frame of mind.
The company said trading was materially ahead of expectations with significant growth in revenue, profit and margin being achieved.
Melrose is trading materially ahead of expectations with significant growth in revenue, profit and margin being achieved.
For the first four months of this year revenue was up 19% on the same period in 2022, with Engines showing the fastest momentum, up 28%, and Structures up 14%.
The firm issued new guidance for the financial year 2023 - revenue between £3.35bn to £3.45bn, adjusted operating profit between £340mlnand £360mln and adjusted1 EBITDA between £495mln and £515mln.
7.38am: JD Wetherspoon cheers investors
More positive news. JD Wetherspoon PLC said it was on course for record sales this year as customers continued to flock back to pubs following the pandemic.
As a result, the company expects profit in the current financial year to be towards the top of market expectations, it said in a statement.
The pub chain, run by flamboyant businessman Tim Martin, reported like-for-like sales increased by 9.1% in the 13 weeks to April 30, compared to 2019, leaving year-to-date sales 6.4% higher compared to the same year.
Sales in Easter week were the highest-ever for the company - and sales in the current financial year are likely to be a record, JD Wetherspoon said.
Compared to financial year 2022, like-for-like sales increased by 12.2% in the third quarter and by 12.7% year to date.
The company said the May bank holiday, was "exceptionally strong, including our busiest-ever Saturday," with the Coronation "slightly less strong, with a noticeably quiet Saturday."
Martin said: "Sales in the last quarter have continued their positive momentum, although inflation, especially in labour, energy and food costs, remains a more intractable issue."
"In order to bear down on inflation, political parties should encourage free enterprise, rather than a reliance on additional regulations."
"A lack of understanding, among some senior politicians, about the need to encourage a successful free market economy, presents a real threat to the future prosperity of the country," he added.
7.25am: Compass in upbeat mood
Upbeat trading news to start the day. Compass Group PLC (LSE:CPG) has raised full-year profit guidance, lifted the dividend by 60% and pledged a further share buyback of £750mln.
The Chertsey-based multinational contract foodservice company was unveiling interim results as it said it expects full year operating profit growth of 30%, up from 20%, reflecting organic revenue growth of around 18% (up from around 15%) and an operating margin in the range of 6.7% to 6.8% (from above 6.5%).
At the half-year stage, the FTSE 100-listed firm reported underlying revenue of £15.8bn, up 24.7%, from £12.6bn with balanced growth across all regions with a very strong performance in Europe.
There were double-digit increases in organic revenue across all sectors in the period and performance was particularly strong in Business & Industry, as employees continued to return to the office, and Sports & Leisure, where participation rates improved.
Dominic Blakemore, Group Chief Executive, said: “Net new business continued to be excellent, and significantly higher than our historical rate.”
“We are particularly pleased with the step change in our Europe performance which has benefited from growth initiatives as well as favourable outsourcing conditions.”
Operating profit of £1.05bn was 41.1% higher than £744mln a year prior while the operating margin improved 80 basis points to 6.6%. EPS jumped 43% to 42.7p from 29.9p while shareholders were rewarded with a 60% increase to the dividend to 15p from 9.4p
7.00am: Subdued start seen in London
Good morning. The FTSE 100 is expected to mark time ahead of the US inflation figures later today which will give a further indication as to whether the Federal Reserve may pause further interest rate hikes.
Spread betting companies are calling London’s lead index up by around 1 points.
Michael Hewson at CMC Markets said: “It’s been a subdued start to the week for markets in Europe with little in the way of overall direction, although we have seen a slightly negative bias, along with a slightly firmer US dollar ahead, as markets look towards today’s US CPI report for April.”
On Wall Street on Tuesday, Dow Jones Industrial Average fell 56.88 points, or 0.2% at 33,561.81. The S&P 500 lost 18.95 points, 0.5%, at 4,119.17 points while the Nasdaq Composite fared worst falling 77.37 points, 0.6%, at 12,179.55.
In Asia on Wednesday, the Nikkei 225 index in Tokyo was down 0.3%. In China, the Shanghai Composite declined 1.5%, while the Hang Seng index in Hong Kong fell 0.7%.
Back in London and the early focus will be results and trading updates from Asos, Compass, Harbour Energy and TUI.