- FTSE 100 ends 56 points higher
- Wall Street jumps in spite of PCE inflation beat
- UK April retail sales beat City expectations
4.40pm: FTSE 100 finishes in positive territory
UK stocks got a lift on positive signs of a resolution to the US debt drama across the pond.
At the close, the FTSE 100 had gained 0.7% to close at 7,627 points.
The main gainers were in basic resources on the back of a rebound in commodity prices, but homebuilders and general retailers were still underperforming, CMC's Michael Hewson noted.
"Today’s more positive mood appears to be being driven by some optimism that we might see the framework of a debt ceiling deal starting to unfold, with more details expected to emerge over the weekend, as we zero in on next week’s 1st June deadline," Hewson said.
3.50pm: Long weekend break needed
The FTSE 100 entered the final 40 minutes trading of a volatile week near the day’s best levels reflecting strong gains on Wall Street amid hopes that a US debt ceiling deal can be reached ahead of the long holiday weekend in both the US and the UK.
The gains came even as worries over higher interest rates continue to linger on both sides of the Atlantic after stronger-than-expected economic data.
Craig Erlam, senior market analyst, UK & EMEA, OANDA commented: “The cost-of-living crisis in the UK is not having the dampening effect on household spending that many anticipated and today's retail sales figures showed that once more. Bad weather depressed spending in March and by more than initially thought but it rebounded last month by 0.5%, maintaining the positive trend we've seen in recent months.”
He added: “Resilience in household spending has been matched by an economy that has outperformed expectations and that positive feedback loop is probably encouraging consumers to keep going. The question now is how long that can last as higher interest rates continue to filter into the broader economy, and as markets price in much higher rates later this year as a result of better activity and higher inflation.”
Looking at the US data, Erlam said: "Investors may have underestimated the pace of disinflation this year if economic data this week is anything to go by, with US figures today further enforcing the view that price pressures are stubborn and spending healthy.
"The headline PCE price index brought the biggest surprise, jumping 0.4% on the month against expectations of zero increase, but the core reading also brought an upside surprise, as did spending which jumped 0.8%, double the consensus view."
He concluded: "Suddenly the jobs report next week looks like the last hope for the Fed pausing its tightening cycle next month and if recent data is anything to go by, no one can be feeling particularly optimistic. The economy is showing incredible resilience and if it is turning a corner, it's doing so painfully slowly. A soft landing is becoming harder to achieve and there's an increasing risk that central banks will have to go much further and accept the economic consequences."
3.35pm: Sabre sharpened
Sabre Insurance shares rose as analysts at Berenberg upgraded their rating for the stock to 'buy' from 'hold' and hiked their price target to 153p from 93p following a recent trading update.
The analysts said: "Sabre still has a lot of work to do to return to its glory days; moreover, it also reported a 4.8% policy count decline in its core motor book during the first four months of 2023.
"That said, we now believe market pricing has risen sufficiently to allow Sabre to start growing again in 2023."
They added: "We remain below consensus on earnings per share, which is a risk, but it is a much smaller gap than before, and importantly we are now in line on combined ratio estimates in 2024 and 2025.
"In addition, we think the direction of profitability over the next 24 months will be positive as Sabre is highly geared to the hardening price environment in UK motor insurance."
In afternoon trading, Sabre Insurance shares were 6.6% higher at 133.44p.
3.15pm: Crude moves
Oil prices ticked higher as the market weighed conflicting messages on supply from Russia and Saudi Arabia ahead of the next OPEC+ policy meeting.
Brent crude was up 1.2%, at $72.60 a barrel, while US West Texas Intermediate (WTI) added 1.4% at $72.83 a barrel.
The oil benchmarks fell on Thursday after Russian Deputy Prime Minister Alexander Novak played down the prospect of further OPEC+ production cuts at its meeting in Vienna on June 4.
Russian President Vladimir Putin said on Wednesday that energy prices were approaching "economically justified" levels, also indicating there could be no immediate change to OPEC+'s production policy.
But the Russian remarks contrasted with comments earlier in the week from Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, the de-facto leader of the Organization of Petroleum Exporting Countries (OPEC), warning short sellers to "watch out".
Some investors interpreted that as a signal OPEC+ could consider further output cuts.
2.50pm: Debt watch continues
The FTSE 100 index extended its gains as US stocks opened higher as investors continue to watch for a resolution to ongoing US debt ceiling talks between President Biden and Republican House speaker Kevin McCarthy.
The sides are reportedly close to a deal that would raise the debt ceiling for two years, according to reporting from CNBC.
Around 20 minutes after the New York opening bell, the Dow Jones Industrials Average was up 194 points, 0.6%, to 32,958, while the S&P 500 also gained 0.6%, and the Nasdaq Composite added 0.8%.
Meanwhile, the April US personal income and spending report was a fair bit stronger than expected across the board, which economists at ING said will fuel talk of another Federal Reserve rate hike at either the June or July meetings.
They noted: "Incomes rose 0.4% month-on-month as expected, with wages and salaries up by 0.5%MoM, but spending rose by 0.8%MoM versus the 0.5% consensus with March revised higher. Consequently, we find real consumer spending came in at 0.5%MoM versus the 0.3% expected."
2.30pm: Darktrace dented
Darktrace shares dropped after Bank of America Merrill Lynch initiated coverage of the cybersecurity firm with an 'underperform' rating and 240p price target.
The US bank's analysts said Darktrace's growth was set to decelerate "significantly" given "much stronger" competition in the next year and that the weaker macro environment will lead customers to further consolidate providers.
The analysts estimate Darktrace will see a compound annual growth rate of 18% for FY23-25, which is 23% below consensus expectations.
In afternoon trading, Darktrade shares were down 11.3% at 259p.
2.15pm: PCE deflator above forecast
The Federal Reserve’s preferred gauge of US consumer inflation, the April core PCE price index rose 0.4% in April from the prior month and 4.4% from a year earlier, with both increases slightly above estimates.
Consumer spending rose 0.8% in April, the Commerce Department said, boosted by higher spending on vehicles and services such as insurance and healthcare after two months of weaker spending, with March and February both up 0.1%.
Meanwhile, other data showed April US durable goods orders come in at 1.1% vs a -1.0% estimate.
According to the CME's FedWatch Tool, the probability that the FOMC will leave rates unchanged at their June 13-14 meeting is now 44%. down from 59% just before the numbers were released and there is around a 56% chance of a 25 basis point increase vs 41% prior to the data coming out.
1.30pm: A quick glance at some of London’s movers
Rockfire Resources - up 16% to 0.25p: Shares jumped higher on Friday following news its geotechnical drilling program at the Molaoi zinc deposit in Greece has yielded the highest zinc grades ever recorded at the site out of the 180 drill holes that have been completed.
Quantum Blockchain - up 17% to 1.85p: Shares jumped after the group appointed Vladimir Kusznirczuk as the company's marketing and business development manager with immediate effect. Kusznirczuk’s focus will be on opportunities, specifically developing joint ventures and strategic partnerships, with US, Chinese and Canadian bitcoin miners and mining rig manufacturers, the blockchain investment firm said.
1.00pm: US stocks seen higher, PCE inflation figures due
US stocks are expected to edge higher at the open on Friday amid raised hopes for a US debt ceiling deal ahead of the long Memorial Day weekend, although underlying caution remains with the Federal Reserve's preferred measure of inflation due for release today.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were up 0.2%, while those for the S&P 500 index added 0.3%, and contracts for the Nasdaq 100 rose 0.4%.
On Thursday. the DJIA closed 35 points, or 0.1% lower at 32,764, but the S&P 500 gained 0.9%, and the Nasdaq Composite jumped 1.7%, reflecting a boost for tech issues after above-forecast numbers from chip firm Nvidia.
Joshua Mahony. chief market analyst at Scope Markets commented: "With the clock ticking on those debt ceiling negotiations and Congress having closed up for a long weekend break, there’s, without doubt, a degree of caution building over what happens next, but the prospect of the US defaulting on its debt repayments appears too far-fetched to become a reality.
"In a world where the US is increasingly struggling to appear like the dominant player, failure here would presumably be seen as a step too far for even the most outspoken of politicians, hence the fact that downside pressures in futures markets look so limited."
He added: "With that in mind, the run into the weekend break seems set to be relatively subdued but the release of the PCE Price Index – seen as the Fed’s preferred measure of inflation – will be closely watched. Opinions are divided as to whether the Fed will be able to resist the temptation to keep hiking rates but any one reading here has the potential to lend support to policy doves."
The Personal Consumption Expenditures (PCE) deflator is expected to rise to 4.4% in April, up from 4.2% in March, while other personal spending figures are expected to show a growth of 0.4% on a monthly basis, indicating that consumer outlays remain robust, supported by increases in personal incomes.
The Federal Reserve appears more inclined to pause its interest rate hikes in June, but positive surprises in economic data and a more hawkish tone from policymakers could alter market expectations.
12.33pm: Glencore could unlock value from Viterra/Bunge merger
Glencore PLC (LSE:GLEN) could be about to unlock some value from a potential merger of global grain trader Viterra (TSX:VT) and its US rival Bunge.
Reuters and Bloomberg are reporting the two groups are in merger talks that would reshape the top tier of global grains merchants.
Deutsche Bank explained Glencore owns a 50% stake in Viterra (TSX:VT), it's now deconsolidated Agri business following stake sales to two Canadian pension funds in 2016 (CPPIB and bcIMC).
In 2017, Glencore made an informal approach to Bunge regarding "a possible consensual business combination" and in April this year, as part of its Teck merger offer, stated that the investment in Viterra (TSX:VT) would be subject to a strategic review and potential divestment, Deutsche added.
“We have felt for some time that the medium term plan was to unlock value through an eventual exit,” Deutsche said.
The investment bank has a 'buy' rating on Glencore and a 575p price target against the current 427p share price.
12.10pm: Miners boost Footsie
Keeping the FTSE 100 in positive territory are mining shares which fill the top five places on the lead index's risers board.
Rio Tinto PLC (LSE:RIO) leads the way, rising 3.9%, boosted by a Morgan Stanley (NYSE:MS) from 'equal weight' to 'overweight'. The US investment bank also set a price target of 5,800p.
Antofagsta, Anglo American, Glencore and Endeavour Mining are also firm features.
Heading the other way are housebuilders spooked by fears that rising mortgage rates will choke off the fragile recovery in the housing market.
Barratt Developments and Taylor Wimpey are prominent fallers.
Persimmon also fell as Deutsche Bank cut its price target to 1,212p from 1,267p and reiterated a 'sell' rating.
Meanwhile, the FTSE 100 has pushed 17 points higher at 7,588.
11.45am: Mounting optimism over debt ceiling deal
A deal to resolve the US debt ceiling crisis could be close, according to reports.
Reuters reported the deal under consideration by negotiators would raise the government’s $31.4tn debt ceiling for two years while capping spending on most items, citing a US official.
It would also increase funding for discretionary spending on military and veterans while essentially holding non-defense discretionary spending at current year levels, the official said.
The agreement would specify the total amount the government could spend on discretionary programs including housing and education, according to a person familiar with the talks.
The two sides, who met virtually on Thursday, are just $70bn apart on a total figure that would be well over $1tn, according to another source.
The FTSE 100 is now up 11 points at 7,581 after a brief foray into the red.
11.10am: Debt ceiling crisis damages US credibility
The US economy and the nation’s credibility have already been damaged by the debt ceiling crisis even if a deal is struck next week, and “reform is now urgently required”, according to Nigel Green, chief executive of deVere.
Green was speaking following reports that Republican and White House officials are edging closer to an agreement to raise the debt limit and cap federal spending for two years.
He said: "Tuesday is being reported as the likely day for a House vote on raising the US debt ceiling. Although this is not definite, and it might come right down to the wire and happen just hours before Treasury Secretary Janet Yellen says her department could run out of money.”
Regardless of whether a deal is done, and a default is avoided, which is the hope, the “US economy and the nation’s credibility have already been damaged,” he said.
“Using the country’s debt as a political weapon, undermines confidence of investors in the US government amid concerns about the government’s ability to properly manage its finances," he continued.
“This loss of confidence will mean that it becomes more difficult for the US government to borrow money in the future, which could lead to higher interest rates and weaker economic growth."
“The debt ceiling drama also erodes some of the current global reserve currency’s credibility and reputation as a ‘safety asset’, which could have far-reaching repercussions for the US.”
He suggested the crisis was the “ultimate gift” for America’s major geopolitical rival, China, which is seeking to promote the internationalisation of its own currency and to position itself as a more stable and attractive investment option, in order to attract more international investment and capital inflows.
"China’s massive PR machine is already spinning the narrative that the US is a declining power,” Green noted.
He reckons the whole process should be reformed: “I'm in favour of debt ceiling reforms that take away the threat of a US government default and all the implications of that, and reforms that make lawmakers in Washington truly accountable by automatically triggering spending cuts should the ceiling be reached.”
10.23am: BA owner's shares fall as flights ground on IT hiccup
Shares in International Consolidated Airlines Group SA (LSE:IAG), the owner of British Airways, fell 1% as the UK carrier cancelled a large number of flights after an IT fault left customers unable to check in and access information about their trips from Heathrow Airport.
Over 155 short-haul flights have been cancelled between Thursday and Friday, affecting around 25,000 travellers looking to get away over the late May bank holiday weekend.
BA took to its website to apologise to customers, saying it was “aware of a technical issue” and that customers should only get in touch if flying within 48 hours due to “high call volumes”.
10.05am: Halfords knocked by RBC downgrade
Shares in Halfords Group PLC (LSE:HFD) fell 4.9% after RBC Capital Markets downgraded the stock and cut its price target.
The broker thinks Halfords remains a strong player in a space that has seen a number of challenges across the last few years.
Near-term it should it should benefit from market recovery and digital/data driven gains, “but we believe execution risks remain.”
Following the recent re-rating RBC sees the valuation as “fair,” hence the move to sector perform from outperform.
EPS forecasts for the next two years have been reduced by around 3% “given slightly lower margin expectations due to softer cycling sales and labour cost pressures.”
The price target moves to 220p from 230p. Shares were 4.9% lower at 192.17p.
9.25am: Will the Asos fundraise be enough?
Shares in Asos fell after initially jumping 6% as investors wondered whether the fundraising announced late Thursday would be enough.
The online fashion retailer has raised £75mln via a placing with a further £5mln coming from a retail offer, as well as reorganising some longer-term financing.
Asos said the rejigged financing structure and fundraise would help it deliver its restructuring plans.
But Russ Mould at AJ Bell thinks “the key question for ASOS is: will raising £80mln by issuing new shares and refinancing its debt really cut it?”
He said: “The fast fashion online retailer hopes this can create a solid base for the company’s recovery.
“However, with the company paying high rates of interest on its newly agreed debt, much of the money raised from shareholders will almost immediately be going out the door on servicing its borrowings.
“The danger is ASOS hasn’t raised enough this time round, either through choice or necessity, and it will have to dig out the begging bowl again before too long. After all, the company is not generating free cash flow and the prospects of it doing so soon do not look too encouraging.”
Analysts at Shore Capital agreed. “It would not come as a surprise if there arises a need for an additional equity raise, potentially resulting in further dilution,” they said.
Analysts at Liberum noted the fundraise came was “expensive” carrying an 11% interest rate.
Liberum also questioned why the company pursued and achieved earlier this month an amendment and extension of its £350mln revolving credit facility to November 2024, at an additional cost of £25mln.
But the broker turned more positive on the stock: “While we remain wary of the new strategy, the risk of an equity raise has now materialised, and we therefore move to hold (from sell).
However, they added, “there still remains a worst-case scenario that further financing may be needed to replace the £500mln convertibles in 2026.”
“The delivery of the strategy remains key to ensuring Asos does not need to return to the equity markets to raise more funds to pay off the convertibles when they become due," the Liberum analysts said.
In a worst case scenario, where the weaker consumer demand environment stretches further or the consumer reaction to the new full-price strategy is more negative than expected, the group may need to come to the market again in the future,” Liberum said. “We therefore need more proof points before we turn positive.”
Meanwhile, the FTSE 100 is holding steady, up 12 points.
8.50am: FTSE falls back on renewed recession fears
The FTSE has fallen back sharply after its bright open now trading just 12 points to the good at 7,582 after hitting an early high of 7,624.79.
Concerns that further rate rises will choke off any economic recovery have knocked the mood.
The UK's building society has raised mortgage rates across the board after bond yields jumped levels jumped to levels not seen since the infamous mini-budget.
Although flat today, yields have jumped during the week after the strong inflation data which saw expectataions for interest rate increases soar to around 5.5%.
This could pile further misery on cash-strapped consumers with soaring mortgage payments.
Luke Hickmore, investment director at asset manager Abrdn, told the BBC the "real surprise" of rising core inflation in Britain's economy would force the Bank of England into action on interest rates.
This, in turn, will lead to surging mortgage costs, which will put people's incomes "under a lot of pressure", he warned.
Chancellor Jeremy Hunt today pledged to support the Bank of England’s decisions on interest rates, even if it triggers a recession.
Hunt told Sky News there could be no trade-off between cutting inflation and the risk of provoking a recession.
Asked whether he was comfortable with the BoE doing whatever was needed to bring down inflation, even if that could cause a recession, Hunt said: “Yes, because in the end, inflation is a source of instability.”
8.15am: FTSE in the green, hopes of US deal rise
The FTSE 100 bounced back on Friday as a jump in retail sales and increased hopes of a deal in the US over the debt ceiling crisis improved the mood.
There will be no default declared President Joe Biden while the Financial Times reported people familiar with the potential agreement said that negotiators were looking to finalise the agreement in the coming days.
Deutsche Bank said: “There’s now some more optimism again around the debt ceiling, particularly after comments from Speaker McCarthy suggested that a deal was near, and that he would be staying in town over the long weekend to work on a deal.”
At 8.15am, London’s lead index was up 50.79 points, 0.67%, to 7,621.66 while the FTSE 250 climbed to 18,873.61, up 32.86 points, or 0.17%.
UK retail sales rose 0.5% in April, beating City expectations of a 0.3% increase, after a downwardly revised fall of 1.2% in March.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said although the wet weather in March made for some easier comparisons “there looks to be some underlying real progress.”
“Sales of watches and jewellery and department store performances helped non-food sales climb, and suggest that belt-tightening perhaps isn’t as potent as feared.”
The EY ITEM Club said: “On the face of it, April's rise is consistent with brightening prospects for the consumer sector.”
Asos PLC jumped 6% after it announced a £80mln fundraise alongside a new long-term finance facility.
But analysts at Shore Capital think the firm will need to raise more cash.
“It would not come as a surprise if there arises a need for an additional equity raise, potentially resulting in further dilution,” they said.
Astra Zeneca PLC rose 0.9% after it hailed the potential of a highly targeted combination of its own drugs with chemotherapy in the battle against endometrial cancer.
This followed the read-out from the DUO-E phase III trial, which demonstrated impressive outcomes.
But Kin and Carta PLC tumbled around 10% after it cut revenue guidance due to a slowdown in new business.
7.57am: Asos rejigs finances, raises funds
Online fashion retailer Asos PLC will be in focus today after it announced plans to boost its balance sheet through a new long-term £275mln financing facility alongside a £75mln placing as it continues to restructure the business.
In a statement after Thursday's market close, Asos said the new capital structure provides increased flexibility and simplicity under a single lender.
Asos has entered into a £200mln senior term loan and a £75mln super senior revolving facility with specialist lender Bantry Bay Capital Ltd through to April 2026, which will replace the existing £350mln revolving credit facility which was due to expire in November 2024.
The £75mln placing will be priced at 418.1p and there will be a separate retail offer of up to £5mln.
Back in October, Asos announced a turnaround plan. It said it would look to improve inventory management, reduce its costs and "reinforce" its leadership team and culture. The plan was one of Jose Calamonte's first acts as chief executive.
But some City analysts felt a fundraise would be required to get the ball rolling.
Asos said the move together with actions taken under its Driving Change agenda would "create a stable base for ASOS' continued execution of its strategy and future return to growth."
7.53am: Retail sales edge higher in April after falling in March
UK retail sales bounced back in April after falling in March, figures from the Office for National Statistics showed.
Retail sales rose by 0.5% in April, ahead of City expectations for a 0.3% increase, following a fall of 1.2% in March which was downwardly revised from a fall of 0.9%.
Sales volumes rose by 0.8% in the three months to April 2023 when compared with the previous three months; the highest rate since August 2021 (1.3%).
Retail sales volumes grew 0.5% in April, following a revised fall of 1.2% in March.
— Office for National Statistics (ONS) (@ONS) May 26, 2023
Non-food stores sales volumes rose by 1.0% in April, following a fall of 1.8% in March when poor weather conditions throughout most of March affected sales.
Food stores sales volumes rose by 0.7% in April following a fall of 0.8% in March.
Non-store retailing (mainly online retailers) sales volumes rose by 0.2% in April, following a fall of 1.4% in March.
Despite falling fuel prices, automotive fuel sales volumes fell by 2.2% in April, following a rise of 0.1% in March.
7.00am: FTSE 100 set to edge higher
The FTSE 100 is set to edge higher on Friday ahead of retail sales figures which will provide another gauge as to the confidence of the UK consumer while President Biden declared there would be no default as the debt ceiling crisis rumbled on.
Spread betting companies see London’s lead index opening 4 points higher.
In the US, Nvidia led strong gains in the Nasdaq but the Dow Jones closed lower.
In Asia, the tech boost supported shares. The Nikkei 225 index rose 0.8%. In China, the Shanghai Composite was up 0.5%, while financial markets in Hong Kong closed for Buddha Day.
Back in London and retail sales will provide the early focus while Asos is also one to watch after it rejigged its finances and launched a fundraise after the close yesterday.