- FTSE 100 up 134 points at the close
- US stocks boosted by below-forecast inflation
- UK banks gain after passing Bank of England stress test
4.45pm: FTSE closes strong
At the close of trading, the UK's blue chip index had risen by 134 points to finish at 7,416 points, a 1.8% gain for the day.
That marked the index's best one-day gain since early June, after US CPI came in softer than expected.
"Today’s inflation numbers won’t have altered the calculus around a 25bps US rate hike in two weeks’ time, however the direction of travel when it comes to the wider trend suggests it could be the last one in the current rate hiking cycle," commented CMC's Michael Hewson.
"It is this shift that markets are reacting to, with yields falling sharply in the US, as well as here in the UK."
3.45pm: Former Cobham unit on the block
A former part of historic UK aerospace firm Cobham could be acquired by French defence and technology group Thales, which has revealed it is in exclusive talks to buy Cobham Aerospace Communications for $1.1 billion.
Paris-based Cobham Aerospace Communications makes antennas and communication systems and is expected to generate about $200 million in revenue in 2023, Thales said in a statement. Its products include satellite and digital radio systems on the most-flown Airbus and Boeing jets, capable of handling data and improved audio connections.
Thales, the world's third-largest producer of avionics for civil jetliners, said the all-cash acquisition would boost its sales growth and operating profitability and put it in a position to take advantage of steady demand for secured connected cockpit systems.
The deal, which is expected to close in the first half of 2024, will generate medium-term double-digit revenue growth, the French defence giant said.
Cobham, originally founded by Sir Alan Cobham as Flight Refuelling Limited (FRL) in 1934, was acquired by American private equity firm Advent International for £4 billion in January 2020.
After 18 months, Advent had already sold the bulk of Cobham’s operations to other buyers, leaving it with no UK manufacturing operations. Cobham Aerospace Communications became an autonomous entity with its own board of directors and executive committee.
3.20pm: Crude in demand
Oil prices rose on Wednesday afternoon after below-forecast US June CPI inflation data eased some demand worries over the global economy, just as impending supply cuts by the world's biggest exporters will likely drive prices higher.
UK Brent crude was 1.1% higher at $79.11 a barrel, while US West Texas Intermediate (WTI) crude rose 1.2% to $76.04 a barrel.
Craig Erlam, senior market analyst, UK & EMEA, at OANDA commented: “Oil prices have been understandably lifted by the (CPI) release which makes sense. Anything that could enable a soft landing in the US is good for oil prices. Brent was already trending higher though and is now at its highest point since April, having already broken out of the range it traded within for the last couple of months.”
He added: “The next level for Brent to overcome is $80, which would be a big psychological leap. That may also see WTI break above its June high following the spike on the 5th. The move higher also suggests the latest efforts of Saudi Arabia and Russia are working in tightening the markets and boosting prices after multiple failed efforts.”
Top producer Saudi Arabia pledged last week to extend a production cut of 1 million barrels per day (bpd) in August, while Russia will cut exports by 500,000 bpd.
US crude inventories, meanwhile, rose by about 3 million barrels in the week to July 7, according to American Petroleum Institute industry figures quoted by Reuters, well above forecasts for a 500,000-barrel rise in crude stocks.
3.00pm: Monzo adding up
Monzo Bank is reportedly exploring a potential combination with Nordic peer Lunar Group as it looks for ways to expand in Europe, according to Bloomberg.
The news report, citing people familiar with the matter, said Monzo has been holding preliminary discussions with the Danish company about the structure of a possible deal.
A 2021 fundraising for the London-based mobile bank valued the firm at $4.5bn. It brought in money from new investors like Abu Dhabi Growth Fund, Coatue and Tencent as well as existing shareholders including Accel and General Catalyst.
It is understood that Monzo has also studied other potential targets that would help it expand in Europe. Deliberations are ongoing, and there's no certainty it will proceed with a deal, the sources told Bloomberg.
Lunar last raised funds in 2022 at a valuation of about $2.2bn, according to data provider PitchBook. Its investors include Kinnevik AB, Tencent Holdings, Greyhound Capital and Socii Capital, Bloomberg noted.
2.40pm: Wall Street celebrates
The FTSE 100 index traded marginally below 7,400 midafternoon, just easing back from session highs above the level as US stocks rose in early trading after the US consumer price inflation weakened by more than expected in June.
Around 10 minutes after the New York open, the Dow Jones Industrial Average was 275 points, or 0.8% firmer at 34,530, while the S&P 500 index also gained 0.8% and the Nasdaq Composite rose 1.1%.
Oliver Rust, head of product at independent inflation data aggregator truflation, commented: “Today’s US inflation reading from the Bureau of Labor Statistics, showing that annual CPI fell a full 100bps to 3% in June compared to 4% in May, is great news for the US economy and markets. Sectors driving down inflation are utilities, fuel oil, and used cars and trucks, with utilities accounting for the lion's share as prices fell 1.7% in June.
“Such a steep fall in inflation brings the US very close to the Federal Reserve’s long-term target of 2%. Indeed, according to truflation’s independent US CPI index - which measures millions of data points in real-time and so is more accurate and timely than official numbers* - live US inflation is already at 2.5% (as of July 12). We highlight the biggest downward movement in utilities, clothing, car purchases, communications, and health.”
He added: “This latest decline in inflation to within touching distance of the Bank's target could arguably serve as a signal to the Federal Reserve to stop hiking interest rates. The decision to raise rates steeply over the past two years has, while necessary, been painful for the US economy. It has hit the banking sector hard, while US consumers are now in record levels of debt.
“However, based on the minutes of its last meeting, the Federal Reserve seems set on one or more rate hikes this year to cement its victory against inflation, with one 25bps hike expected this month and then a review again in September. Among the Fed’s reasoning may be a very strong labor market, which has very low unemployment and very high wage growth, and the fact that US consumers are indeed still spending.
“Moreover, while prices are falling on an annual basis, they are still rising month on month and sectors with the stickiest inflation are among the most crucial for the US economy and US consumers. These include food, where prices grew 0.2% last month compared to May, and housing, up 0.4% month on month.
“As such, the Fed likely does not want to give markets reason to celebrate, which would cause US consumers to perhaps take a foot that is only very lightly pumping the breaks, off them entirely. Whatever the FOMC decides at the end of the month, however, they are walking a very precarious tightrope as they balance inflation with economic growth.”
2.20pm: Monetary tightening appears to be working in US
Commenting on the below-forecast June US inflation numbers, Daniel Casali, chief investment strategist at Evelyn Partners, said: "The Fed should take some comfort in the fact that monetary tightening appears to be working to bring down inflation ahead of the FOMC meeting on the 26 July. Annual headline CPI inflation is heading back towards pre-pandemic rates and core (ex-food/energy) price rises are now below 5%. There are three reasons to expect underlying inflation to slow further from here.
"First, supply chain disruption from the pandemic has lessened significantly. One way to observe this is through used car prices, which are now falling on an annual basis as production normalises. This puts downward pressure on a past key driver of core CPI inflation during the early stages of Covid from 2020.
"Second, rental inflation continues to slow. Using data from timely online residential platforms, recent research from Goldman Sachs shows that average annualised rental inflation has eased to just +1% over the last 8 months to June from 20% plus in mid-2021. It will take time for lower rental prices to feed through to inflation, but there is evidence it is starting to happen. For instance, June shelter CPI inflation slowed to 7.8% from a peak of 8.2% in March. CPI inflation (ex-shelter) in June was up just 0.8% from a year ago.
"Third, lead indicators point to lower core inflation in the months ahead. Selling prices from the National Federation of Independent Business, or better known as the small business survey, have fallen to a level last seen when core CPI inflation was roughly 4%. The annual change in job openings is another lead indicator with a decent track record of leading inflation and this too points to lower pace of price gains ahead."
Casali concluded: "Regardless of whether the FOMC (the US Central Bank’s interest-rate setting body) raises interest rates later this week or not (markets’ expectation is current for a 25bps increase), the Fed is likely coming to the end of its interest rate hiking cycle. This reduces the risk that the FOMC overtightens on interest rates and creates downward pressure to the economy and financial markets. Moreover, as a countercyclical currency, we expect the dollar to depreciate against other major currencies, since the risk of a so-called economic hard landing is reduced. Dollar depreciation should provide additional liquidity, which will help equities to continue their bull run."
2.05pm: US inflation slows
US inflation rose at the slowest pace in more than two years in June, according to new data from the US Bureau of Labor Statistics.
Headline CPI rose 3% in the 12 months ended in June - down from 4% in May, below the expected 3.1% gain and marking the smallest annual increase since March 2021. It rose 0.2% month-over-month, up from a 0.1% gain in May.
Core inflation, which removes the more volatile food and energy components, also softened more than expected during June.
Core CPI came in at 4.8% for the 12 months that ended in June, below the expected 5%.It rose 0.2% month-over-month in June, the smallest one-month gain in that reading since August 2021.
“Cold as ice—that is the number that comes to mind when you look at the US CPI data,” commented Zaye Capital Markets chief investment officer Naeem Aslam.
“This is the lowest number since the pandemic, and this is certainly good news for the economy, but it is important to keep in mind that this is still a transitory situation.”
Aslam concluded: “Overall, we think this is the best news for the markets so far this year when it comes to the US CPI data.”
Just after the inflation report was released, futures for the Nasdaq had added 0.9%, the S&P 500 had added 0.6%, and the DJIA had added 0.5% in pre-market trading.
1.33pm: A look at some of the top risers and fallers on the junior market
Shoe Zone PLC (AIM:SHOE) marched ahead, adding 6% to 254p after the footwear retailer reported an “exceptional” month in sales.
RBG Holdings PLC (AIM:RBGP), the legal and professional services group, saw its shares climb 18% to 32p following the sale of LionFish Litigation Finance.
XLMedia PLC (AIM:XLM, OTC:XLMDF), the digital media company, bounced 2.5% after the firm confirmed the sale of three European casino assets.
EQTEC PLC (AIM:EQT) shares jumped more than a third as investors warmed to the sale of its France marketing centre to partner Idex.
Thor Explorations Ltd (TSX-V:THX, AIM:THX, OTC:THXPF) rose 14% on the back of higher production from its Segilola gold mine in Nigeria during the second quarter of 2023.
Fiinu Plc (AIM:BANK) shares plummeted 62% to 2.5p after the 'Plugin Overdraft' company said it has still not re-applied for a banking licence as it cannot raise enough funding.
IOG PLC (AIM:IOG) shares fell back 13% after an update confirmed first-half revenues below expectations due to what one City analyst described as “a quirk in farm-out royalty terms”.
1.03pm: US futures higher ahead of CPI figures
US stocks are expected to open higher on Wednesday, though much will depend on the June consumer price index, due at 8.30am ET, the first of this week's duo of inflation numbers, with the producer price index due on Thursday.
Economists are forecasting that June CPI will rise by 0.3% month-on-month and 3.1% on an annualized basis, down from 4.0% in May.
Excluding volatile food and energy prices, core CPI is expected to increase by 0.3% month-on-month and 5.0% on the year.
TickMill Group’s market analyst Patrick Munnelly commented: "While a further .25% hike from the Fed is widely expected as the base case scenario for the July FOMC, expectations have shifted beyond this month. With a less dovish outlook voiced by some Fed members recently and with jobs data cooling, the market is anticipating that the Fed will likely return to a pause after this next hike.
"With that in mind, today’s inflation reading will be used as a key barometer for assessing this likelihood. If CPI is seen falling further, this should reinforce the view that the Fed will pause after hiking in July".
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were 0.1% higher, while those for the S&P 500 index and the Nasdaq 100 both added 0.2%.
Stocks finished higher on Tuesday, with the DJIA closing 317 points, or 0.9% firmer at 34,261, while the S&P 500 and Nasdaq Composite added 0.7% and 0.6%, respectively.
Aside from the consumer inflation report, investors will also monitor comments on Wednesday from Federal Reserve officials including Richmond Fed President Tom Barkin, Minneapolis Fed President Neel Kashkari, Atlanta Fed President Raphael Bostic and Cleveland Fed President Loretta Mester for any insights into the state of the US economy and the future for interest rate policy.
12.43pm: Unbound says administration an option if restructuring talks fail
Unbound Group PLC (AIM:UBG) could be placed into administration should restructuring and funding talks prove unsuccessful.
The owner of Hotter shoes said it continues to explore options for the group and its shareholders, which include a formal restructuring plan and equity raise.
“In the event that such discussions prove unsuccessful, it is likely that administration would occur,” it added.
The firm was responding to media speculation surrounding the firm.
Sky News reported the company was seeking to raise up to £2mln within days to pave the way for the implementation of a restructuring plan.
The company has been struggling for some time and in May announced that a £10mln investment from Marwyn Investment Management had fallen through.
Unbound said in a stock exchange announcement on 27 June that it had terminated a formal sale process for the Hotter Shoes business.
Shares sank 33% to 0.83p.
12.28pm: EU clears Broadcom's acquisition of VMware
Brussels has cleared Broadcom’s US$69bn acquisition of cloud software company VMware after it offered concessions make sure the market remains competitive, the European Commission said.
The move came after a lengthy probe into one of the largest tech deals in history.
Following the EU’s concerns that the deal could harm some of VMware’s clients, Broadcom committed to ensuring that VMware’s software can still work with rivals’ hardware.
“Broadcom offered . . . comprehensive access and interoperability commitments” to existing players and “any potential future entrant”, the EU said.
Broadcom said: “With this decision, the commission recognises the importance of this combination in enabling enterprises to accelerate innovation.”
The deal is still awaiting clearance in the UK and the US.
Back in London, and the FTSE 100 is roaring along, at its best levels for the day, up 88 points.
Gains are spread between different sectors with Smurfit Kappa, Lloyds, JD Sports, Anglo America and Johnson Matthey the top five risers.
There are only six blue chips in the red with broker downgrades keeping IAG and Bunzl on the back foot.
12.09pm: Mortgage rates rise again
In the daily mortgage rate update, two-year fixed mortgage deals have become more expensive again.
The average rate on a two-year fixed residential mortgage has risen to 6.7% from 6.66%, a 15-year high.
The average five-year fix has climbed to 6.2% from 6.17%, the highest since last October, according to the financial data firm Moneyfacts.
The news comes as the Bank of England that mortgage holders face big increases in monthly payments as they move to higher rates.
The BoE projects the proportion of income households spend on mortgage payments will rise to 8% by the end of 2025 from 6%.
This is still well below the 10% level seen in the early 2000s.
11.54am: Pearson results could act as catalyst for shares
Pearson PLC (LSE:PSON) has enjoyed a good day with shares up 2.2% at 837p and Citi thinks there is more to come.
The investment bank thinks first-half results from the educational publisher due on 31 July will act as a “positive catalyst for the shares and we open a 30-day positive catalyst watch to take advantage of this.”
Central to its view is: the prospect of a beat on adjusted operating profit which is a function of the progressive mix shift toward assessments and qualifications, the potential for an upgrade to FY guidance and a view that the buyback will begin after the results and by September at the latest.
With Pearson's shares down around 11% year-to-date Citi thinks “risk/reward tilts positively.”
11.28am: Babcock rises after netting £50mln contract
Babcock International Group PLC advanced 2.7% to 280.06p after being awarded a £50mln contract by the UK Ministry of Defence.
The 12-month deal will see the firm support operational requirements for Ukraine’s military land assets as part of the UK’s support for the country.
Babcock will provide operational support to armoured vehicles provided by the UK to the Ukrainian military, such as Challenger 2 tanks and the Combat Vehicle Reconnaissance (Tracked) – known as CVRT, train Ukrainian personnel and manage vital equipment, supply chains and spares.
"We are honoured to stand with the Ukrainian and UK governments, providing critical support for Ukraine's urgent military operations. Through the relentless commitment of our teams, and supply chain partners, we will support land defence assets and equipment that Ukrainian troops can have the utmost confidence in," commented chief executive David Lockwood.
11.18am: US inflation forecast to hit lowest level in two years
The FTSE 100 remains firmly in the green but whether it holds onto those gains may depend on the upcoming US CPI print.
US inflation is expected to fall sharply in June to its lowest level in two years but it is unlikely to sway the Federal Reserve from raising interest rates at its July meeting.
Economists expect the headline inflation figure to ease to 3.1% in June from 4.0% in May, on an annual basis. The core figure - which excludes food and energy - is expected to drop to 5.0% from 5.3%.
Prices are expected to increase 0.3% on a monthly basis in June, up from 0.1% the previous month, but the annual figure will be helped by so-called base effects, as extremely large rises from June 2022 drop out of the calculations.
While headline inflation has fallen steadily towards the Fed’s 2% target, core inflation has remained more stubborn prompting expectations of more interest rate rises.
The CME Fed Watch tool shows a 92.4% probability that interest rates will be increased at the July meeting.
The US central bank left rates unchanged at its June meeting but has signalled it expects at least two further rises before the end of the year.
Craig Erlam at Oanda reckons it “would take something remarkable from the inflation report today to convince policymakers that they can afford to pause again.”
Deutsche Bank agreed. “For markets, the big question will be what it means for the Fed, but our economists think it would take a very large inflation miss to call a July hike into question, particularly given the jobs numbers last week.”
“And for now at least, investors remain very confident that the Fed will proceed with a hike in two weeks’ time, with futures still pricing in a 89% chance of a move.”
10.55am: Virgin Money targets buybacks after passing stress test
Virgin Money UK PLC (LSE:VMUK) reaffirmed buyback and dividend plans after sailing through the Bank of England's stress test.
Shares jumped 6.6% as the lender said it would resume its buyback programme during the 2023 financial year and target a 30% full-year dividend payout level.
It continues to expect to operate above a 14% CET1 ratio during the 2023 financial year although given the level of macroeconomic uncertainty this is likely to fall to 13-13.5% in 2024.
The firm said the results were "significantly in excess of the published hurdle rates and it is not required to take any additional capital actions or to submit a revised capital plan."
10.41am: Winkworth warns on profits
Further evidence of a slowdown in the housing market as estate agent Winkworth has warned of a hit to profits this year, blaming surging interest rates, lower mortgage approval rates and a slowing housing market, adding to concerns over the health of the sector overall.
Winkworth said pre-tax profits for the first half of 2023 would be “below last year’s level”.
Lettings were up about 11% and sales were down 20% compared with the same period last year, as uncertainty has led to “a high number of agreed sales being delayed to the second half of the year”.
“The outlook for sales in the second half of the year remains uncertain [and] full year pre-tax profits are likely to fall below market expectations," it warned.
Shares fell 3.3% to 140.25p after earlier falling as low as 121.25p.
9.58am: Bunzl hit by RBC downgrade
One of the few fallers in the FTSE 100 is Bunzl PLC (LSE:BNZL), down 2.2%, while the FTSE basks in relative glory, up 71 points at 7,353.
RBC Capital Markets has downgraded the stock to underperform from sector perform and cut its share price target to 2,550p from 2,850p.
“We have assembled a composite global raw material input cost basket we believe to be relevant for Bunzl (plastic polymers, pulp, industrial metals, rubber, chemicals) which is now the most negative it has been in the last decade,” the broker said.
It believes this is likely to feed through into product price deflation in financial year 2024 and 2025 once it works its way downstream.
“We think this alone is likely to send Bunzl’s underlying revenue growth into negative territory in FY24E and drive a de-rating of the shares.”
Estimates for financial year 2024 and 2025 have been lowered by around 5% and around 8%, respectively, reflecting cuts to organic growth in both years due to deflationary product pricing and an assumption of margin normalisation to 7.1% by 2025.
RBC sees scope for both consensus earnings pressure and valuation multiple compression.
9.33am: Thousands of mortgage holders face £1,000 monthly hit
Bank of England governor Andrew Bailey is speaking after the publication of the financial stability report, the Bank’s biannual health check on the UK economy.
The report made grim reading for homeowners with a mortgage.
Our Financial Stability Report looks at the risks in our financial system and what we are doing to ensure households and businesses can rely on it. https://t.co/Pobt3xndiO #FinancialStabilityReport pic.twitter.com/atOJiM7Sfz
— Bank of England (@bankofengland) July 12, 2023
The BoE estimated that by the end of 2026, around 200,000 households will see their monthly mortgage bills rise by £1,000 or more while around 1mln households with a fixed-rate mortgage will see their monthly mortgage repayments go up by about £500.
NEW@BankofEngland says its models show that nearly a million mortgage holders across the UK will see monthly repayment increases of £500 or more in the coming months - or £6,000 a year. pic.twitter.com/sgpJUCzJ82
— Ed Conway (@EdConwaySky) July 12, 2023
Bailey said the impact of rising mortgage payments “is going to have an impact, clearly. That is part of the transmission of monetary policy, no question about that.”
For the average household, monthly interest payments will go up by about £220 if they remortgage during the second half of this year and their rate goes up by about 3.25 percentage points.
Around 4.5mln people with a fixed-rate mortgage have seen their monthly repayments go up since interest rates started to rise in late 2021, the Bank found.
The Bank of England also warned about signs of rising stress among the most indebted consumers and smaller businesses due to rising interest rates.
It said the UK economy has so far been resilient to higher rates, though it will take time for the full impact of higher interest rates to come through.
At the press conference Bailey said: “It is the case that elements of the global financial system do remain vulnerable to increased interest rates and uncertainty surrounding the economic outlook, and of course tensions geopolitically speaking.”
9.12am: British Airways owner grounded by Deutsche downgrade
British Airways owner, International Consolidated Airlines Group SA (LSE:IAG), sits top of the FTSE 100 fallers after being downgraded by Deutsche Bank.
Shares fell 3.2% after the German investment bank moved its rating to hold from buy as it cut price targets across the European airlines sector.
Analyst Jamie Rowbotham said: “We have seen some weakness in our fares data, with 60-day out prices for travel in August having screened ~2% down yoy on average, and walk-up fares in June ~6% down.”
He said while the idea of a slowdown did not resonate with the airlines in recent pre-close conversations, “we are nonetheless exercising some caution.”
For 2023, the bank has trimmed forecasts for the September quarter more than offset by upgrades to the Junw quarter and thinks assumptions for the December quarter are sufficiently prudent.
For 2024, however, Deutsche predicts fares will fall 6% year-on-year versus flat before.
This has “resulted in a material cut to our profit forecasts which now sit ~20% below consensus on average.”
Deutsche has lowered its share price target for IAG to 165p from 200p.
The bank retains a buy rating on easyJet PLC, but cut its price target to 585p from 635p, and a hold rating on Wizz Air with a reduced price target of 2,850p, down from 3,700p.
In Europe, it moved Air France-KLM (OTC:AFLYY) to hold from buy and cut its price target to €1.85 from €2.3.
Lufthansa remains a buy with a price target of €11, down from €14.5.
Shares in Air France fell 4.4% and Lufthansa dipped 1.6%.
8.51am: Banks lead FTSE 100 higher
The FTSE 100 remains on the front foot with banks a firm feature after passing the Bank of England stress test.
Sophie Lund-Yates at Hargreaves Lansdown said: "The tests come as a relief during a time that’s been marred by anxiety about regional banking failures in the US as interest rates have shot up in many major economies."
"A combination of strong balance sheets, healthy asset-classes and a stricter regulatory environment mean the UK’s financial giants also have more room to help customers if things get tougher, including changing the terms of loans if needed."
The BoE also warned of signs of rising stress among the most indebted consumers and smaller businesses as interest rates have risen sharply around the world, although overall the UK economy has so far proved resilient.
In its latest financial stability report the BoE said: “Overall, UK businesses are expected to remain broadly resilient as the impact of higher interest rates comes through, but there will be increased pressure on some smaller and highly indebted businesses.”
Pearson was another firm feature, up 1.3%, after Citi made positive comments.
"We think Pearson's 1H results due on 31 July will act as a positive catalyst for the shares and we open a 30-day positive catalyst watch to take advantage of this," it said.
8.17am: FTSE 100 opens higher, banks gain after passing stress test
The FTSE 100 made a bright start to trading with banks on the front foot after passing the Bank of England’s annual stress test.
At 8.15am, London’s blue-chip index was up 18.56 points, or 0.25% at 7,301.08 while the FTSE 250 was little changed at 18,141.93.
The UK’s top eight banks would be “resilient” in an economic environment much worse than the one they face, and are well positioned to support households and businesses through a period of rising interest rates, the Bank of England said today.
The latest tests cover NatWest, HSBC, Barclays, Standard Chartered, Lloyds, Santander, Nationwide and Virgin Money.
Shares rose, along with the market, with Lloyds Banking Group PLC (LSE:LLOY) up 1.0%, Barclays PLC (LSE:BARC) up 1.1%, NatWest Group PLC (LSE:NWG) up 0.7% and Virgin Money UK PLC (LSE:VMUK) up 2.8%.
However, the BoE also warned of signs of rising stress among the most indebted consumers and smaller businesses as interest rates have risen sharply around the world, although overall the UK economy has so far proved resilient.
In its latest financial stability report the BoE said: “Overall, UK businesses are expected to remain broadly resilient as the impact of higher interest rates comes through, but there will be increased pressure on some smaller and highly indebted businesses.”
In company news, JD Wetherspoon PLC (LSE:JDW) rose 3.9% after a strong trading update.
The pub chain backed current guidance as it reported sales rose 11.5% year-on-year in the 10 weeks so far of its final trading quarter and are up 12.9% in the financial year to date.
Bunzl PLC (LSE:BNZL) fell 2.7% as RBC downgraded to underperform while International Consolidated Airlines Group SA (LSE:IAG), the owner of British Airways, fell 2.0% as Deutsche Bank downgraded to hold from buy as it cut price targets across the European airlines sector.
7.54am: UK's top banks pass Bank of England stress test
The UK’s top eight banks would be “resilient” in an economic environment much worse than the one they face, and are well positioned to support households and businesses through a period of rising interest rates, the Bank of England said today.
In its annual stress test, the BoE said major UK banks would be resilient to a “severe stress scenario” that incorporated persistently higher advanced-economy inflation, increasing global interest rates, deep and simultaneous recessions in the UK and global economies with materially higher unemployment, and sharp falls in asset prices.
The latest tests cover NatWest, HSBC, Barclays, Standard Chartered, Lloyds, Santander, Nationwide and Virgin Money.
“The results indicate the UK banking system would be able to withstand the severe macroeconomic scenario and has the capacity to support households and businesses throughout the stress,” the BoE said in a statement.
The scenario is more severe than the 2007–08 global financial crisis and substantially more severe than the current macroeconomic outlook.
The stress test results showed no bank is required to strengthen its capital.
Speaking to MPs yesterday, leading bank executives said they have so far seen little evidence of rising arrears in loan books even as mortgage rates climb.
7.26am: JD Wetherspoon backs guidance
Kicking things off today is a trading update from pub chain JD Wetherspoon PLC (LSE:JDW).
The pub chain run by the outspoken Tim Martin backed guidance as it reported strong sales growth in the final quarter of its financial year.
Martin, chairman of Wetherspoon's said: “The company expects profits in the current financial year to be in line with market expectations.”
Like-for-like sales for the first 10 weeks of the final quarter of the financial year increased by 11.5% in the fourth quarter to date compared to the previous year and by 12.9% year-to-date,
Martin forecast an improved outcome in the new financial year with the first half outcome expected to be in line with the second half of the current year.
7.05am: FTSE seen higher ahead of US inflation figures
Good morning. The FTSE 100 is expected to open higher as investors await the latest US inflation print.
Spread betting companies are calling London’s blue-chip index up by around 15 points after closing up 8.73 points at 7,282.52 on Tuesday.
US markets were in an upbeat mood on Tuesday ahead of the numbers with the Dow Jones Industrial Average up 0.9%, the S&P 500 up 0.7% and the Nasdaq Composite up 0.6%.
Economists expect the headline US inflation figure to ease to 3.1% in June from 4.0% in May, on an annual basis. The core figure - which excludes food and energy - is expected to drop to 5.0% from 5.3%.
"With another rate rise due later this month this week's CPI numbers won't impact how the Federal Reserve is likely to act in 2 weeks' time, but the numbers might shine a light in whether we can expect another rate hike in September," said Michael Hewson, CMC Markets UK chief market analyst.
New Zealand's central bank left its key interest rate unchanged Wednesday, saying it expected inflation to ease further in coming months.
Back in London, and the early focus will be updates from JD Wetherspoon, Tullow Oil, PageGroup and Renold.