FTSE 100 Live: Stocks soar on hopes interest rates have peaked

The FTSE 100 index closed up 104.10 points, 1.4%, at 7,446.53 while the FTSE 250 ended up 549.63 points, 3.2%, at 17,735.52

Proactive Published 02/11/2023

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FTSE 100 closes up 104 points at 7,447
Bank of England leaves interest rates on hold
Sainsbury, BT, Shell higher after results

4:40pm: Buoyant day for stocks; mid-caps soar

Stocks prices soared in London as investors bet interest rates have peaked despite the best efforts of central bank officials to curb expectations.

The FTSE 100 index closed up 104.10 points, 1.4%, at 7,446.53 while the FTSE 250 ended up 549.63 points, 3.2%, at 17,735.52.

"Having come off an awful October there appears to be an element of exuberance, as tumbling yields prompt optimism that central banks are done after the Bank of England followed the Fed last night in holding rates at current levels," said Michael Hewson at CMC Markets.

There were strong gains for BT, J Sainsbury and Shell following results although Entain lagged after taking another hit from unfavourable sporting results.

Mid-caps soared with stellar gains for Trainline, OSB and Helios Towers amongst others.

3:25pm: Howden forecasts to be cut after drab trading update

Shares in Howden Joinery Group PLC failed to join in the feel-good mood in the equity market after it said it expects full-year profit to be at the lower end of market expectations, in the face of continuing macro-economic headwinds.

Analysts at Shore Capital said it would cut its top-end forecast of £376 million by arund 10%

Howden UK like-for-like revenue fell 3.3% with total sales falling by 2% in the period.

Year to date total sales are down 0.8% which Shore said means it will also need to downgrade its Howden UK 2023 revenues by c.3%.

In a trading update, Howden said there was a 2.0% annual decline in reported sales for the period ended October 28, with like-for-like sales down 3.3%.

It said that this was a "robust performance ... in the face of continuing macro-economic headwinds."

2:44pm: Jobs to go at Thames Water

Thames Water is poised to cut more than a hundred jobs as the supplier to London contends with its mounting debt pile this year.

Some 140 jobs are set to be cut as part of a wider reduction of around 300 roles, union GMB announced on Thursday.

This comes after the water firm appeared to come close to needing a government bailout earlier this year, on the back of rising interest costs on its hefty amount of debt.

“The last year has been an extremely challenging year for the business and we continue to take a rigorous approach to financial discipline throughout,” a company spokesperson said.

1:48pm: Wall Street motors on hopes rates have peaked

US stocks opened higher on Thursday on hopes interest rates have peaked after the Federal Reserve left interest rates unchanged on Wednesday.

At midday. the Dow Jones Industrial Average was up 302.94 points, 0.9% at 33,577.52, the S&P 500 was up 50.95 points, 1.2%, at 4,288.81 and the Nasdaq Composite was up 170.21 points, 1.3%, at 13,231.68.

New applications for US state unemployment aid, considered a proxy for lay-offs, rose to their highest level in almost two months, in signs that the Fed's previous rate hikes were cooling the labour market.

Initial jobless claims totalled 217,000 during the week ending October 28, the labour department said, their highest level since the week ended September 9.

Economists expected a figure of 210,000.

In company news, Moderna slumped 12.5% after third quarter earnings missed expectations but Eli Lilly jumped 7.3% after reporting third-quarter revenue and adjusted earnings that topped estimates on strong demand for its diabetes drug Mounjaro.

1.28pm: Market Movers

A roundup of some of London's biggest movers on Thursday

Risers

Podcast platform Audioboom Group PLC (AIM:BOOM) popped more than 16% higher after announcing a new milestone of one billion monthly advertising impressions for the first time in October. Read More

Shares in Smith & Nephew PLC (LSE:SN) surged by 5% as the company projected sales growth to hit the upper end of its guidance following a robust third quarter, despite a slight tempering of margin growth expectations. Read More

Fallers

Haleon PLC's (LSE:HLN, NYSE:HLN) stock took a 3.4% hit, erasing roughly £850 million in market value, following the company's third-quarter revenue and profit report that fell short of market expectations. Read More

Hikma Pharmaceuticals PLC (LSE:HIK, OTC:HKMPF) slipped by more than 5% after it lowered annual sales expectations for its Injectables division, it said in a trading update. Read More

1:09pm: BoE keen to rein in hopes for rate cuts

ING’s James Smith thinks barring some “major unpleasant surprises” in the data between now and Christmas, the tightening cycle is over.

He said on the face of it, this latest decision looks neither surprising nor controversial but

beneath the surface, he detects “hints that the Bank is uncomfortable with markets beginning to price rate cuts for next year.”

He pointed out BoE Governor Andrew Bailey is quoted as saying it’s “too early” to be talking about cuts, while the statement says rates need to be restrictive for “an extended period of time”.

He felt that was a slight hardening in the language compared to that seen in August and September.

And while the Bank’s models forecast inflation a touch below target in two years' time they show headline CPI at 2.2% once an “upside skew” is applied, he added.

“That’s policymakers trying to tell us that, at the margin, the amount of tightening and subsequent easing may be insufficient to get inflation back to target,” he said.

12:44pm: Rates expected to have peaked ahead of prolonged pause

Matthew Ryan, at global financial services firm Ebury, thinks while the Monetary Policy Committee (MPC) has kept alive the possibility of another rate increase in the current cycle, this is now increasingly unlikely given Britain’s deteriorating growth outlook.

Instead, he thinks that the committee appears comfortable adopting the ‘Table Mountain’ approach to interest rates, whereby it keeps borrowing costs unchanged at current levels for a prolonged period of time.

The statement rather forcefully pushed back against the prospect of rate cuts any time soon which has supported the pound, he noted, and reinforced his view that policy easing is unlikely to begin until late-2024 at the earliest.”

Samuel Tombs at Pantheon Macroeconomics noted the MPC has gone out of its way to signal that it does not expect to reduce Bank Rate next year.

The Committee has added to its key guidance paragraph that its "latest projections indicate that monetary policy is likely to need to be restrictive for an extended Bank of England period of time” he explained.

Nonetheless, he is sticking with his forecast that the MPC will reduce Bank Rate by 75 basis points next year, with the first 25bp cut coming in May.

“The MPC is currently reactive and backward-looking, and its stance will shift, potentially quickly, as the economic data change,” he said.

Laura Suter, head of personal finance at AJ Bell, noted “anyone hoping for a drop in rates as steep and swift as the climb up will be disappointed.”

Markets are pricing in no cuts until Autumn next year, she pointed out.

She said further hikes can’t be ruled out with the fact that a third of the MPC voted for a rate hike today shows there is still “appetite” among the committee to tighten monetary policy further.

12:26pm: Stocks hold gains, pound jumps after rate call

The FTSE 100 is holding close to session highs, up 89 points, at 7,431 after the Bank of England's rate decision.

Rate sensitive stocks remain in favour with property firms Segro, Land Securities and Unite all up more than 5%.

Housebuilders have also ticked higher with Barrat Developments and Berkeley Group both firm features while property portal, Rightmove is also firmly in the green.

Defensive plays, such as utilities, are not in favour with Severn Trent and United Utilities among the fallers.

Meanwhile, the pound has extended its gains, now up 0.5% at $1.2214.

12:07pm: BofE cuts growth forecasts, inflation not seen hitting 2% until end-2025

The Bank of England has voted 6-3 to leave interest rates unchanged at 5.25%, a 15-year high, following its two-day meeting.

But the BoE left the door ajar for further rates increases explaining the risks to inflation remain “skewed to the upside.”

“Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit,” the BoE said in a statement.

The BoE expects UK GDP to have been flat in the third quarter, weaker than projected in its August report.

GDP is expected to grow by 0.1% in the fourth quarter, also weaker than projected previously.

The BoE expects CPI inflation to hit its 2% target by the end of 2025.

It added its forecasts are conditioned on a market-implied path for Bank Rate that remains around 5.25 until the third quarter of 2024 before declining gradually to 4.25% by the end of 2026, a lower profile than underpinned the August projections.

12:00pm: Bank of England leaves interest rates on hold

The Bank of England has left interest rates unchanged at its November meeting, extending September’s pause.

The Monetary Policy Committee voted 6–3 to leave rates at 5.25%, the highest level in 15 years, as it continues its battle to bring inflation down to its 2% target.

The consumer prices index rose by 6.7% in the 12 months to September, the same rate as in August, confounding hopes for a fall to 6.5%, according to figures from the Office for National Statistics.

The move follows similar rate pauses in Europe and the US.

11:32am: BT rings the right numbers but challenges remains

BT has dialled the right numbers with shares up 8.3% at 120.35p.

Bank of America said the results were “solid,” with “revenue and Ebitda ahead of expectations, supported by a strong Openreach print.”

It noted with slightly lower capex from unit cost efficiencies, cash flow guidance was raised to the upper end of the range and the interim dividend paid as expected.

However, it suggested there are signs of macroeconomic pressure building that could cap upgrades beyond this year with increased consumer mobile losses and Openreach line losses, while pressure builds on BT Business.

“Nevertheless, BT continues to execute well on its fibre build as a longer-term sustainable advantage that should re-rate cash flows and share price,” it thinks.

BofA has trimmed its price target to 187p from 194p and reiterated a buy rating.

But UBS thinks while there may be an initial positive reaction to the better financials, the stock faces a number of “notable risks/overhangs near-term including: VMO2 revisiting M&A discussions with TalkTalk; Sky shifting some of its wholesale broadband business away from Openreach and free cash flow pressures leading to a dividend cut.

11:00am: US stocks seen higher as Fed seen done raising rates

US stocks are expected to open higher after the Federal Reserve left interest rates unchanged with the market increasingly hopeful that rates have peaked.

In pre-market trading, futures for the Dow Jones Industrial Average were up 0.3%, while those for the S&P 500 were 0.5% higher, and contracts for the Nasdaq 100 futures rose 0.8%.

In a widely expected move, the US central bank unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.50%, a 22-year-high, where it has been since July.

Susannah Streeter at Hargreaves Lansdown said: "’There has been a wave of relief that the Fed didn’t rock the boat and stuck to the expected course by keeping interest rates on hold."

Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)) described the FOMC statement and the press conference as “slightly dovish overall, and the market appeared to agree.”

Jerome Powell, chair of the Federal Reserve, said the US central bank remains "strongly committed" and "squarely focused" on getting inflation back to its 2% target, leaving the door ajar for a further interest rate increase.

He cautioned against reading too much into the idea that they are on an extended pause, saying no decision on what they will do at the December meeting has been made.

Policy would need to remain restrictive until inflation was seen to be on a "sustainable path," to 2%, he stated.

Andrew Hunter at Capital Economics said by leaving rates unchanged while continuing to flag the possibility of further tightening to come, the Fed indicated today that it remains in 'wait and see' mode.

"But we suspect the data over the coming weeks will see the case for a final hike continue to erode, with the Fed likely to start cutting rates again in the first half of next year," he added.

Results from Apple will grab the headlines after the market close while Eli Lilly, ConocoPhillips (NYSE:COP) (ConocoPhillips (NYSE:COP)), Moderna, Molson Coors, Fox, Shopify and Paramount Global (NASDAQ:PARA) (Paramount Global (NASDAQ:PARA)) will report before the market opens.

DraftKings, Carvana and Booking Holdings will report after the closing bell.

10:32am: Sterling up, bond yields down ahead of BoE

The pound is up, and gilt yields are down ahead of the rate decision at midday - for a preview click here.

Sterling rose 0.3% against the dollar on the perception that US interest rates have peaked after the Federal Reserve held rates steady for the second meeting in a row.

Russ Mould, investment director at AJ Bell said if the Fed Chair Jerome Powell “makes it a hat-trick in December, it is feasible that markets could take this as confirmation the Fed is done raising rates altogether in this cycle.”

Meanwhile, the 10-year bond yield hit a two-week low, down 0.09 percentage points at 4.41% with the Bank of England expected to follow suit and leave interest rates unchanged.

Back @bankofengland for another interest rates lock-in. Markets expect rates to be unchanged at 5.25% but will be closely watching the Monetary Policy Committee’s tone around how inflation is easing and how long rates will stay at 14 year highs pic.twitter.com/hcWr5KnJbZ

— Ashley Armstrong (@AArmstrong_says) November 2, 2023

10:05am: Cost savings to offset pay rises at Royal Mail owner, IDS

Another winner in the FTSE 250 is Royal Mail owner, International Distributions Services, up 4.3%.

Citi reiterated a buy rating, despite a reduced price target of 325p.

“We believe that c.10% of pay rises between 2022 and 2025 amounting to £400 million will be more than offset by the proposed productivity, operational improvements, and network optimization,” it said.

It highlighted the potential for cost savings from seasonal contracts, reduced sorting hours and sickness rates and estimated a potential real estate disposal value of c.£240 million from the network optimization of Parcelforce and Royal Mail depots.

9:45: Helios and Trainline the winners in the FTSE 250

Over to the FTSE 250, and results and updates have also sparked some chunky moves.

Helios Towers is up 8.3% at 67.78p after raising guidance.

The telecommunications infrastructure company now expects tenancy additions of 2,200 - 2,400, up from 1,900 - 2,100, and adjusted Ebitda of $365-$370 million, up from $355-$365 million.

Helios saw third quarter adjusted earnings rise 7% to $95.4 million, with a 2% increase in revenue to $183.5 million.

Trainline was also on the right track, up 8.2% at 283.60p, after tightening guidance towards the upper end of the range.

It now predicts annual revenue growth between 15% and 20% (previously 13% to 22%) and net ticket sales growth of between 17% and 22% (previously 13% to 22%).

Half-year revenue jumped 19% to £197 million with operating profit up 36% to £23 million.

"Trainline’s continued success in the face of negative market sentiment cannot be questioned in our view," said analysts at Peel Hunt.

OSB rose 7.3% after what it called a strong financial and operating performance in the third quarter.

The financial services operator said arrears balances remained broadly stable and retail deposits had grown 5%.

“The credit performance of our borrowers remained strong, with broadly stable three months plus arrears and no material change in the group’s macroeconomic scenarios in the third quarter, albeit we continue to review these scenarios in light of ongoing uncertainty in the UK macroeconomic outlook,” the company said.

9:13am: European markets lifted by US rate pause

The strong gains in London are being reflected in Europe, with the Dax in Frankfurt up 1.1%, the Cac 40 in Paris up 1.2% and the Ibex in Madrid up 1.0%.

The strong upward moves follow the decision by the US Federal Reserve to leave interest rates unchanged on Wednesday, after the European markets closed.

In a widely expected move, the central bank unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.50%, a 22-year-high, where it has been since July.

Susannah Streeter at Hargreaves Lansdown said: "’There has been a wave of relief that the Fed didn’t rock the boat and stuck to the expected course by keeping interest rates on hold."

He cautioned against reading too much into the idea that they are on an extended pause, saying no decision on what they will do at the December meeting has been made.

Policy would need to remain restrictive until inflation was seen to be on a "sustainable path," to 2%, he stated.

"Given how far we have come along with the uncertainty and risks we face, the committee is proceeding carefully," Powell said, noting decisions would be taken on a meeting by meeting basis.

The topic of rate cuts "doesn't come up," he added.

He said the Fed had come "very far" in this rate-hiking cycle and would take meetings "one-by-one" and look at the data.

"But we suspect the data over the coming weeks will see the case for a final hike continue to erode, with the Fed likely to start cutting rates again in the first half of next year," he added.

8:46am: FTSE 100 storms ahead, BT advances

The FTSE 100 remains buoyant, now up 79 points at 7,422

BT is one of the top performers, up 5.8%, after its half-year results.

Matt Britzman at Hargreaves Lansdown said the “good news from today’s results is the number of customers jumping ship in search of better deals remains relatively low.”

“Some serious cost-cutting efforts are underway, and as the buildout of 5G and fibre gets closer to its end there should be a more normalised spending pattern on the horizon.”

“All in, this was a decent set of results with cash flow now expected at the top of its guided range as some cost pressures ease on the fibre buildout side,” he said.

Shell is ticking along nicely, up 1.5% at 2696.50p, after its third quarter numbers.

Stuart Lamont, investment manager at RBC Brewin Dolphin, said the results “are a contrast with BP’s earlier this week, more or less matching expectations on the back of rising profits.”

“Comparisons with last year, when oil prices first began their surge, were always going to be tough, but the company has managed to deliver.”

“Another share buyback should be good news for shareholders,” he said.

8:16am: FTSE bounces ahead of BoE rate call

The FTSE 100 opened higher on Thursday ahead of the Bank of England’s interest rate decision at midday while Sainsbury jumped amid upbeat trading.

At 8:15am, London’s blue-chip index was up 63.15 points, 0.9% at 7,405.58 while the FTSE 250 jumped 214.06 points, 1.3%, at 17,399.95.

The BoE is widely expected to leave interest rates unchanged with a more decisive vote in favour of a pause likely after the narrow 5-4 vote at the last meeting.

The meeting comes after the US Federal Reserve left interest rates unchanged at the conclusion of its two-day meeting on Wednesday.

Deutsche Bank economist Sanjay Raja said: “Our base case is for 6-3 vote count in favour of keeping bank rate steady.”

“The majority of the committee, we think, will lean on the slightly more dovish news on growth, inflation, and the labour market," Raja said.

On a busy morning for results and trading updates, food retailer J Sainsbury, telco BT and healthcare firm Smith & Nephew pushed higher but it was another losing morning for betting operator, Entain.

Sainsbury rose 4.8% after predicting top-end profits after picking up market share from its rivals which pushed food sales higher.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said: “Sainsbury’s is putting up a good fight in the battle for footfall.”

“Its value driven approach has taken competitors, especially the discounters, head on, and the market share gains show something’s being done right.”

“The expected momentum in profit is a welcome development for investors that have endured a bumpy ride in recent memory.”

BT climbed 3.3% after outgoing boss Philip Jansen said the firm was “seeing predictable and consistent revenue and Ebitda growth.”

In the second quarter, sales rose 2% to £5.25 billion with adjusted EBITDA up 3% to £2.06 billion, a touch ahead of forecast.

Smith & Nephew, the artificial knees and hips maker, rose 4.2% after saying it expects underlying revenue to be at the upper end of expectations.

But it was another bad morning for Entain, the owner of Ladbrokes and Coral, with shares down 4.8%.

The firm’s losing run came as it reported customer friendly results have seen sports margins impact Ebitda by around £45 million in October.

Peel Hunt said: “This does not appear to reflect a structural problem, and may be recovered in the balance of the year, when there is plenty of sport.”

7:54am: Bumper buy-back from Shell

Shell PLC (LSE:SHEL, NYSE:SHEL) picked up the pace of share buybacks, in contrast to rival BP, after reporting a rise third-quarter profit combined to the previous three months.

The oil major said this reflected higher energy prices, strong gas trading and wider refining margins.

“Shell delivered another quarter of strong operational and financial performance, capturing opportunities in volatile commodity markets” chief executive Officer Wael Sawan said.

“Shell is commencing a $3.5 billion buyback programme for the next three months, bringing the buybacks for the second half of 2023 to $6.5 billion, well in excess of the $5 billion announced at Capital Markets Day in June,” he added.

Adjusted earnings in the third quarter ended September 30, rose 23% to $6.22 billion from $5.07 billion in prior quarter, but were down about a third from a year earlier.

The buy-back was in contrast to rival BP which left its buy-back unchanged at $1 billion on Tuesday.

7:46am: J Sainsbury sees top-end profits amid strong food sales

J Sainsbury PLC (LSE:SBRY) said it expects to report top-end profits, after reporting strong food sales and increased record market share gains.

“We're gaining volume from all of our grocery competitors, have grown ahead of the market throughout the first half and made record market share gains,” the company said in a statement.

The food retailer said in the 28 weeks to September 16, sales rose 3.5% to £16.98 billion while underlying pre-tax profits flat at £340 million.

Retail operating profit of £485 million, rose 2%, reflecting strong volume-driven grocery profit growth and continued delivery of Save to Invest cost saving benefits, partially offset by the impact of weaker seasonal sales on General Merchandise profits.

Grocery sales jumped 10.1% with volume growth across both quarters driving record market share gains and consistent market outperformance.

General Merchandise sales rose 1.1% but clothing sales fell 8.4%.

The FTSE 100 firm said expects full-year underlying pre-tax profit between £670 million and £700 million, the upper half of previous guidance, and retail free cash flow of at least £600 million, higher than previous guidance of at least £500 million.

Chief Executive Simon Roberts also confirmed food inflation “is coming down and we are passing savings on to customers.”

The firm paid an interim dividend of 3.9 pence.

7:30am: BT backs guidance, cost savings on track

Plenty of big names reporting today and we will start with BT.

The telco backed full-year guidance after reporting flat revenue and a slight rise in earnings at the half-way stage.

The FTSE 100-listed firm said revenue in the half-year to September 30 was £10.41 billion, up slightly from £10.37 billion while adjusted Ebitda climbed 6% to £4.09 billion from £3.87 billion.

In the second quarter, sales rose 2% to £5.25 billion in the quarter with adjusted Ebitda up 3% to £2.06 billion, a touch ahead of forecast.

Revenue reflected increased fibre-enabled product sales, inflation-linked pricing and improved lower margin trading in Business partially offset by legacy product declines, while earnings benefited from strong cost control.

Reported capital expenditure of £2.3 billion, was down 11% with lower fixed network spend driven by lower FTTP build unit costs.

Philip Jansen, chief executive said: “"These results show that BT Group is delivering and on target: we're rapidly building and connecting customers to our next generation networks, we're simplifying our products and services, and we're now seeing predictable and consistent revenue and Ebitda growth.”

BT said its transformation programme has now delivered £2.5 billion in annualised savings, well on track to meet its £3 billion savings target by 2025.

The firm also confirmed full-year guidance.

Jansen said: “Our delivery in the first half means we are confirming our financial outlook for FY24 with normalised free cash flow now expected towards the top end of the guidance range.”

7:00am: All eyes on the Bank of England after US leaves rates unchanged

The FTSE 100 is expected to climb when trading begins on Thursday ahead of the Bank of England’s interest rate decision at midday which comes after the US Federal Reserve left rates unchanged on Wednesday.

Spread betting companies are calling London’s blue-chip index up by around 39 points after closing up 20.71 points at 7,342.43 on Wednesday.

The BoE is widely anticipated to leave interest rates unchanged at today’s meeting, the second pause in a row.

The UK central bank decided against a hike in its September meeting, maintaining bank rate at 5.25%, which is a more than 15-year high.

"There ought to be enough evidence today for a majority decision to hold rates, with perhaps one or two of the 4 hawks who voted for a hike in September deciding to uphold the status quo, while downgrading their GDP forecasts," said CMC Markets' Michael Hewson.

In the US, the Federal Reserve left Federal Reserve left interest rates unchanged at its November meeting.

In a widely expected move, the central bank unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.50%, a 22-year-high, where it has been since July.

"We are committed to getting inflation back down to our target over time and we will," he said.

He cautioned against reading too much into the idea that they are on an extended pause, saying no decision on what they will do at the December meeting has been made. Policy would need to remain restrictive until inflation was seen to be on a "sustainable path," to 2%, he commented.

Back in London, and there are a raft of top names reporting today with BT, Entain, Haleon, Sainsbury, Shell, Trainline and Smith & Nephew in the calendar.