- FTSE 100 closed down 14 points at 7,482
- Buyback boosts Coca-Cola HBC, upgrade lifts Admiral
- AO World ups guidance but sales fall, Capita axes 900 jobs
4:40pm: Stocks slips as BoE's Bailey's warns of dangers of persistent inflation
The FTSE 100 closed lower while mid-caps tumbled as Bank of England governor warned of the threat of persistent inflation and said interest rates would need to stay high for an extended period.
At the close, London's blue-chip index was down 14.37 points, 0.2%, at 7,481.99 while the FTSE 250 was down 251.42 points, 1.4%, at 18,347.63.
Bailey told the Treasury Committee that the market is putting “too much weight” on the current data releases, including the fall in inflation in October.
He said the Bank is concerned about the potential persistence of inflation, in the remainder of the journey to 2% inflation.
“I think the market is underestimating that,” he commented.
Bailey’s comments sent the pound higher, hitting the dollar earners in the lead index, while a drop in the oil price pushed BP and Shell lower.
Leading the risers in the FTSE 100 was Coca-Cola HBC which jumped 5% after it unveiled a €400 million share buy-back while JD Sports Fashion climbed as US peer Dick’s Sporting Goods raised guidance.
Admiral was lifted by a double upgrade by JPMorgan, but British Airways owner, IAG’s Capital Markets Day failed to inspire sending shares 3.9% lower.
Elsewhere, AO World had an up and down day, closing lower, after it raised profit guidance but cut the outlook for sales growth, while Capita jumped after boosting its cost savings target, which will mean the loss of 900 jobs.
3:53pm: Intermediate Capital upgraded, on way to FTSE 100 too?
Shares at Intermediate Capital Group (LSE:ICP) have risen 1.3% with a double-dose of good news.
The private-equity fund manager is tipped for a move to the FTSE 100 at the next quarterly reshuffle at the expense of Hargreaves Lansdown.
It also was upgraded to overweight from neutral by analysts at JP Morgan with a December 2024 price target of 1,882p.
The investment bank said it surprised positively last week, delivering a better than expected deployment in its private debt funds as well as better than expected net investment returns on its balance sheet portfolio.
In addition, ICG has several new strategies on the pipeline, it pointed out.
“We believe that the still low P/E multiple as well as earnings upgrades, primarily on the back of better net investment returns but also higher expected FMC earnings, leave more room for outperformance,” the bank said.
3:16pm: Pound gains as Bailey warns of persistent inflation
Sterling has enjoyed a good day, rising 0.3% to $1.2546, after the Bank of England governor Andrew Bailey told MPs that he remains concerned about the persistence.
Bailey told the Treasury Committee that the market is putting “too much weight” on the current data releases, including the fall in inflation in October.
He said the Bank is concerned about the potential persistence of inflation, in the remainder of the journey to 2% inflation.
“I think the market is underestimating that,” he commented.
Craig Erlam at Oanda said: "The Bank of England used its monetary policy report hearing to once more push back against market expectations on rate cuts next year."
"A lot of the comments echoed similar sentiments expressed recently by the central bank regarding the job not being done, risks being to the upside for various reasons, and the need to leave rates for an extended period. However, some policymakers went one further, suggesting rates may need to rise further."
"Time will tell how realistic the prospect of another rate hike is, considering inflation recently fell even faster than the BoE forecasts anticipated, but it's clear that markets pricing it at near zero with a cut in the second quarter has irked some on the committee."
2:45pm: Weak start on Wall Street
US markets are open and stocks have made a cautious start to the day ahead of the minutes of the latest Federal Reserve meeting and following a mixed bag of results from a number of leading retailers.
Shortly after the opening bell, the Dow Jones Industrial Average was down 92.59 points, 0.3%, at 35,058.45, the S&P 500 was down 12.14 points, 0.3%, at 4,535.24 and the Nasdaq Composite was down 51.16 points, 0.4%, at 14,233.38.
There was mixed news as a number of retailers revealed latest earnings with Lowe's and Best Buy falling after cutting guidance on weaker-than-expected sales in the third quarter.
But Abercrombie & Fitch, Dick’s Sporting Goods and Burlington Stores raised their annual outlooks, betting on high holiday season demand after reporting strong back-to-school sales.
Elsewhere, China has approved the merger between US chipmaker Broadcom and cloud software company VMware, clearing a regulatory hurdle that has hung over the $69 billion deal.
Beijing approved the deal with some “restrictive conditions”, according to a statement from the anti-monopoly regulator on Tuesday.
Back in London, and the FTSE 100 has rallied from earlier lows, now down 19 points at 7,476.
1:30pm: Here are some of today's risers and fallers
Intercede Group (AIM:IGP) PLC rallied 17% higher on Tuesday following the release of the credential-management company’s first-half financials.
The group reported record revenues of £7 million, marking a 15% year-on-year increase, with operating profit increasing from £600,000 to £1 million.
Shares in Molecular Energies PLC (AIM:MEN, OTC:PPCGD) were up as much over 7% in early trade as the group pointed to the potential positives of the changing of the political guard in Argentina where it is active.
It said it is closely monitoring the recent election results in Argentina, where Javier Milei, a free-market economist, will become president next month.
Shares in Samuel Heath & Sons Plc (AIM:HSM) dribbled 15% lower to 340p after the maker of taps and bathroom fittings revealed a significant slump in its order book as trading conditions have "worsened materially" in the UK and Europe.
The second half is now expected to slump to a loss after redundancy costs, unless sales improve.
Shares in staffing firm Empresaria Group plc (AIM:EMR) fell 17.5% following an update that challenging market conditions experienced in 2023 are anticipated to continue into the first half of 2024.
The company highlighted the significant impact on permanent recruitment, with clients deferring hiring decisions and start dates to the new year.
1:18pm: JD Sports jumps as Dick's Spoting Goods lifts guidance
Shares in the JD Sports Fashion PLC (LSE:JD.) has reversed early losses and now trade 4.4% to the good taking a positive readacross from the results at US peer Dick’s Sporting Goods.
JD Sports has been boosting its presence in the US and, in August, saw its shares take a hit after weak results from both Dick’s and Foot Locker.
But today bought better news with shares in Dick's up 7% in pre-market trading.
The US firm delivered 1.7% growth in third quarter comparable store sales and raised its 2023 comparable store sales outlook to a range of positive 0.5% to positive 2.0%, up from flat to positive 2.0% previously.
It raised full year non-GAAP earnings per diluted share outlook to $12.00 to $12.60, up from $11.50 to 12.30 previously.
The company reported a "very strong back-to-school season."
"As a result of our strong Q3 performance, we are raising our full year outlook, which balances the confidence we have in our key strategies with an acknowledgment of the uncertain macroeconomic environment," said Lauren Hobart, president and chief executive officer.
1:05pm: Deliveroo riders not entitled to union rights, rules court
Deliveroo PLC (LSE:ROO) riders are not workers entitled to trade union rights such as collective bargaining, the Supreme Court has ruled.
The Independent Workers Union of Great Britain wants to represent Deliveroo riders in north London in order to negotiate on issues of pay, hours and holiday with the company.
After losing a bid for recognition at a specialist tribunal in 2017, the IWGB unsuccessfully challenged that decision at the High Court and Court of Appeal, and in April the union took its case to the Supreme Court.
However, in a unanimous ruling on Tuesday, five justices at the UK's highest court dismissed the appeal.
In the judgment, David Lloyd-Jones and Vivien Rose said they agreed with previous decisions that riders are not in an "employment relationship" with Deliveroo and are therefore not entitled to collective bargaining rights.
The justices said multiple factors, including that riders are free to reject offers of work and to work for Deliveroo's competitors, are "fundamentally inconsistent" with such a relationship.
12:37pm: Coca-Cola HBC buyback sends a strong message
Coca-Cola HBC remains the top riser in the FTSE 100, up 4.5% after it launched a €400 million share buyback.
“The launch of a buyback is c 3pc accretive to 2025 EPS and sends a strong message that the company sees the shares as undervalued, a view that we would agree with.,” analysts at Jefferies said.
“With Net debt/ Ebitda staying below the 1.5x-2x range net of the buyback, the company retains balance sheet flexibility for potential future M&A,” it added.
Jefferies calculates that net debt/ Ebitda increases from current 1.0x in 2024 and 0.7x in 2025 to 1.1x and 1.0x net of the buy-back, still below the bottom end of the 1.5x-2.0x target range.
It does think the buyback makes a special dividend unlikely in the near term.
12:05pm: Weak start expected on Wall Street
Another factor holding the FTSE back, is an expected weak start in the US where stocks are expected to open lower ahead of the minutes of the latest FOMC meeting and a bumper batch of earnings, including from Nvidia after the market close.
In pre-market trading, futures for the Dow Jones Industrial Average were down 0.2%, while those for the S&P 500 were 0.2% lower, and contracts for the Nasdaq 100 futures eased 0.1%.
Joshua Mahoney at Scope Markets said: “After a quiet start to the week, the big macro event of the day will be publication of the FOMC meeting minutes.”
“In the event these contain further hints of monetary policy being relaxed, that would have the potential to give stocks another broad-based leg up, extending recent gains,” he reckons.
Aside from Nvidia, several retailers including Best Buy, Dick’s Sporting Goods, Burlington Stores, Abercrombie & Fitch and Kohl’s will report earnings before Wall Street’s opening bell.
Another retailer, Lowe's saw shares fall more than 5% in pre-market trading after it cut guidance on lower than expected DIY sales.
HP and Nordstrom will post their latest earnings after the market closes.
In economic news, sales of existing homes in the US are forecast to have ticked down to a seasonally adjusted annual rate of 3.9 million from 3.96 million in October, continuing a downward trend as owners hang onto their residences amid high borrowing costs.
11:35am: Softcat (LSE:SCT) earnings at risk from challenging outlook, says JPM
Shares in Softcat (LSE:SCT) are a weak feature, down 3.0%, after JPMorgan downgraded the stock to ‘underweight’ from ‘neutral’ highlighting a more challenging outlook which puts consensus earnings at risk.
The investment bank doesn’t think this is reflected in the stocks’ premium valuation.
The broker thinks earnings forecasts are at risk due to, expected margin dilution greater than peers, a demanding 2024 consensus, a more challenging mix compared to peers given its near 100% exposure to the UK, and a second-half weighted Ebit not fully reflected in consensus.
Alongside consensus risk, JPM also sees Softcat (LSE:SCT)’s premium valuation at risk, driven by a lower organic growth profile than previous with peer Bytes now growing faster than Softcat (LSE:SCT) and margins and ROIC now facing a slowing trajectory after elevated pandemic years.
It also pointed to forecast earnings growth now lower than peers and upgrades less likely in the near-term.
11:12am: Citi expects income tax cut in Autumn Statement
Citi expects the chancellor Jeremy Hunt to deliver a 1 percentage point cut to income tax, permanent full expensing, and a squeeze to benefits at this week’s Autumn Statement, potentially boosting GDP by a little under 0.1 percentage point in 2024/5.
Politically, it explains Prime Minister Rishi Sunak is under pressure to set a political direction while later-than-usual adjustments to the OBR forecasts have likely provided headroom – Citi puts this at a little over £24 billion.
It thinks there will be a modest shift in income tax rates, despite the inflationary risks.
It assumes £16bn in personal tax cuts for the fiscal year 2024/5 although “given a whiff of fiscal space, the government will likely take a mile.”
10:44am: Bailey says rates to stay high for an extended period
The busy governor of the Bank of England Andrew Bailey is speaking again - this time to MPs on the Treasury committee.
He's come armed though with back up Sir Dave Ramsden, deputy governor for Markets and Banking, and two external members of the Monetary Policy Committee – Jonathan Haskel and Catherine Mann.
Bailey started by saying the fall in inflation was “obviously good news”, but news which was largely expected.
He thinks the Table Mountain analogy used by chief economist Huw Pill in August for interest rates is good because: "There is a case now, I personally think, for holding the rate where it is… for an extended period."
Bailey also highlighted two main upside risks to inflation .
First, that domestic inflation remains high, partly due to inefficiencies in the jobs market leading to higher wages.
Second, the risk that turmoil in the Middle East drives up the oil price. So far, that hasn’t happened, but it could happen “if there was a wider regional engagement”.
But, he thinks the UK is on target to come back to 2%.
10:09am: Focus now on growth and tax cuts, claims Government
Laura Trott, chief secretary to the Treasury, has dropped a hint that personal tax cuts could be announced, or at least promised, in tomorrow’s autumn statement.
Speaking on Radio 4’s Today Programme, Trott argues that the economic situation has “completely changed” compared with a year ago.
New Chief Secretary to the Treasury Laura Trott tells @MishalHusain pretty clearly that “we can now focus on cutting taxes for individuals” because of “turning corner” on economy…
— Faisal Islam (@faisalislam) November 21, 2023
She said: "Last week we met the prime minister’s pledge to halve inflation, the economy is in a very different place to where we were a year ago, and we can now focus on going for growth, pushing up the growth rate of the economy, and cutting taxes for individuals."
"We are now able to talk about this [focusing on personal tax cuts]. We are moving to a different stage," she added.
However, Trott declined to confirm whether or not the chancellor will actually announce a personal tax measure tomorrow or whether benefit increases would be linked to October's (lower) inflation rate than September's.
9:56am: AO World concedes sales to boost bottom-line
AO World has conceded its early gains and is now trading around 5% lower.
The electricals retailer raised its profit outlook but said sales for the full-year sales would be down 10%.
The firm is moving out of non-profit making areas and lines at the expense of a reduced top-line.
AJ Bell’s Russ Mould welcomed “some reassuring signs of stability” but pointed the trade-off is a reduction in revenue.
This suggests AO has surrendered some market share as it looks to improve its profitability.
“It has to be careful to get this balance right or it could see competitors eating more of its lunch,” Mould added.
9:41am: Deutsche prefers Asos, M&S and B&M in UK retail
The German bank rates Asos at buy, with a 500p price target, B&M at buy, with a 660p target, Marks & Spencer at buy, target 310p, Dunelm at hold, target 1,045p, Kingfisher at Hold, target 255p, and Next at hold, target 7,350p.
Analyst Adam Cochrane said the preference in the sector is for Asos, B&M and M&S as all have “specific and interesting investment cases.”
He noted the sector has been strong but “we don't believe it will be possible to count on the same degree of sales and margin surprises across the sector in 2024.”
Christmas trading is likely to be robust but there is a risk this represents the last hurrah of post-pandemic spending recovery, he thinks.
“The UK retailers are generally in good shape with margins largely expected to recover in 2024 and balance sheets in good shape but growth will likely be anemic, in our view. Time to become more selective,” in Cochrane’s opinion.
Shares in Asos rose 1.9% while M&S advanced 1.1%.
9:32am: Admiral lifted by double upgrade at Citi
Also going well today are shares in insurance outfit, Admiral Group Plc (LSE:ADM), with shares up 2.7%.
Broker Citi has double upgraded the from to buy with a 2,941p target price after analysis which suggests consensus is too conservative on the impacts of recent pricing on topline estimates and the implications of Ogden discount rate changes in 2024.
The broker said its own motor claims inflation index points to material improvements since the first half of 2023 as it sees claims inflation at only 5.5% in October following material decelerations in damage related repair costs and improvements in repair cycle times.
This points to a much better starting point for claims inflation in 2024 compared to 12.7% rise estimated in December 2022 and is ultimately positive for 2024 margins.
Citi also has a buy rating on Direct Line which is up 1.4%.
9:07am: Coca-Cola HBC climbs on €400 buy-back
Top of the FTSE 100 risers is Coca-Cola HBC, up 3.5% to 2,161p, after the firm unveiled a €400m share buy-back after Monday’s close.
The company said it “believes that the current share price undervalues CCH's future growth opportunities,” and therefore, the present time represents a “compelling opportunity to reduce the number of shares in circulation, while continuing to invest in the business.”
The firm is aiming to complete the buyback, which starts today, by the end of 2025.
“With our cash-generative business and a strong balance sheet today, we believe that the current market weakness presents a compelling opportunity for us to deploy excess capital through a buyback programme and deliver enhanced shareholder value,” said Zoran Bogdanovic, CEO.
8:45am: FTSE 100 drifts lower, pound climbs
The FTSE 100 has drifted lower in early exchanges with a rise in the pound keeping a lid on progress.
Sterling has jumped to $1.2529 as markets price in a peak in US interest rates with speculation that rates will come down sooner across the pond than in Europe.
The borrowing figures are also attracting plenty of comment ahead of the Chancellor’s statement tomorrow.
Susannah Streeter at Hargreaves Lansdown said: “The latest government borrowing figures won’t pop the balloon of Jeremy Hunt’s expected tax-cut party on Wednesday, but it does squeeze his wiggle room a bit.”
She pointed out public sector net borrowing came in at £14.9 billion, higher than the OBR forecast by £1.2 billion.
“However, given that borrowing during the fiscal year to date is still almost £17 billion, he will feel he has the space to offer sweeteners,” she noted.
British Airways owner, IAG’s. Statement ahead of its Capitalk Market Day has got the pulses racing with shares up just 0.4%.
The firm said its outlook for the full-year remains unchanged but pledged to restore dividends once its balance sheet and investment plans are secure.
The firm is targeting an operating margin of 12% to 15%; a return on invested capital of 13% to 16% and leverage (net debt/EBITDA) of less than 1.8x over the cycle.
8:15am: FTSE 100 flat, AO World and Capita jump
The FTSE 100 has made a subdued start to the day, ahead of minutes from the latest FOMC meeting, and as the Autumn Statements looms.
At 8:15am, London’s blue-chip index was down 6.26 points, 0.1%, at 7,490.10 while the FTSE 250 rose 38.11 points, 0..2%, at 18,637.16.
Ahead of the Chancellor’s statement tomorrow, official figures showed borrowing at the second-highest figure for October on record.
However, the figure was below that forecast by the Office for Budget Responsibility in March, giving Jeremy Hunt some scope to offer tax cuts or other sweeteners ahead of the expected general election in 2024.
Economists at Citi expect the chancellor to deliver a 1 percentage point cut to income tax, permanent full expensing, and a squeeze to benefits, potentially boosting GDP by a little under 0.1 percentage point in 2024/5.
In company news, AO World jumped 5.8% to 87.87p after raising guidance after returning to profit in the first half of the year.
Peel Hunt said it was a strong performance.
“AO’s profit reset continues to deliver in a weak market, with AO also giving up a level of market share to focus on profitability and cash generation, a trading stance that is likely to drive the shares higher this morning,” the broker said.
Elsewhere, Capita leapt 7.2% after it increased its cost cutting programme to £60 million from the £40 million it had indicated before.
However, the increase means around 900 job losses at the outsourcer.
Meanwhile, Admiral Group Plc (LSE:ADM) leapt 3.0% as Ctit double upgraded the insurer to buy, but Softcat (LSE:SCT) plunged 4.6% as JPMorgan downgraded to underweight.
7:59am: CRH ups guidance, $2.1 billion concrete deal
Lastly, before the market opes news from CRH PLC (LSE:CRH) which has announced the $2.1 billion acquisition of a portfolio of cement and readymixed concrete assets in Texas, US, from Martin Marietta Materials, and raised profit guidance.
The building materials firm which is shifting its main stock market listing to the US said the deal is expected to generate pro-forma 2023 Ebitda of around $170 million.
The deal came alongside news that sales rose 8% in the third quarter while Ebitda climbed 14% to $4.8 billion.
Albert Manifold, Chief Executive, said: “Looking ahead to the remainder of the year, we are raising our guidance and expect to deliver full-year EBITDA of approximately $6.3 billion, representing another record year for CRH."
7:51am: Borrowing jumps but remains below forecast
UK borrowing jumped in October but is running below official forecasts giving the Chancellor Jeremy Hunt more scope for financial giveaways in his Autumn Statement tomorrow.
Figures from the Office for National Statistics showed the government borrowed £14.9 billion in October, £4.4 billion more than it borrowed a year earlier, and the second-highest figure for the month on record.
Public sector net borrowing, excluding public sector banks, in October 2023 was £14.9 billion.
£4.4 billion more than in October 2022 and the second highest October borrowing since monthly records began in 1993.
— Office for National Statistics (ONS) (@ONS) November 21, 2023
The ONS said in the financial year to October, the deficit was £98.3 billion, £21.9 billion more than in the same seven-month period last year but £16.9 billion less than was predicted by the Office for Budget Responsibility in March 2023.
Public sector net debt was £2,643.7 billion at the end of October and was provisionally estimated at around 97.8% of the UK's annual gross domestic product - this is 2.3 percentage points higher than in October 2022 and remains at levels last seen in the early 1960s.
7:42am: BoE's Bailey - too early to declare victory on inflation
A bit more on the Bank of England Governor Andrew Bailey's comments last night.
Bailey warned the central bank may have to raise interest rates again and that food and energy costs remain an upside risk to the inflation outlook.
He said the central bank’s policy makers are “on watch for further signs of inflation persistence that may require interest rates to rise again,” according to a speech he delivered to the National Farmers’ Union on Monday.
e described last week's inflation figures as "good news."
"It means that we are on track to bring inflation down to target," he added, but "it is too soon to declare victory."
"We still have a long way to go," he noted and stressed "interest rates will have to stay high enough for long enough to make sure we get all the way back to the 2% target."
7:34am: Capita to cut 900 jobs in cost-cutting drive
Capita PLC (LSE:CPI) plans to axe around 900 jobs as part of a cost-cutting drive.
The outsourcing specialist said the cuts are expected to deliver savings of £60 million annually from the first quarter of 2024.
The job cuts will primarily impact indirect support function and overhead roles and lead to exceptional costs of £27 million for the financial year ending December, with the cash impact expected to fall into the first quarter of 2024.
Capita said it continues to trade in line with its expectations, delivering positive operational and financial performance and has won contracts with a total contract value of £2.85 billion year to date.
Jon Lewis, chief executive officer, said: “We continue to identify further areas of cost efficiency and will pursue these during 2024.”
7:26am: AO World lifts guidance after return to profit
We start the day with AO World PLC (LSE:AO.) which swung back into profit in the first half of the financial year, despite a drop in sales, reflecting improved margins and tight cost control.
As a result, the UK electrical retailer has increased profit guidance for the full-year, forecasting pre-tax profits between £28 million to £33 million compared to the £28 million predicted in July.
Chief Executive John Roberts said: “We have generated more profit in the first half of this year than we did in the whole of last year and are also upgrading our profit expectations for the remainder of FY24.”
AO World expects annual sales to decline by 10% from last year, after reporting a 12% drop in the first half of the year to £482 million from £546 million a year ago.
The firm said the drop reflected actions taken to remove non-core channels, unprofitable sales and increase gross margins.
Pre-tax profit of £13 million compared to a pre-tax loss of £12 million last time while gross margin improved to 23.5% from 19.5% a year ago.
AO said this reflected removing unprofitable sales, the introduction of delivery charges on all deliveries, a tight control of advertising and marketing costs plus a fall in warehousing and other admin costs.
The company said the overall mobile market has declined in the year, which has negatively impacted the group's ability to hit network volume targets set for the 2023.
This will have an overall single digit millions profit drag in financial 2024 and this is absorbed within the upgrade today, AO stressed..
7:05am: Sluggish start expected in London despite Wall Street gains
The FTSE 100 is expected to open little changed despite a strong showing in the US on Monday which saw Microsoft and Nvidia hit new highs.
Spread betting companies are calling London’s lead index down by around 3 points after closing down 7.89 points, 0.1%, at 7,496.3 on Monday.
In a speech on Monday evening, the governor of the Bank of England warned it is "much too early" to say that inflation has been beaten, despite figures last week which showed the prime minister's target to halve inflation had been reached.
Andrew Bailey said that it was both too soon to say that inflation had been beaten and too early to start talking about cutting interest rates.
The speech came ahead of Wednesday’s Autumn Statement which is expected to show the government has more fiscal headroom than previously thought, prompting talk of tax reductions in certain areas.
Elsewhere, the FOMC meeting and third quarter results from Nvidia will provide the main talking points although both occur after the London market close.
ING Economics thinks the FOMC meeting is likely to be less market-moving than usual, given the post-meeting softness in data.
"We have already heard from several Fed officials who have welcomed the direction of the numbers but commented that they want to see more of the same to be sure that inflation is on the path to 2%," the bank pointed out.
In the US on Monday, the Dow Jones Industrial Average closed up 0.6%, the S&P 500 rose 0.7% and the Nasdaq Composite climbed 1.1%.
Back in London and an update from AO World will kick things off on Tuesday.