- FTSE 100 closes up 26 points at 7,515
- BAT takes £25 billion write-down
- TUI jumps as sales and profits rise
4:40pm: FTSE 100 climbs but it's a bad day for BAT
The FTSE 100 climbed on Wednesday as markets continue to price in interest rates cuts next year.
At the close, London's blue-chip index was up 25.54 points, 0.3%, at 7,515.38 while the FTSE 250 jumped 179.20 points, 1.0%, at 18,666.73.
Michael Hewson at CMC Markets said the FTSE100 "had a better day of it bouncing back after two days of declines, pushing back above 7,500, helped by the basic resource sector which is having a better day of it after Rio Tinto brought forward the start of production of iron ore at its Simandou project in Guinea, as well as expressing confidence in demand from China."
BT continued its recent strong run, rising 4.5%, while Weir Group advanced 2.3% after increasing its operating margin target to 20% ahead of its Capital Markets Day.
BAT was the big loser, down 8.0%, after writing down the value of its tobacco assets by £25 billion alongside a forecast of low-end revenue.
TUI, jumped after its reported strong growth in profits and revenue while a downgrade dragged Diageo lower.
3:52pm: Bank of Canada leaves rates unchanged
The Bank of Canada has left its benchmark interest rate unchanged as expected, but said it is prepared to hike again if inflation quickens.
The central bank maintained its overnight rate at 5.00%, bank rate at 5.25% and the deposit rate at 5.00%.
The BoC said higher rates are "clearly restraining spending" and the labour market is easing.
"The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices. Combined with the drop in gasoline prices, this contributed to the easing of CPI inflation to 3.1% in October. However, shelter price inflation has picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs. In recent months, the bank's preferred measures of core inflation have been around 3.5%-4.0%, with the October data coming in towards the lower end of this range," the BoC said.
3:16pm: EU proposes three-year delay on UK electric car tariffs
Brussels proposed Wednesday a three-year delay on tariffs on the sale of electric vehicles between Britain and the EU that was meant to kick in from January, in a major reversal of its previous position.
The European Commission said it now wants a one-off extension, until December 31, 2026, after the EU automotive industry raised concerns about the massive costs that would arise from a post-Brexit 10% tariff.
The commission's extension proposal must formally be approved by the EU member states. EU leaders are to hold a regular summit in Brussels next week.
The commission had initially strongly opposed such an extension, despite industry's pleas, requests from the British government and calls for pragmatism by EU lawmakers.
Its extension proposal, which also covers batteries, includes wording designed to make it legally impossible to put off tariffs beyond the December 2026 date.
"Today's decision means that we skip an intermediate phase of somewhat strict rules of origin that would have applied from 2024 until the end of 2026," Commission Vice President Maros Sefcovic said.
2:46pm: US markets rally as jobs market softens
Across to the US now where the opening bell has been rung and stocks have climbed after further evidence that the jobs market is colling in the face of high interest rates.
Shortly after the opening bell, the Dow Jones Industrial Average was up 97.79 points, 0.3%, at 36,222.35, the S&P 500 was up 21.87 points, 0.5%, at 4,589.05 and the Nasdaq Composite was up 39.27 points, 0.3%, at 14,269.18.
The US labour market added slightly fewer jobs than expected last month, according to a tracker from payroll processing firm ADP on Wednesday.
ADP said sector employment increased by 103,000 jobs in November, easing from a 113,000 rise in October and falling short of the FXStreet cited consensus of 130,000.
In the goods-producing sector, employment shrunk by 14,000 jobs, while it rose by 117,000 in service providers.
Elsewhere, stocks to watch include Exxon Mobil, down 0.3%, which said it was on track to deliver around $14 billion of further earnings and cash flow growth potential over the next four years.
The oil giant also intends to increase the pace of share repurchases to $20 billion per year from the Pioneer close through 2025, assuming reasonable market conditions.
It also plans to boost oil and gas production by about 10% to 4.2 million barrels a day by 2027, ramping up investments in key operations in Guyana and the Permian Basin.
Mastercard rose 0.8% after it unveiled plans a new $11 billion share buyback after Tuesday’s market close while Merck fell 0.6% after a disappointing drug trial update.
1.33pm: Here’s a quick look at the top risers on the market today
Mirriad Advertising PLC (AIM:MIRI, OTCQX:MMDDF)'s share price surged by 4% after it reported 'supply-side' momentum in the US and Latin America, including two new master service agreements (MSAs) and an expansion of scope with an existing partner.
Ten Entertainment Group PLC (LSE:TEG)'s share price rose 31% during early trading after the company said it had agreed to a takeover bid from US private equity firm Trive Capital Partners LP
Shares in specialist lender Paragon Banking Group PLC (LSE:PAG) jumped over 6% after it hiked the dividend by almost a third, announced a new share buyback and lifted its outlook on returns and margins.
Quadrise PLC (AIM:QED) stock got a 25% boost after it unveiled positive final results from the sustainable biofuel testing programme that it finished last month.
Shares in System1 Group (AIM:SYS1) plc shot up 20% after the marketing platform group swung to a first-half profit, boosted by over 100 new client wins and partnerships with the likes of Pinterest and JC Decaux.
Ilika PLC (AIM:IKA, OTCQX:ILIKF) shares rose by more than 21% after it revealed its electric vehicle (EV) battery programme had achieved lithium-ion energy density parity.
1:04pm: Manufacturers still favour trading with Europe despite challenges
A majority of UK manufacturing companies still favour trading with the EU despite finding it a challenge, new research suggests.
A survey by Make UK of more than 200 manufacturers found customs paperwork and border delays were said to be the biggest hurdles, followed by logistics challenges.
Make said more than a third of respondents said demonstrating rules of origin of goods was still difficult.
The group called on the government to continue working closely with the EU to make exporting easier and improve Britain's Trade & Co-operation Agreement.
Nonetheless, in spite of any difficulties, three in four companies said they are still exporting to the EU, said the report.
Stephen Phipson, chief executive of Make UK, said: "It is clear that manufacturers across the UK have performed strongly on the international stage in the last year with conditions remaining challenging."
"Since Britain left the EU, companies have had to deal with the new trade arrangements of the TCA merging with global disruption brought about by the Covid pandemic."
"Yet Britain's manufacturers have powered through to build international trade in new markets while navigating through the minefield of challenges which still remain in trading with our closest partner, the EU."
12:46pm: Diageo premium valuation at risk, mulls beer sales
Bucking the firmer market today is Diageo with the Guinness owner down 0.8% after UBS put the stock on its ‘sell’ list.
The Swiss bank thinks the c12% valuation premium to staples is at risk of de-rating until the firm’s US Spirits growth accelerates to mid-single digits; and management can draw a line under LatAm destocking.
“We lack conviction these inflections are forthcoming in the second half of 2024,” UBS said,
It accepted Diageo has a good track record of innovation and investing ahead of category shifts, and expects the business to return to within the 5-7% organic revenue guidance range, but only in the second half of financial 2025.
Separately, the Johnnie Walker owner is reported to be seeking to divest its beer portfolio on margin concerns, except flagship brand Guinness, according to Axios, citing sources familiar with the world's largest spirits maker.
The company is looking to sell beer brands including Smithwick's, Kilkenny and Harp Lager, based in Ireland, and Tusker in Kenya, among others, Axios reported, adding that its beer brands were a margin drag on the rest of the business.
12:24pm: Coventry BS makes surprise tilt for Co-Op Bank - Sky
Coventry Building Society has tabled a surprise takeover bid for the Co-operative Bank – a deal that would effectively remutualise one of the country's most recognisable high street lenders, according to reports.
Sky News revealed that the Coventry Building Society has proposed a tie-up with the Co-operative Bank that would create a financial services powerhouse with close to £90 billion in assets.
EXCLUSIVE: The Coventry Building Society, Britain's third-largest, has tabled a bid for the Co-operative Bank that would create a financial services powerhouse with about £90bn in assets and effectively remutualise a prominent high street lender. https://t.co/JEi93tcFZr
— Mark Kleinman (@MarkKleinmanSky) December 6, 2023
Talks between the two sides are understood to be progressing, although they are not yet being undertaken on an exclusive basis.
The report that Coventry's intervention is a surprise as the mutual had not been tipped as a likely bidder
12:05pm: US markets seen opening slightly higher
US markets are expected to edge higher when trading resumes on Wednesday ahead of more data on the jobs market and the interest rates call in Canada.
In pre-market trading, futures for the Dow Jones Industrial Average were up 0.1%, while those for the S&P 500 were 0.2% higher and contracts for the Nasdaq 100 futures gained 0.2%.
ADP will release its November employment report, which economists project will show that the US added 130,000 private sector jobs in November, up from 113,000 in October.
The figures come ahead of the non-farm payrolls report on Friday and in the wake of a report showing a sharp fall in job vacancies on Tuesday.
Michael Hewson at CMC Markets said: ” We are starting see increasing evidence that the US jobs market is starting to slow, with vacancies falling to their lowest level since March 2021 and with the last two ADP reports adding a combined 202k new jobs as private sector hiring slows.
Elsewhere, the chief executives of the biggest US banks, including JPMorgan, Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)), Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)), Citigroup, Bank of America and Wells Fargo, will testify before Congress in a Senate hearing on the oversight of Wall Street firms.
Brown-Forman (NYSE:BF.B) (Brown-Forman (NYSE:BF.B)) and Campbell Soup will release their latest quarterly results before Wall Street’s opening bell, while Chewy and GameStop will report after the market closes.
11:39am: Barclays likes NatWest, upgrades Virgin Money
Virgin Money is going well today, up 1.7%, supported by an upgrade by Barclays.
The broker has moved VMUK to ‘overweight’ from ‘equal weight0 but cut its price target to 200p from 245p.
“While a deeper downturn presents risks, following recent share price weakness, we see attractive risk-reward with scope for c100% implied upside in our central case,” Barclays said.
“Concerns on costs and capital returns are likely overly discounted in the currently subdued valuation,” it thinks, with net interest margin upside versus consensus, “from higher rates/low deposit betas, likely to be somewhat underappreciated.”
Barclays’ preferred UK banking play is NatWest (overweight, price target 315p, down from 330p) alongside OSB (overweight, price target 790p).
Lloyds Banking Group remains ‘equal weight’ with a reduced price target of 52p from 58p.
HSBC is kept at ‘overweight’ and Standard Chartered at ‘equal weight’.
11:17am: BoE to review financial risks of AI
The BoE says it will review the financial risks posed by artificial intelligence and machine learning in 2024.
In its financial stability report the Bank said: "Being briefed on the continued adoption of artificial intelligence (AI) and machine learning (ML) in financial services, and potential financial stability implications."
"The FPC would further consider the financial stability risks of AI and ML in 2024, and alongside other relevant authorities would seek to ensure that the UK financial system is resilient to risks that may arise from widespread adoption of AI and ML."
10:53am: BoE says households and business better prepared for higher rates
The Bank of England has said the outlook for global economic growth remains subdued with conditions challenging, given increased geopolitical tensions and uncertainties over growth, inflation and interest rates.
In its latest report on financial stability, the BoE said while financial markets are not expecting further increases in Bank Rate, interest rates will likely need to stay high for some time to make sure inflation continues to fall.
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/thA2apPBjc #FinancialStabilityReport pic.twitter.com/gZ2camlWdv
— Bank of England (@bankofengland) December 6, 2023
It pointed out interest rates on longer-term government bonds are back to where they were before the global financial crisis and act as a benchmark for other types of borrowing.
“So, when rates on government bonds are higher, it often leads to higher interest rates faced by households and businesses,” the BoE said.
It said UK households and businesses remain under pressure from higher borrowing costs, as interest rates are expected to remain higher for longer.
The BoE pointed out around 45% of fixed-rate mortgage deals agreed before the end of December 2021 (when Bank Rate started increasing) are yet to renew.
But it said that since July, household income has been a bit stronger than expected and new mortgage rates have fallen slightly.
This means the share of households spending a high proportion of their income on mortgage payments is expected to be lower in future than had previously thought.
It also expects UK businesses to be resilient overall to higher interest rates and weak growth.
The BoE said the banking system is strong enough to support households and businesses, even if the economy does worse than expected, noting the UK banking system has large capital buffers and other resources to absorb any potential losses.
10:26am: Upbeat Rio Tinto lifts miners
Mining stocks are in demand after positive comments from Rio Tinto which is hosting an Investor Seminar in Sydney today.
Rio Tinto Chief Executive Jakob Stausholm said: "We strongly believe we are well positioned in an opportunity rich world.”
“There has never been greater demand for what we do, from mining to processing, and the work we are doing today is creating a stronger Rio Tinto for years to come.”
Rio said total copper equivalent commodity demand growth of around 4% CAGR is expected between 2022 and 2035 and its share of capital investment is expected to be around $10 billion per year from 2024 to 2026, including up to $3 billion per year of growth investment to meet this demand.
AJ Bell’s Russ Mould noted Stausholm also briefed investors that Chinese steel mills were ‘producing flat out’.
“This is good news for iron ore producers like Rio, with the patchy recovery in China a big reason why the mining sector has had a difficult time in 2023,” he said.
“Rio also announced big spending plans. Along with signs of burgeoning M&A elsewhere in the sector, any excitement felt by investors at the growth potential may be tempered by concerns the industry is losing some of the discipline it has demonstrated in recent years,” he suggested.
9:58am: UK construction sector remains under the cosh
The UK construction sector contracted for the third consecutive month during November, led by another sharp fall in residential building, a survey showed on Wednesday.
The headline S&P Global/CIPS UK Construction PMI registered 45.5 in November, down fractionally from 45.6 in October and the second-lowest reading since May 2020.
UK November construction PMI 45.5 vs 46.3 expectedhttps://t.co/AEgAgvH5fP
— ForexLive (@ForexLive) December 6, 2023
The report showed that house building (index at 39.2) remained by far the weakest-performing segment, followed by civil engineering (43.5) reflecting cutbacks to residential development projects and a general slowdown in activity due to unfavourable market conditions.
Commercial building showed some resilience (index at 48.1), but this category has now decreased for three months in a row.
Elevated borrowing costs and subdued demand for new housing projects held back construction activity although the survey pointed to the steepest reduction in purchasing costs across the construction sector for more than 14 years.
This was linked to lower raw material prices, alongside greater competition among suppliers in response to falling demand for construction inputs.
9:31am: Ocado firms on JPMorgan upgrade
Ocado Group PLC (LSE:OCDO) which enjoys a volatile life in the FTSE 100 is up more than 3% today following an upgrade by JPMorgan to ‘neutral’ from ‘sell’.
The investment bank sees a brighter outlook for the European internet sector in 2024 based on improvements in profitability and cash flow, an expected fall in bond yields and increased M&A activity.
“Having favoured the high margin, low debt (often net cash) names in the online classifieds sector in the past two years, we now turn our sector preference towards names with strong earnings momentum, higher leverage & scope for M&A,” the bank said.
As a result, the bank ha upgraded Ocado and increased its price target to 600p from 400p.
It kept Trainline at 'overweight' and THG and Auto Trader at ‘underweight’.
9:12am: TUI delisting would be a major blow to London
TUI is enjoying a better day with shares up 6.5% after its results plus news that it is considering delisting its shares in London.
Victoria Scholar at interative investor said news that Europe’s largest travel operator is considering delisting from the London Stock Exchange to focus on its Frankfurt listing instead would be a major blow to London.
She pointed out the London Stock Exchange has been grappling with an exodus of companies as well as the weak performance for London-listed stocks.
9:02am: Little to be positive about in BAT update - Jefferies
Shares in British American Tobacco has slumped 8.7% after today’s trading statement which pointed to low-end revenue expectations, a £25 billion write-down of its US tobacco assets plus tough US markets.
Broker Jefferies said there is “little to be positive about from this update.”
It noted combustible volume share has worsened since the end of the first half, US commentary that premium pressures are picking up again, vape share globally now seeing material pressure, and no improvement in heated share since half-year.
Then into 2024, it said lower sales guidance raises questions around any possible vape acceleration in the US while the increased investment suggests reduced–risk products are not where it needs to be.
Jefferies added it “also now looks like any buyback won't be until 2025 at the earliest.”
Richard Hunter at interactive investor noted the important US market is showing some signs of frailty given broader macroeconomic pressures and, according to BAT, a proliferation of illicit modern disposable vapes which is having an impact on the combustibles market.
He said the write-down was “a stark reminder of the switch which needs to be made to different products as consumer tastes change and as regulation becomes a higher hurdle to jump.”
8:41am: Weir leads FTSE 100 higher but BAT lags
The FTSE 100 remains in positive territory, now up 22 points at 7,512.
Leading the risers is Ocado group on the back of the JPMorgan upgrade, up 5.3%, followed by Weir Group PLC (LSE:WEIR) ahead of its Capital Markets Event today.
Weir said the presentation will focus on its journey to sustainably higher operating margins, and how it will achieve a new operating margin target of 20% in 2026.
Weir said it was on track to deliver a operating margin of 17% this year and has increased its savings target from £30 million to £60 million in 2026.
Other stocks on the move include Ten Entertainment, up 33%, after announcing it is being bought by private-equity house Trive Capital for £300 million, or 412.5p per share.
Mining stocks are also providing support, recovering some of Tuesday’s falls with Anglo American and Antofagasta among those advancing.
BAT’s warning of low-end revenue has dragged Imperial Brands down by 1.2% while the weak oil price continues to weigh on BP and Shell.
8:18am: FTSE 100 advances but BAT takes £25 billion write-down
The FTSE 100 has made a positive start to the day underpinned by hopes of an earlier than expected pivot on interest rates by global central banks.
At 8:15am, London’s blue-chip index was up 22.20 points, 0.3%, at 7,512.04 while the FTSE 250 rose 95.26 points, 0.5%, at 18,582.79.
Bucking the weaker market are shares in BAT, down 5.7%, after the owner of Lucky Strike cigarettes took a £25 billion write-down of its US cigarette brands and warned of low-end revenue.
The company also unveiled a shift in strategy with an aim of becoming a ‘smokeless’ business with 50% of revenue from non-combustibles by 2035.
Richard Hunter at interactive investor said while this non-cash adjustment does not affect trading performance, it is nonetheless a stark reminder of the switch which needs to be made to different products as consumer tastes change and as regulation becomes a higher hurdle to jump.
Elsewhere, shares in Ocado jumped 3.7% after JP Morgam upgraded to ‘neutral’ from ‘underweight’ and raised its price target to 600p from 400p but Diageo eased as UBS moved to ‘sell’ from ‘neutral’ with a reduced price target of 2,650p, down from 3,650p.
7:55am: BAT sees low-end revenue, takes £25 billion impairment charge
British American Tobacco PLC (LSE:BATS) unveiled an ambition to become a predominantly “smokeless” business, with 50% of our revenue from non-combustibles by 2035.
The maker of Lucky Strike, Rothmans and Pall Mall cigarettes made the claim as it confirmed full-year 2023 EPS guidance.
But the FTSE 100-listed firm is taking a non-cash adjusting impairment charge of around £25 billion in 2023 relating to some of its acquired US combustibles brands.
BAT said this follows an assessment of their carrying value and useful economic lives over an estimated period of 30 years.
It intends to amortise the remaining value of its US combustibles brands from January 2024.
BAT reported continued strong volume and revenue growth in new categories, led by Vuse and Velo with new category contribution expected to be broadly breakeven, two years ahead of the original target.
But macro-economic pressures in the US have impacted combustibles performance meaning group organic revenue now expected at the low end of its 3-5% guidance range at constant rates.
7:36am: TUI profit up and debt down
Results from TUI AG (LSE:TUI) kick off the day and the company has reported increased customer numbers and higher prices in the fourth quarter helped the company to more than double full-year earnings.
The tour operator said in the quarter ended September 30, revenue rose to €8.48 billion from €7.61 billion the year before, with underlying Ebit climbing to €1.20 billion from €1.04 billion.
This helped lift full-year Ebit to €977 million, more than doubled last year’s €409 million.
TUI said the full-year figure was in line with expectations and supported in the fourth quarter by a continued strong performance across all Holiday Experiences segments backed up by further operational improvement in Markets & Airlines.
The firm reported a 0.2 million increase in customer numbers in the quarter, rising to 7.8 million with the average load factor of 92% for the quarter, up 1 percentage point from last year.
Revenue growth in the quarter was supported by higher volumes and in particular higher prices, lifting full-year revenue to a record €20.7 billion, up 25% from the year before.
Hotels & Resorts performed in line with expectations with a repeat of the strong performance in the prior year while Cruises achieved a significantly higher fourth quarter result year-on-year, boosted by an improved operational performance across all brands.
Markets & Airlines reported a significant increase in underlying Ebit, generated by further growth in customer volumes at higher prices.
TUI reported positive operating cash flow in the quarter of €463 million which helped reduce net debt to €2.1 billion from €3.4 billion.
The tour operator said in Markets & Airlines, Winter bookings have maintained their positive momentum supported by higher prices.
Winter capacity is trending in line with booking levels in line with the prior season.
Bookings to date are up 11% against Winter 2022/23 with the average selling price well ahead of Winter 2022/23 across key markets, up 5% overall and notably 1 percentage point ahead of the level published in September.
Bookings for Summer 2024 are still at a very early stage with 14% of the season sold with initial indications for a strong season with bookings in all markets starting promisingly up 13% against Summer 2023 with average selling prices 4% higher.
Holiday Experiences trading remains well on track to deliver in line with expectations for Winter 2023/24, with volumes and booked occupancy in all segments well ahead of prior year.
Looking ahead, TUI forecast revenue to increase by at least 10% year-on-year and underlying EBIT to increase by at least 25% year-on-year.
The firm also said it was considering delisting in London following talks with shareholders.
"The Executive Board is currently considering, if an Upgrade to a Prime Standard listing in Frankfurt with MDAX inclusion and a delisting from the London Stock Exchange would be in the best interest of shareholders," the firm said in a statement.
7:00am: FTSE 100 expected to follow Asian markets higher
The FTSE 100 is expected to open higher on Wednesday ahead of another indicator of the health of the US labour market.
Spread betting companies are calling London's blue-chip index up by around 20 points after closing down 23.12 points, 0.3%, at 7,489.84 on Tuesday.
US markets closed mixed on Tuesday as a larger-than-expected drop in job vacancies prompted concerns as to the strength of the US economy but also brought an earlier than hoped pivot on interest rates into view.
Today sees the ADP jobs report with consensus expecting 130,000 job additions, picking up from 113,000 in October, with non-farm payrolls figures are to come on Friday.
Asian markets shrugged off the US caution and powered ahead with gains for the Nikkei and the Hang Seng.
"The indifferent finish seen in the US has been shrugged off by Asia markets with a strong session there after the Bank of Japan’s latest Tankan survey showed a big improvement in manufacturers sentiment with the auto sector with the second successive month of gains as chip shortages eased," Michael hewson at CMC Markets said.
"This rebound in Asia markets looks set to filter through into this morning’s European open with the DAX set to open at a new record high," he pointed out.