UK stocks ended higher on Tuesday but off their day’s best as speculation mounted over a December US rate hike.
Markets are now pricing more than a 92% chance of a Fed rate hike next month, and that was underscored by healthy forecast-beating US retail sales in October, released earlier. Markets are worried that it won’t end there and that if US President-elect Donald Trump initiates many of his stimulus policies it will result in inflation and the need for more rate hikes – making it difficult for other major economies such as the UK to sit idle on rates.
The blue-chip FTSE 100 closed up 0.6% at 6792 and led by Hikma Pharmaceuticals (LON:HIK) up 6.1% to 1724p after broker Morgan Stanley upped the stock to 'overweight' from 'equalweight' pointing to increased confidence in the pipeline and an attractive valuation.
Retailer Tesco (LON:TSCO) was second-highest gainer, of 5.4% to 217.15p as food and drug retailers topped gains, with Tesco boosted a day before its Capital Markets Day.
Sales at the grocer continued to accelerate, rising by 2.2% over the 12 weeks to 6 November, their best showing in three years.
Miners, on the other hand, who had a good run after Trump indicated a huge boost to infrastructure projects a week ago, succumbed to a bout of profit-taking.
The top fallers were miners Anglo-American (LON:AAL), down 6.7% to 1096.5p, Glencore (LON:GLEN) down 5.5% to 267.4p, Antofagasta Holdings (LON:ANTO) down 5% to 671p, BHP Billiton (LON:BLT) down 4.9% to 1271.5p, and Rio Tinto (LON:RIO) down 4.5% to 3004p.
The FTSE 250 mid-caps gained 0.6% to 17,573 and led by Polypipe Group plc (LON:PLP) up 9.7% to 285.2p after the plastic piping systems manufacturer said its revenues were up for the 10 months ended October 31, as the EU referendum did not have an adverse effect on sales and orders, while it anticipated it will meet full-year expectations.
With expectations rising that OPEC will achieve a supply-cutting deal later this month, oil prices shot higher and with it the second-highest FTSE 250 gainer was Tullow Oil plc (LON:TLW), up 9.6% to 262.2p.
Oil service companies Petrofac (LON:PFC), up 4.5% to 798p and Wood Group (LON:WG.) up 3.4% to 796p, were among the top risers, with engineer Amec Foster Wheeler (LON:AMFW) – the third-biggest gainer – up 7.2% to 450.3p.
There was also hope for gains in the months ahead for basic materials and engineering firms after UK Chancellor of the Exchequer Philip Hammond was reported to be planning to invest up to £15bn into Britain's creaking transport network and hi-tech industries in an attempt to "future proof" the economy from the turbulence of Brexit by boosting economic growth.
The Chancellor will back dozens of small-scale infrastructure projects across the UK to get shovel-ready road and rail links off the ground.
While Hammond is still supportive of his predecessor's big-ticket projects, such as HS2 and the Hinkley Point power station, the focus in his Autumn Statement will be on projects that are ready to go and can stimulate local areas in the next couple of years as Britain prepares for Brexit.
The FTSE AIM 100 Index gained 0.6% to 3,857 and the FTSE AIM All-Share Index was up 0.4% to 806.
A total of 39% of London stocks gained on Tuesday while losers amounted to just 26%.
FTSE 100 up over 40 pts
Supermarkets spearhead advance
Inflation shows surprise fall
Expectations mount for US rate hike
Gold climbing
FTSE 100 is consolidating gains mid-afternoon as supermarkets continue to bask in the investor supermoon while miners are down in the dumps.
Tesco (LON:TSCO), the supertanker is among the top five winners, up over 5% at 216.45p as official data from Kantar showed its growth rate over the last three months has been the fastest in three years.
Bradford-based Morrison's (LON:MRW) also shelved up - 4.94% to 223.10p - as traders in the UK at least (not Europe) were still in 'risk -on' mood.
FTSE100 is up over 40 points to stand at 6,790, while miners went the other direction with Anglo American (LON:AAL) down 6.47% to 1,099p.
It comes as gold ascended, pulling away from the five month low hit yesterday. Spot gold is up 0.38% to US$1,226.30 at the time of writing. Commentators say the precious metal could be further boosted by a rise in US inflation in the light of President elect Trump's growth plans.
Oil is also ahead with US benchmark crude - West Texas Intermediate - 3.97% ahead at US$45.03 a barrel.
Nicholas Hyett, at Hargreaves Lansdown, said: "One commodity not joining the drop is oil, as rumours circulate that OPEC is making another push to deliver the output cut agreed in Algiers back in September."
He notes that Tullow Oil (LON:TLW) was among the top risers in the FTSE 250, up 7.36% to stand at 256.80p.
13.50pm - FTSE 100 staying ahead after inflation rate slides
FTSE 100 was holding ground soon after the lunch as markets looked towards growth in the US after a Trump win and the likely prospect of a US rate rise.
Mewnhile, in the UK, inflation showed a surprise drop in September suggesting that rising costs faced by producers had not yet filtered through to goods and services - yet. It also puts the prospect of a rate rise in the UK back a little in focus, not least if the US Fed chooses to act.
FTSE 100 is up around 32 points at 6,785.
A notable riser was palm oil group MP Evans Group plc (LON:MPE) whose shares rose 8.54% to 680p a pop as it rejected a sweetened takeover offer from Kuala Lumpur Kepong, saying it still substantially undervalues the company, its unique position and future growth potential.
Malaysia listed KLK's offer was lifted to 740p per share in cash from 640p, valuing the company at around £415.4mln. It is involved in rubber, cocoa and retailiing and development It started as a plantation company more than 100 years ago, and that is still its core business.
in small caps, a notable gainer was Anglesey Mining plc (LON:AYM), up over 55% to 3p each on no news. It is developing the Parys mountain base metals project in Wales - where metals prices have been seen rising.
11.45.. Small cap highlights - risers
South African platinum miner Tharisa (LON:THS) has seen the surge in its shares continue since a very bullish trading update last Friday.
News today it had passed a project completion test at the Tharisa mine pushed the shares up a further 8% to a new London high of 156p.
Manufacturing group Carclo PLC saw underlying profits rise by 19% to £4.85mln in the half year to September. Shares rose 15% to 131p.
A first contribution from recent acquisition Comms UK helped telecoms services group Adept Telecom PLC (LON:ADT) lift interim profits by a quarter. Shareholders get a similar boost to their dividend and the shares rose 10% to 265p.
10.35 ...
A surprise decline in the consumer inflation rate helped keep the equity bandwagon on the road this morning.
The inflation rate eased to 0.9% in October from 1.0% in September, confounding expectations of a 1.2% increase. Trouble could be brewing down the road, however, as producer output prices rose 2.1%, which was the largest increase since April 2012.
Producer input rises were even more alarming, rising 4.6%, which was the largest monthly rise on record.
The FTSE 100 perked up a little on the news, cementing its position above 6,800. At just past 10.30 it was up 62 points at 6,815, with supermarkets leading the way.
Wm Morrison Supermarkets PLC (LON:MRW) put on 4% at 221.1p while sector leader Tesco PLC (LON:TSCO) climbed 3.9% to 213.95p.
Low-cost airline Easyjet (LON:EZJ) has had a tough time of it since Brexit but its trading update this morning mollified investors and encouraged short-sellers to close their positions.
The shares rose 3.2% to 1,065p as results were in line with company guidance and consensus forecasts.
"At this stage of the year EZJ does not provide headline guidance but consensus is already cautious, forecasting a year on year decline of c.£70mln in profits; that said, EZJ’s cash position should improve with a guided $140mln inflow from the planned sale & leaseback of 10 A319 aircraft," noted Cantor Fitzgerald, which is a fan of the stock.
"EZJ remains good value, trading on a calendar 2017e PE [price/earnings ratio] of 11x. This is a 20% discount to its long-run average PE. The dividend yield is 4.5%," the broker noted.
8.30am …
The FTSE 100 broke back above the 6,800 level this morning, despite the mining stock proving to be an albatross around its neck.
The top-share index’s foray into the 6800s was a brief one, however, and at 8.30am it was up 44 points at 6,797.
Educational publisher Pearson PLC (LON:PSON) led Footsie’s advance as French banking group Societe Generale issued a ‘buy’ note. The shares rose 39.5 to 781.5p in response – still some way below SocGen’s punchy 1,030p price target.
Well-received interims from real estate investment trust (REIT) Land Securities Group PLC (LON:LAND) saw the share price rise 4.2% to 1,026p, and sector peer British Land Company (LON:BLND) came along for the ride, rising 3.3% to 607p.
Aside from the precious metals miners, investors were not digging the minerals sector this morning. Antofagasta PLC (LON:ANTO), Anglo American PLC (LON:AAL), Glencore PLC (LON:GLEN), Rio Tinto PLC (LON:RIO) and BHP Billiton plc (LON:BLT) all lost more than 3.4%.
Preview
The FTSE 100 is set to open some 33 points higher at 6,786, as investors dare to hope that a Trump presidency may not be as bad as feared.
US markets opened firmer yesterday, with the Dow Jones rising above 18,900 for the first time, but ended the day mixed. The Dow held on to some gains, rising 21 points to 18,869, but the broader-based S&P 500 was a quarter of a point off the pace at 2,164 while the tech=heavy Nasdaq Composite gave up 19 points at 5,218.
Heading into the last hour of trading, Asian markets were declining to move in unison. While Hong Kong’s Hang Seng index was 109 points firmer at 22,332, Japan’s Nikkei 225 was off 10 points at 17,662, as the Japanese currency hit a five month high, which won’t do much for the country’s export-led economy.
Back on the home front, a fairly busy day is scheduled for corporate announcements.
Phone companies Vodafone Group PLC (LON:VOD) and Talktalk Telecom Group PLC (LON:TALK) will both release interim results, where the interest will be much about customer growth as the profit & loss account.
Property giant Land Securities Group PLC (LON:LAND) also has interims out, as does bus and trains operator FirstGroup PLC (LON:FGP).
Full-year results from low-cost airline Easyjet PLC (LON:EZJ) will need to be absolute corkers to send the short-sellers scurrying to close their positions.
Since the result of the EU referendum, the amount of stock lent out to short-sellers - speculators who sell stock they do not own in the hope of buying it back cheaper at a later date - has increased fourfold.
The shares have lost more than a quarter of their value over the last six months.
We already know that there was an 8.7% drop in revenue per seat in the final quarter of the company’s fiscal year, and last month the company lowered its full year profit guidance to £490mln-£495mln.
“The market will be especially interested to hear if there is any change in the expectations for a further drop in revenue per seat in the first quarter of the new financial year. Rival Ryanair produced some good figures recently but Easyjet’s latest monthly passenger stats were slightly disappointing," declared Graham Spooner at The Share Centre.
On the macro front, inflation figures for October might garner a it more interest than they usually do, as investors look for signs that the inflation genie is slowly emerging from the bottle.
“Consumer price inflation is expected to have risen to a two-year high of 1.2% in October from 1.0% in September and 0.6% in August. Inflation is expected to have been lifted in October by higher petrol and diesel prices and also by some services companies and manufacturers raising their prices as a consequence of increased input costs resulting from sterling’s overall substantial weakening,” according to Dr Howard Archer, the chief crystal ball-gazer at IHS Global Insight..
“We expect consumer price inflation to trend markedly higher over the coming months as sterling weakness increasingly feeds through – specifically, we see inflation reaching its 2.0% target rate during the first quarter of 2017, then rising to 3% in the latter months of next year and peaking around 3.5% early on in 2018,” he added.
Around the markets
- Sterling: US$1.2482, down 0.1 cents
- Gilts: 10 year yield = 1.293%
- Gold: US$1,225.30 an ounce, up US$3.60
- Oil: Brent crude for January delivery US$45.17 a barrel, up 74 cents
Headlines
- Tesco leaves rivals behind after agreeing settlement with Visa – The Times
- Office construction in central London hits eight-year high – The Guardian
- HSBC insists Birmingham staff move is on track – The Guardian
- Germany advises US banks on moving offices from London to Frankfurt – The Independent
- Brexit causes British companies scrap investment plans worth £65.5 billion – The Independent
- SFO to decide whether to file Barclays charges by March – Financial Times
- Merlin to cut more Alton Towers staff following Smiler crash – The Daily Telegraph
- Rumours swirl of €13 billion fund-raising by UniCredit – The Daily Telegraph