FTSE basks in econ outlook, sterling tumble
Reckitt Benckiser in Atlantic deal talks
Sterling drops 1% versus US dollar to $1.2540
Pound drops 1.2% against the euro to 1.160
FTSE 100 shares closed higher on Thursday after the Bank of England delivered a bullish outlook on the UK economy and as sterling dropped sharply.
The Bank of England revised upwards this year’s forecast for GDP growth to 2.0% from 1.4% at its November statement. The Bank, which can’t live down that before the Brexit poll last June it warned of economic catastrophe if Britain voted to quit the European Union, has now had to upgrade its forecasts twice since.
Sterling normally picks up on good news about growth forecasts. But BoE Governor Mark Carney had more news in his Inflation Report. He said there was more spare capacity in the British economy than had previously been thought and left inflation expectations little changed over the next three years. That led currency traders to scale back bets on a UK rate hike in the near future – and made sterling less popular.
But a 1% decline in the pound to $1.2540 certainly boosted sterling-sensitive FTSE 100 stocks. The blue chip index ended up 0.5% at 7140 and was led by Smurfit Kappa Group Plc (LON:SKG) up 4.6% to 2162p.
The second-biggest riser, and making waves aross the pond, was Reckitt Benckiser (LON:RB. which soared 4.1% to 7,109p after the Cillit Bang and Dettol, Durex and Nurofen maker confirmed it was in advanced talks over a 16.7bn (£13.2bn) deal to buy US baby formula maker Mead Johnson Nutrition.
The mid-cap FTSE250 index, which rarely gets excited when sterling falls, was true to form as it pipped higher by a modest 0.1% to 18,259 and led by GVC Holdings plc (LON:GVC) up 6.3% to 655p.
Shares in the multinational sports betting and gaming group and owner of the 'Foxy Bingo' brand climbed as management confirmed it has now repaid in full the outstanding loan of €386mln provided by Cerberus Business Finance, through a combination of existing cash resources and the drawdown of the €250mln loan from Nomura International.
Sector-wise, strategists at both Credit Suisse and JP Morgan sounded a cautious note on cyclicals and Small- and Mid-cap equities, respectively.
But for today, that was not on the market’s agenda as small-caps fared well. The FTSE AIM 100 Index closed up 0.5% at 4267 and the FTSE AIM All-Share Index closed up 0.4% at 890.
Some 33% of London stocks gained and 31% fell.
1530 GMT - Bank of England growth upgrades boosts FTSE 100
FTSE 100 jumps over 50 points, on boost from Bank of England
UK 2017 growth forecast upgraded to 2%
Corporate news helps, notably Shell results, Compass update
Netplay - all bets are off after Betsson bid
3.30pm … Bank growth updates …
The Footsie was trading just off session highs in late afternoon trading, shrugging aside a weaker start on Wall Street, as investors focused on domestic matters and the Bank of England’s move to upgrade UK growth forecasts.
Around 3.30pm, the FTSE 100 index was up about 52 points at 7,160, just below the day’s peak of 7,163.
The blue chip index got a boost after the BoE said the UK economy will grow substantially faster than its downgraded forecasts made in the wake of last June's shock Brexit vote.
As it once again held UK interest rates at 0.25%, the Bank raised its growth forecast for 2017 to 2%, well above its November estimate for 1.4%.
It also increased its forecasts for economic growth in 2018 and 2019 to 1.6% and 1.7% respectively.
But the Bank also left its inflation forecast broadly unchanged for this year, at around 2.7%, and looks unlikely to raise rates anytime soon.
Watch : 'Vicious reaction' in sterling after BoE inflation predictions remain the same
Neil Wilson, senior market analyst at ETX Capital, said: “A touch of humble pie for the Bank, as it’s been made abundantly clear that the economic Armageddon it expected in the event of Brexit has just not materialised.”
“But,” he added, “the Bank remains correct to highlight the downside risks that yet remain.
“We are now heading out of the EU with no guarantees on trade – WTO tariffs might be the best we get. No one should doubt the importance of what this means, particularly regards the sterling exchange rate.”
On currency markets, the pound dropped back sharply in reaction to the Bank’s inflation report, shedding 0.8% versus the US dollar at US$1.2556, and over 1% against the euro at €1.1604.
The dollar strength was a bit of a dampener for early trading in New York, together with some caution ahead of tomorrow’s always-influential US payrolls report, with the Dow Jones off around 4 points at 19,886.
Mead Johnson Inc (NYSE:MJN) was a big US gainer, however, after FTSE 100-listed consumer products giant Reckitt Benckiser PLC (LON:RB.) revealed today that it is in talks about the $16bn acquisition of the world’s number three baby foods producer.
Reckitt shares were up around 4% at 7,101p, almost neck-a-neck at the top of the blue chip leader board with contract caterer Compass Group PLC (LON:CPG), also ahead 4% at 1,453p after a bullish trading update.
11.30am ... Shift from neutral ...
The FTSE 100 shifted out of neutral shortly before 10am and come 11.25 was up 27 points at 7,135, despite expectations of a soft opening stateside.
Footsie constituent and global payments titan Worldpay Group PLC (LON:WPG) was letting the side down badly, shedding 4.1% and upsetting Peter Jackson (not the Lord of the Rings film director) in the process.
Jackson has just been appointed as chief executive officer of Worldpay UK.
Index heavyweight Royal Dutch Shell (LON:RDSB) was wanted, however, despite fourth quarter numbers missing expectations.
The shares climbed 1.8% as the market bought into chief executive Ben van Beurden’s narrative that the super-major is being reshaped. Debt and costs have been reduced and free cash flow more than covers the all-important dividend, the Shell boss said.
Away from the big names, Kodal Minerals PLC (LON:KOD) shot up 13.6% to 0.50p as it cheered the market with the test results of the first samples from the Bougouni lithium project in Southern Mali.
Interactive gaming firm NetPlay TV PLC (LON:NPT) rose 10% to 8.8p after the directors gave approval to a 9p a share offer from Swedish competitor Betsson.
9.15 am ... FTSE 100 up seven points ...
The top-share index was treading water at 9.15am, with a mixed set of trading updates from Footsie giants more or less offsetting each other.
The FTSE 100 was up seven points at 7,114, ahead of today’s meeting of the Bank of England’s policy makers and following last night’s uneventful meeting of their counterparts across the pond at the US central bank.
“The BoE is expected to be forced to swallow some pride again today and take another step down from its pre-referendum position on the economic impact of Brexit and announce upgrades to its growth forecasts following another few months of stronger data. Carney in particular came in for severe criticism for his pre-referendum warnings and that has not eased as the economy has outperformed most expectations in the near term,” noted Craig Erlam, the mouthpiece of forex trading platform Oanda.
On the corporate front, Anglo-Dutch consumer goods giant Reckitt Benckiser Group PLC (LON:RB.) and contract caterer Compass Group PLC (LON:CPG) are neck-and-neck at the top of the Footsie tree after updates this morning.
“Today sees consumer giant RB (£48bn cap) offer $16.7bn (30% premium) for US-based Mead Johnson to secure enhanced access to the higher-margin consumer health foods/nutritional segment. While both companies sell worldwide the latter’s sales of such products in faster-growing emerging markets is likely what is boosting RB sentiment most,” suggested Mike van Dulken, head of research at Accendo Markets.
Like Reckitt, Compass is up around 2.3%; its first quarter update showed organic revenue grew by 2.8%, with pricing offsetting weak volumes in the Offshore & Remote sector.
“Although the headline organic growth print of 2.8% is below the long-run trend it is consistent with our expectations and an improving backdrop as the year progresses should see organic growth improve,” suggested Shore Capital.
In the dungeons of the FTSE 100, drugs giant AstraZeneca PLC (LON:AZN), down 2%, and mobile phones network operator Vodafone Group PLC (LON:VOD), down 1.2%, were keeping each other company.
Nicholas Hyett at Hargreaves Lansdown said the fourth quarter numbers from Astra show the company is “still in limbo”.
“Rarely are full year results as unimportant to investors as AstraZeneca’s are today. Earnings and revenues continue to decline in 2016, a trend Astra expects to continue into next year, with low quality revenues making a bigger contribution this year than last.
“While none of this is good news, it is neither unexpected nor central to the AstraZeneca investment story at the moment. All eyes are fixed on the portfolio, which, with 12 drugs in the final stage of development, has the potential to add substantially to future revenues and earnings,” Hyett said.
Vodafone went into retreat as investors continue to take fright at increased competition in India, where revenue was down 1.9% year-on-year.
The group said full-year results would be at the lower end of the organic underlying earnings growth range of 3.6%.
8.55 am ... FTSE off to tentative start ...
The FTSE 100 got off to a tentative though positive start as it pushed ahead 11 points to 7,118.53 in early trade.
The reaction to the parliamentary vote on Brexit, which was carried, and the US Federal Reserve meeting Wednesday met with a muted response.
Later Thursday the Bank of England will provide its assessment on how it thinks the UK economy will shape in the next three years up alongside its interest rate decision.
Will there be more egg for Bank Governor Mark Carney to wipe from his face after warning ahead of the referendum last year of the dire consequences of Britain’s departure from the EU?
Since then the economy has seemed to positively flourish.
There is also the small matter of the interest rate decision. While we are unlikely to see a change it will all be about the tone struck by Carney.
The top early riser, advancing 5%, was consumer products giant Reckitt Benckiser (LON:RB.), which surprised the market with plans to make a US$16.7bn bid for US baby food maker Mead Johnson Nutrition.
Also up there was Royal Dutch Shell (LON:RDSA) after its fourth-quarter earnings met City forecasts.
Vodafone (LON:VOD) by contrast is likely to come in at the bottom end of the profit range, it warned pushing the shares, which have been under pressure for a week or so, down a further 1.5% Thursday.
6.45am ... London expected to start on the back foot ...
London’s FTSE 100 is expected to start Thursday’s trading session on the back foot.
Last night’s US Federal Reserves passed without much incident, with the central bank taking a wait and see approach to President Trump and the potential impacts of his busy first weeks in charge.
The Fed stuck to a somewhat upbeat outlook, as communicated in December, and no doubt rate-watchers will be keenly awaiting January’s non-farm employment stats (out tomorrow) for the latest snapshot of the US economy.
Closer to home, Britain took a step closer to triggering Brexit as a parliament vote to clear Prime Minister Theresa May to trigger Article 50 won 498 votes to 114. The bill will now have to pass through the House of Lords.
Brexiteers believe this sets a timetable to trigger Brexit next month.
Later, the spotlight will be on the Bank of England and its quarterly inflation report.
Over in New York, Wall Street equities ended Wednesday’s session on a slight positive. The Dow Jones gained 0.14% to close at 19,890 while the S&P 500 finished ever so slightly higher at 2,279. The Nasdaq gained 0.5% to 5,642 with Facebook Inc being a notable winner after its fourth quarter beat expectations, sending the share up more than 2%.
In Asia, markets were rather mixed. Japan’s Nikkei fell 1.22% to 18,914 while Hong Kong’s Hang Seng dipped 0.67% to 23,161. The Shanghai Composite meanwhile gained 0.3% to 3,159.
Australia’s ASX 200 was trading negatively, down around 0.14% at 5,645.
London’s FTSE 100 is in red, according to spreadbetting and CFD provider, who just over an hour before the open sees the blue chip benchmark down about 7 points, quoted at 7,095 to 7,099.
The corporate reporting diary for Thursday features Vodafone Plc (LON:VOD), AstraZeneca Plc (LON:AZN) and Vedanta Plc (LON:VED).
Thursday’s agenda
- Final Result: AstraZeneca PLC (LON:AZN).
- Trading Statement: Vodafone Group PLC (LON:VOD), Vedanta Resources PLC (LON:VED), Cranswick plc (LON:CWK), Compass Group PLC (LON:CPG), Aberdeen Asset Management PLC (LON:ADN).
City Headlines
- Deutsche Börse CEO probed over share purchase ahead of LSE talks - Financial Times
- TalkTalk hoping for rapid results as Dunstone gets his hands dirty - The Guardian
- Nokia beats market expectations in fourth quarter – Reuters
- Reckitt in Talks to Acquire Mead Johnson for $16.7 Billion - Bloomberg
- Facebook Crushes Earnings: FB Stock Soars on Q4 EPS, Revenue Beat - Nasdaq
Currencies / commodities
- £/$: 1.26640 - pound strengthens
- Oil (Brent) : US$56.58 – down 0.38%
- Gold: US$1,213 – up US$8, 0.66%