FTSE 100 leads European losses, Sterling on good footing

Date:

  • DAX trumps European markets
  • IQE plummets on junior market
  • HS2 delays to be announced

12.03pm: Pound on a good footing

Sterling has gained over 40 pips against the US dollar in the European trading window and a more modest 11 pips against the euro.

That is despite dovish rhetoric emerging from Bank of England policymaker Swati Dhingra.

Yesterday, Dhingra used her first external speech since joining the Monetary Policy in September 2022 to make the case for holding rates where they are.

“In my view, a prudent strategy would hold policy steady amid growing signs external price pressures are easing, and be prepared to respond to developments in price evolution. This would avoid overtightening,” Dhingra said.

Aviva remains top of the FTSE 100 file, extending daily gains above 3% in early-afternoon trades.

Fellow insurance firms Prudential and Legal & General are also at the top, alongside British publishing group Informa

11.45am: IQE plummets further, leads losses on junior market

British semiconductor manufacturer IQE has issued its second profit warning in three months, leading shares on the AIM market to crash over 30%.

IQE is dealing with an inventory pile-up due to a reduction in customer orders, although chief executive Americo Lemos stated that “the current inventory cycle is temporary”.

Barely a year ago, supply chain issues causes a global chip shortage, which has turned into a glut in recent months.

According to Lemos: “we expect IQE to return to growth in the second half of the year and remain excited about the future as we continue to execute our diversification strategy.”

The AIM All-Shares Index is 70 points down, while the FTSE 100 index appears to be enjoying a late-morning recovery, heading above 7,888, though remains 50 points down from yesterday’s close.

11.25am: HS2 construction to be delayed to save money as costs soar

Certain sections of the HS2 rail line will be delayed to save money, according to emerging reports.

BBC reported that sections from Manchester to Crewe and Birmingham to Crewe will be mainly affected.

a statement expected imminently outlining both the extent of budget overruns and more cost-cutting proposals as soaring inflation hammers the high-speed rail line’s construction.

Costs have spiralled from an estimated £33bn in 2010 to the latest estimation of £71bn, with at least £2bn more needed for the first London-Birmingham stretch alone since the last update in October 2022.

Last week, Mark Thurston, chief executive of the HS2 project, told the BBC that the impact of inflation had been “significant” on the price of timber, steel, labour, concrete and just about everything else required for the project.

11.04am: Hugo Boss dragged lower, but DAX still outperforming European markets

Checking in on Frankfurt, Hugo Boss shares fell 3%, despite posting record profits in 2022, with currency-adjusted sales increasing 27% to €3.7bn.

Investors appear wary of the year ahead, with the group’s outlook pointing to a slower rate of sales growth in  2023.

DAX is broadly leading the European markets though, having lost 37 points against the FTSE 100’s 63 points. Paris is slightly behind Frankfurt at negative 39 points.

10.35: Aviva’s Amanda Blanc doing an ‘enviable job’

AJ Bell investment director Russ Mould noted this morning’s FTSE 100 bright spot in the shape of Aviva, where currency chief executive Amanda Blanc has done an “enviable job”.

“Streamlining operations and selling off underperforming businesses is a well-worn strategy, but one Blanc has executed well and that’s evident in the 2022 numbers which show a big increase in profit and dividends accompanied by a big share buyback.”

On New York-listed Domino’s, which is on the slide in Thursday’s early deals as weaker-than-expected financials revealed tough conditions for fast-food operators, Mould warned of a “very difficult year ahead” due to fierce competition and lower margins.

A £20 pizza is now off the menu for a lot of people, hence why it has been offering cheaper-priced deals. That puts pressure on the business to get customers to order more frequently, which is a tough ask in the current economic environment,” said Mould.

Domino’s shares are down 11% in pre-market trades.

10.10: FTSE 100 down 80 points, nudged lower by interest rate speculation

The FTSE 100 is down 0.85% morning, again nudged by Federal Reserve chairman Jerome Powell, who failed to spark confidence over US interest rate hikes in his second day of speaking to lawmakers.

In the UK, Harbour Energy, the North Sea’s biggest producer, laid into the government’s windfall tax on oil and gas firms, claiming the levy had all but wiped out it profits, which sat at US$2.5bn before tax, but just US$8mln after deductions.

Ladbrokes and Coral owner Entain reported a 13% rise in its 2022 underlying pre-tax profits to £993mln, meanwhile, adding it was confident in its long term strategic prospects.

Insurer Aviva also reported higher operating profit for the year, up 35% to £2.21bn, prompting it to kick off a £300mln share buyback programme.

And with the small caps, AFC Energy rose after announcing contracts for its hydrogen-powered generators to be used at construction sites for over 8,000 hours this year so far.

9.50am: Miners a big drag on China data

London’s bue-chip index is continuing to extend its losses, now down over 60 points or 0.76% to 7869.

Miners Endeavour and Rio Tinto are bottom of the list, down around 5% apiece, with Antofagasta and Anglo American also down over 2%.

Market analyst Victoria Scholar at Interactive Investor says the falls in the miners follows Chinese data and a drop in the Shanghai and the Hong Kong markets.

“European markets have opened lower with US futures pointing to a softer open as markets digest a slew of corporate news and the testimony from Fed Chair Jay Powell.

“China’s inflation rate fell to 1% in February from 2.1% in January, reaching the lowest reading since February 2022. Producer prices fell 1.4%, accelerating from a 0.8% drop in the previous month to mark the fifth straight monthly of deflation. Despite the release of pent-up demand post the unwind of Beijing’s strict anti-covid measures, the inflation reading suggests that the economic outlook remains uncertain.

“However, with price pressures under control, this could embolden the authorities to carry out further stimulus as a way to boost demand.”

9.07am: FTSE 100 leads European losses, insurance stocks offer some relief

The FTSE 100 Index remains on the back foot this morning, leading European losses by being dragged 0.5% lower to 7,890.

Ladbrokes owner Entain PLC (LSE:ENT) took a surprising 3% dip given its relatively strong earnings (see below), while Endeavour, Rio Tinto, Antofagasta and others in the heavy industries are tallying up losses across the board.

On the other hand, the insurance segment appears buoyant, with Aviva PLC (LSE:AV.) adding 3.5%, and Prudential, Legal & General and Admiral also in the green.

Victoria Scholar, head of investment at interactive investor said: The FTSE 100 is leading the declines across Europe with miners like Rio Tinto languishing near the bottom of the basket following a drop in the Shanghai Composite and the Hang Seng overnight.

There were milder declines for Paris and Frankfurt at the open. 

In the FX markets, Tuesday’s hawkish statement from the US Federal Reserve should keep the greenback in a leading position in the longer term, though the GBP/USD pair has actually gained around 15 pips so far. The pound is also looking strong against the euro, with the EUR/GBP pair currently changing hands at 88.96p.

This morning we heard that the British Chambers of Commerce reckons the UK will avoid a recession this year, but sluggish growth means the economy won’t recover to pre-pandemic levels until the final quarter of 2024. 

The lobby group upgraded its outlook after better-than-expected household spending and corporate investment at the end of 2022. 

Yet housing market woes persist. As outlined below, the RICS UK Residential Market Survey fell to -48 in February 2023 from -46 in January, the lowest reading since April 2009 due to higher borrowing costs and a surge in the cost of living dampening demand and deterring would-be buyers.

Apart from RICS, there’s little else on the UK economic calendar to watch out for today. 

8.39am: Sterling gains against US dollar

The US dollar headed into Thursday’s session near recent highs, though fell back around 10 pips as the day got underway.

Hawkish comments from Federal Reserve chair Jerome Powell have been a tailwind for the greenback of late.

As he said on Tuesday: “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

This hawkish rhetoric is causing a persistently strong US dollar- in a year where we were supposed to see a retraction, the US Dollar Index (DXY) has surged nearly 3.5% since February 1.

UK Monetary Policy Committee (MPC) member Catherine Mann said earlier this week the pound risked coming “under pressure” from hawkish policy overseas, which was certainly evident when GBP/USD dipped 1.6% to 1.182 on Tuesday.

Though the past couple of days has seen the pair clawback a bit. This morning, GBP/USD added 0.25% to 1.188, though long-term projections remain bearish.

GBP/USD — Source: capital.com

“We continue to favour EUR/GBP trading up to and staying near 0.90 over coming months given the risk of the Bank of England shifting to a pause far earlier than the Fed or the ECB,” said analysts at ING.

8.27am: Entain hits top end

Entain PLC (LSE:ENT) shares are down despite the owner of Ladbrokes and Coral reporting profits at the top end of expectations as growth in its retail operations offset a slowdown in online earnings.

Underlying earnings (EBITDA) rose 13% to £993mln in the past calendar year, from £881.7mln a year before, at the top end of upgraded guidance given in February.

Online EBITDA fell 8% to £828mln, reflecting strong comparisons during lockdowns and regulatory changes in major markets, but the picture was brighter in betting shops, where underlying EBITDA for the retail business jumped 319% to £280mln.

With the dividend resuming this past year after being paused during the pandemic, a second interim dividend of 8.5p per share was paid, taking the payout for the year to 17.0p. 

Looking ahead, the FTSE 100-listed group said despite “some regulatory headwinds, we remain excited by the opportunities ahead“.

“We have started 2023 with positive underlying momentum and we remain confident in our long-term strategic prospects.”

7.00am: FTSE opens lower

The FTSE 100 is expected to open in negative territory on Thursday following a mixed showing in the US after Federal Reserve chair, Jerome Powell, completed his two day grilling to lawmakers in Washington.

Spread betting companies are calling the lead index down by around 18 points.

Ipek Ozkardeskaya at Swissquote Bank noted the “second day of testimony was as hawkish as the first one, with one little exception.”  

“Powell added a very small tweak to his Tuesday language, and said that the data will determine whether the Fed would increase the pace of the interest rate hikes, BUT that ‘no decision has been made on this’ yet.”  

“If Powell’s intention was to cool down the 50bp hike bets yesterday, it didn’t go according to the plan. That probability went above 80% yesterday, as both the ADP report and the JOLTS data came in hotter-than-expected.”

Jobs data will be the main focus for the rest of the week with US weekly jobless claims figures today and non-farm payrolls figures tomorrow.

The Dow closed Wednesday down 58 points, 0.2%, at 32,799, while the Nasdaq Composite added 46 points, 0.4$, to 11,576 and the S&P 500 added 8 points, 0.1%, to 3,992. 

In Tokyo on Thursday, the Nikkei 225 index was up 0.6%. In China, the Shanghai Composite was down 0.1%, while the Hang Seng index in Hong Kong was up 0.1%.

Back in London and the early focus will be results from Aviva and Entain.

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