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London open: Stocks nudge lower; Melrose surges on buyback
London stocks nudged lower in early trade on Wednesday amid ongoing concerns about rising inflation and slowing economic growth.
At 0855 BST, the FTSE 100 was down 0.1% at 7,589.30.
CMC Markets analyst Michael Hewson said: “Sentiment continues to remain extremely fickle, prone to the ebb and flow of inflation expectations, followed by fears that central banks will over react in combatting said inflation, which is then followed by concern about what that might do to global growth.
“This argument which the market appears to be having with itself, over whether we see a recession, or a soft landing is likely to become a lot clearer, over the next week or so, starting with US CPI on Friday, followed by PPI and the Fed meeting a week from now.”
On home shores, investors were mulling the latest data from mortgage lender Halifax, which showed that house prices slowed again in May as the market showed signs of cooling, with soaring inflation starting to hit buyers.
The annual pace of house price increases slowed to 10.5% in May from 10.8% in April. Prices rose for the 11th consecutive month, up by 1.0% in May after a 1.2% increase in April. Housing shortages remained the key driver for prices, said Russell Galley, managing director at Halifax.
“However, the housing market has begun to show signs of cooling. Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it’s likely activity will start to slow,” he said.
“So, there is perhaps one green shoot for prospective purchasers; with overall buying demand down compared to last year, we may be past the peak sellers’ market.”
In equity markets, Melrose Industries surged to the top of the FTSE 100 after the GKN owner announced the launch of a £500m share buyback following the agreed sale of its Ergotron business earlier in the week.
Retailers were also in the black following losses in the previous session on the back of disappointing retail sales data from the British Retail Consortium. Next, JD Sports and Marks & Spencer all gained.
Flexible office space provider Workspace rose after saying it swung to a full-year pre-tax profit, with customer demand now running at pre-Covid levels.
On the downside, Chemring slid after the release of its interim results.
Low-cost airline Wizz Air flew lower after saying it expected to make a first-quarter loss despite strong summer demand as it deployed extra resources to minimise disruption due to staff shortages and supply chain issues.
Information technology consultancy Aveva was also down after saying it swung to a full-year loss.
Top 10 FTSE 100 Risers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Melrose Industries Plc | +9.43% | +13.40 | 155.50 |
| 2 |  |
Rolls-royce Holdings Plc | +2.11% | +1.94 | 93.80 |
| 3 |  |
Scottish Mortgage Investment Trust Plc | +2.11% | +16.40 | 793.00 |
| 4 |  |
Johnson Matthey Plc | +2.02% | +42.00 | 2,117.00 |
| 5 |  |
Gsk Plc | +1.20% | +20.60 | 1,740.20 |
| 6 |  |
Whitbread Plc | +0.93% | +25.00 | 2,726.00 |
| 7 |  |
Ocado Group Plc | +0.78% | +7.20 | 928.00 |
| 8 |  |
Next Plc | +0.78% | +50.00 | 6,478.00 |
| 9 |  |
Pearson Plc | +0.75% | +5.60 | 755.00 |
| 10 |  |
Astrazeneca Plc | +0.72% | +74.00 | 10,304.00 |
Top 10 FTSE 100 Fallers
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Antofagasta Plc | -2.79% | -42.50 | 1,480.00 |
| 2 |  |
Sage Group Plc | -1.88% | -12.40 | 646.20 |
| 3 |  |
Carnival Plc | -1.88% | -18.60 | 972.40 |
| 4 |  |
Diageo Plc | -1.81% | -66.00 | 3,589.50 |
| 5 |  |
Rio Tinto Plc | -1.79% | -109.00 | 5,982.00 |
| 6 |  |
Rentokil Initial Plc | -1.75% | -8.90 | 499.10 |
| 7 |  |
Glencore Plc | -1.70% | -9.20 | 530.40 |
| 8 |  |
Bunzl Plc | -1.60% | -44.00 | 2,712.00 |
| 9 |  |
Anglo American Plc | -1.53% | -61.50 | 3,956.00 |
| 10 |  |
Schroders Plc | -1.51% | -44.00 | 2,868.00 |
US close: Stocks firmer despite inflation concerns, Target warning
US stocks managed a positive finish on Tuesday, as investors shrugged off concerns about surging inflation and economic growth, as well as a cut in quarterly margin forecast by retailer Target.
The Dow Jones Industrial Average ended the session up 0.8% at 33,180.14, as the S&P 500 added 0.95% to 4,160.68 and the Nasdaq Composite was 0.94% firmer at 12,175.23.
“What threatened to turn into a nasty afternoon for risk assets seems to have been headed off for now by a wave of buying,” said IG chief market analyst Chris Beauchamp.
“Target’s warning about rising inventories and the hit to margins seemed to be the spark markets had been looking for to drive a fresh big move lower, but it looks like this bear market rally isn’t rolling over just yet.”
Beauchamp noted that insider buying in tech stocks was continuing “at a heavy pace”, which seemed to provide some comfort to the broader market.
“It is also interesting that equities have weathered the RBA’s increased pace of rate hikes, but with the ECB and US CPI still to come this week the big issues are set to make a return.”
All three of Wall Street’s indices started the day in negative territory, as investors digested a bigger-than-expected 50 basis point cash rate hike from the Reserve Bank of Australia to 0.85% as it looked to curb inflation.
Analysts had pencilled in a 25-basis point hike.
“The move has just poured a bit of cold water on yesterday’s risk-on mood, which had already cooled somewhat following the rise in US bond yields last night as the 10-year Treasury climbed back above 3% to its highest level in a month,” said Neil Wilson, chief market analyst at Markets.com.
“Whether higher bond yields have as much of a marginal impact on equities as they did a few weeks ago is up for debate – the market has seen 3% already and come back to it.”
Wilson said the market knew rates were rising near-term, so the question was one of whether the stock market had adjusted yet.
“On that front, the real uncertainty lies in earnings and whether inflation has peaked – US CPI later this week is important on that front.”
On the corporate front, Kohl’s jumped 9.54% after it confirmed it was in exclusive negotiations with retail holding company Franchise Group about a possible takeover that would value the US department store chain at around $8bn.
Consumer technology giant Apple was 1.76% firmer after it took the wraps off its latest MacBook laptops, as well as new features for the iOS mobile operating system.
On the downside, big-box discount retail giant Target slid 2.31% after it said it would need to offer deeper discounts and cut back on stocking discretionary items as inflation hit spending.
The company said it anticipated an operating margin rate of 2% for the second quarter – lower than the outlook it gave less than three weeks ago when it reported a wider-than-expected fiscal first-quarter earnings miss, which sent the stock down by a quarter.
Goodyear Tyre & Rubber was off 0.37% after it announced a recall of over 173,000 tyres, after a number of road deaths and injuries were attributed to defects.
Wednesday newspaper round-up: Shein, BNPL, Marks & Spencer
Chinese fashion behemoth Shein might be the organisation least expected to win applause at an international conference on fashion sustainability, but that’s what happened at this week’s global fashion summit in Copenhagen. The industry’s largest forum for sustainable progress saw the ultra-fast fashion brand praised for making a donation of $15m (£12m) over three years to a charity working at Kantamanto in Accra, the world’s largest secondhand clothing market. – Guardian
More than two in five recent buy now, pay later (BNPL) shoppers relied on credit cards or other forms of borrowing to pay off what they owed, the charity Citizens Advice has said. It said the figures showed that shoppers are “piling borrowing on top of borrowing” and underlined the urgent need for BNPL to be regulated. – Guardian
Marks & Spencer will pay its first female chief executive a £750,000 salary for working a four-day week, effectively almost £140,000 more than her male counterpart who will work full-time. Katie Bickerstaffe was announced as the high street stalwart’s co-chief executive alongside Stuart Machin in March. – Telegraph
The cost-of-living crisis will be tougher than the pandemic, the boss of Richer Sounds said after its accounts showed it had handed back part of the government support it received during the Covid outbreak. Richer Sounds, the electronics and music retailer majority-owned by its staff, said it had repaid £448,000 of government support last year after its pre-tax profit rose by 52 per cent from £6.48 million to £9.89 million. It said it had done better than expected, with sales edging up from £211 million to £213.7 million, after it had mobilised its “laptop army” of staff to take online and phone orders while shops were shut. – The Times
The windfall tax on energy companies will damage investors’ confidence in Britain, according to Centrica, one of the largest businesses in the sector. The Treasury is to introduce a 25 per cent levy on North Sea oil and gas company profits to raise up to £5 billion, needed to help to pay for the support it is giving to eight million households to help them with the soaring cost of living. Oil and gas companies have been reporting huge profits on the back of sharply rising prices exacerbated by the embargo on Russian imports. – The Times
