ADVFN Morning London Market Report: Thursday 23 June 2022

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London open: Stocks fall amid recession fears; PMIs eyed

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London stocks fell in early trade on Thursday as recession fears dented sentiment, with all eyes on the release of the latest UK PMIs.

At 0835 BST, the FTSE 100 was down 0.7% at 7,040.69.

Richard Hunter, head of markets at Interactive Investor, said: “Markets remain on the back foot as the latest comments from the Federal Reserve did little to assuage investor concerns.

“Indeed, there seems no end in sight in the immediate future for this situation to change. Comments from Fed Reserve Chair Powell made their position clear. Interest rates will continue to rise, and at an accelerated pace, until there is ‘compelling evidence’ that inflation is beginning to wane.

“This in turn decreases the likelihood of a soft landing for the economy, which the Fed fully recognises. Of course, the central bank is not attempting to induce a recession, but the outcome of its current stance is increasingly likely to provide one.

“Indeed, some economists are already calculating the risk of a recession as having recently risen to around 50%, and the blunt tool of interest rate hikes may not of itself be sufficient. This round of inflation is not the result of overheating demand, but rather the lack of supply and low production capacity after the pandemic restart stalled. With supply chains in general still feeling the strain, the odds are stacked against a smooth glide path to recovery.”

On home shores, market participants were mulling over the latest data from the Office for National Statistics, which showed that public sector borrowing exceeded forecasts in May after surging inflation pushed up debt interest costs.

Public sector net borrowing, excluding public sector banks, was £14.0bn last month, well above forecasts for £12.0bn and the third-highest May borrowing since records began in 1993. The figure was down £4.0bn on May 2021, but £8.5bn higher than May 2019, before the pandemic.

It was also £3.6bn higher than the Office for Budget Responsibility’s own forecast.

Central government receipts were £66.6bn, up £5.7bn on May 2021. Of that, £48.3bn were tax receipts, an £3.4bn annual increase. But debt interest was £7.6bn, up £3.1bn year-on-year and £2.5bn higher than the OBR’s expectations.

It was also the third-highest debt interest payment made by any central government in any single month on an accrued basis, and the highest payment made in May on record.

Still to come on the data front, the S&P Global/CIPS manufacturing and services PMIs for June are due at 0930 BST.

In equity markets, gambling and gaming group 888 Holdings tumbled as it said it expects interim revenues to be “broadly” in line with expectations. The Gibraltar-based firm, which is in the process of acquiring William Hill, said revenues were likely to come in between £330m and £335m for the six months to 30 June.

Trainline lost ground on news that chief financial officer Shaun McCabe was stepping down to join fast-fashion retailer Boohoo.

Intertek was knocked lower by a downgrade to ‘sell’ at Deutsche Bank, while FirstGroup was weaker after a downgrade to ‘hold’ at HSBC.

United Utilities and British Land were both in the red as they traded without entitlement to the dividend.

On the upside, Ocado was the standout gainer on the FTSE 100, having tumbled on Wednesday, likely on expectations that it will lose out to discounters such as Aldi and Lidl as the cost-of-living crisis intensifies.

Elsewhere, Rentokil was boosted by an upgrade to ‘buy’ at Deutsche Bank.

 

Top 10 FTSE 100 Risers

# Name Change Pct Change Cur Price
1 Ocado Group Plc +2.46% +20.20 840.00
2 Prudential Plc +1.89% +17.60 951.20
3 Rentokil Initial Plc +1.78% +8.20 468.20
4 Bt Group Plc +1.76% +3.20 184.75
5 Bae Systems Plc +1.47% +11.20 771.20
6 Easyjet Plc +1.14% +4.70 417.00
7 Direct Line Insurance Group Plc +1.13% +2.80 250.00
8 Flutter Entertainment Plc +0.92% +78.00 8,546.00
9 Relx Plc +0.75% +16.00 2,141.00
10 Tesco Plc +0.73% +1.80 249.30

 

Top 10 FTSE 100 Fallers

# Name Change Pct Change Cur Price
1 British Land Company Plc -4.27% -21.60 483.80
2 United Utilities Group Plc -3.54% -36.00 981.00
3 Antofagasta Plc -3.42% -42.50 1,201.50
4 Anglo American Plc -3.20% -102.50 3,104.50
5 Fresnillo Plc -3.05% -24.80 788.40
6 Smurfit Kappa Group Plc -2.36% -66.00 2,736.00
7 Mondi Plc -2.26% -33.00 1,426.50
8 Intertek Group Plc -2.12% -92.00 4,248.00
9 Rio Tinto Plc -1.97% -99.00 4,920.00
10 Land Securities Group Plc -1.92% -13.80 703.80

 

US close: Stocks fall as fears of recession grow

Wall Street trading finished weaker on Wednesday, as market participants digested comments made by Federal Reserve chairman Jerome Powell in front of Congress.

At the close, the Dow Jones Industrial Average was down 0.15% at 30,483.13, as the S&P 500 lost 0.13% to 3,759.89 and the Nasdaq Composite was off 0.15% at 11,053.08.

The Dow closed 47.12 points lower on Wednesday, taking a bite out of the gains it recorded on Tuesday when traders returned from the ‘Juneteenth’ break in a slightly more positive mood.

“Fears about inflation will certainly have been soothed to an extent by the 4% drop in oil prices today,” said IG chief market analyst Chris Beauchamp earlier.

“But the fall is a function of continuing fears about a US recession, which is at least one way to cool demand, although it is perhaps not the way central banks and governments would like to solve the problem.”

Stocks had headed south from the opening bell, as investors turned their attention towards Fed chairman Jerome Powell, who kicked off two days of testimony before Congress.

The central bank head updated lawmakers on the state of the US economy, amid inflationary pressures not seen since in roughly half a century.

Powell’s comments came a week after the central bank hiked interest rates by three-quarters of a percentage point, its largest rate increase since 1994, in an effort to cool inflation,

Also in focus, analysts at Goldman Sachs warned that a recession was beginning to look more and more likely for the US economy, stating that risks were now “higher and more front-loaded”.

“The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” Goldman Sachs noted.

On the macro front, mortgage applications increased 4.2% in the seven days ended 17 June, according to the Mortgage Bankers’ Association of America, a slight deceleration from the previous week’s 6.6% rise.

The purchase index rose 7.9%, while the refinancing rate fell 3.1% as the average contract rate on a 30-year fixed-rate mortgage rose by 33 basis points to 5.98% – the highest since November 2008

In equities, recliner maker La-Z-Boy jumped 7.88% after it beat market expectations on its fourth quarter earnings.

On the downside, Tesla reversed earlier gains to close down 0.4%, having risen more than 9% on Tuesday as chief executive Elon Musk said redundancies could see up to 3.5% of the firm’s workforce be let go.

Veteran technology plays Apple and Microsoft were off 0.38% and 0.24%, respectively, snapping a three-day winning streak for both stocks.

 

Thursday newspaper round-up: BNPL, Britishvolt, Reckitt, Rolls-Royce

Almost a third of shoppers who use buy now, pay later credit say repayments on the loans have become “unmanageable”, with the cost of living crisis pushing them into a debt spiral, new research has found. Consumers are spending more via the controversial form of credit, with shoppers who use BNPL now paying off an average of 4.8 purchases – almost double the 2.6 purchases in February, the research found. The average BNPL user’s outstanding balance currently stands at £254.` – Guardian

Cross-party MPs are forming a special group to scrutinise post-Brexit rules for City firms, amid concerns that the overhaul could result in a regulatory race to the bottom. The new subcommittee, which will be run by Treasury committee members and advised by a panel of experts, is meant to make up for the fact that new rules are no longer being dissected by politicians from the European parliament’s economic and monetary affairs committee, after the UK’s exit from the EU. – Guardian

A British electric car battery maker is targeting Tesla as a client by developing power cells designed to appeal to Elon Musk. Britishvolt, which is building a gigafactory in Blyth after raising £1.7bn, is working on lighter, cheaper batteries similar to the prototype 4680 cells that Mr Musk’s company ordered earlier this year from Panasonic. A source said that if Britishvolt could provide performance batteries to Tesla it would be a “win for the UK” and its battery research. – Telegraph

A group of senior Democratic politicians has urged America’s Department of Justice to closely scrutinise and even consider suing to block the potential sale of Reckitt Benckiser’s infant formula business. The FTSE 100 consumer goods group “could shallow out the market” by offloading its baby formula business following widespread shortages in the United States, according to Elizabeth Warren, Bernie Sanders and Cory Booker. In a letter, they warned antitrust officials that a private equity takeover of the country’s second-biggest manufacturer would pose a threat to competition and risk exacerbating existing issues for consumers. – The Times

Rolls-Royce has said that it can only deliver its first “mini” nuclear plant by its 2029 target date if the government commits this year to deploying the technology – years before it even gets safety approval. The small modular reactor (SMR) consortium led by the FTSE 100 group has made an audacious pitch to ministers to fast-track the technology in Britain despite its early stage of development. – The Times

 

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