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ADVFN Morning London Market Report: Friday 27 January 2023

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London open: Stocks flat but Sainsbury’s rallies as Bestway takes stake

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London stocks were steady in early trade on Friday as investors continued to mull a better-than-expected US GDP reading a day earlier, with Sainsbury’s surging on news that Bestway has bought a stake in the supermarket giant.

At 0825 GMT, the FTSE 100 was flat at 7,761.33.

Richard Hunter, head of markets at Interactive Investor, said: “US GDP for the fourth quarter grew 2.9% on an annualised basis, versus expectations of 2.8%. The number was boosted by consumer spending, but represents a slight slip from the third quarter reading. Indeed, with there being a time lag between interest rate hikes and the effect on the economy, it remains difficult to predict how much of the Federal Reserve’s actions so far are having the desired dampening effect.

“As such, more pessimistic investors are suggesting that the latest quarter of growth could be the last before previous hikes take full effect, potentially pushing the economy towards recession this Spring. The severity of the recession remains the key element of investor nervousness and, while one economic reading cannot in isolation predict a trend, the GDP number was enough to suggest that a mild recession could be on the cards, sending stocks higher for now.”

On the macro front later, investors will eye the release of the latest US personal consumption index – the Federal Reserve’s preferred measure of inflation – at 1330 GMT

In equity markets, Rolls Royce was the worst performer on the FTSE 100 after the company’s new boss reportedly told staff that it was a “burning platform”. In a global address to staff, parts of which were shared with the Financial Times, Tufan Erginbilgic, said that “given everything I know talking to investors, this is our last chance”. He described the company’s performance as unsustainable, adding that the situation had nothing to do with Covid-19.

Sainsbury’s rallied, however, after convenience store retailer Bestway said it had purchased or agreed to buy a 3.45% stake in the company, but was not considering an offer for the chain.

“Bestway Group intends to hold its shares in Sainsbury’s for investment purposes and looks forward to supporting the executive management team,” it said. “Bestway Group may look to make further market purchases of Sainsbury’s shares from time to time, subject to availability and price.”

Paragon Banking Group was trading up after it lifted its guidance for net interest margins for the 2023 fiscal year, saying that it had begun “well”, with loan book growth and net interest margins both running ahead of expectations.

Insurer Direct Line ticked a touch higher as it announced that chief executive Penny James has agreed with the board to step down with immediate effect. The news comes just two weeks after the company scrapped its dividend, sending the stock plummeting.

Outside the FTSE 350, Amigo Holdings tumbled after saying it had received a number of expressions of interest in its capital raise, but that this remains below the guarantor lender’s £45m target. If the capital raise does not go ahead, the business will likely be wound down.

Fashion brand Superdry also slid after it cut its full-year profit outlook to breakeven, citing underperformance of its wholesale segment and increasing uncertainty over the fourth quarter.

In broker note action, 888 was upgraded to ‘overweight’ at JPMorgan, while Flutter was cut to ‘neutral’.

Peel Hunt downgraded Antofagasta to ‘reduce’ and Close Brothers to ‘hold’.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Sainsbury (j) Plc +4.59% +11.00 250.40
2 Bp Plc +1.88% +9.10 493.30
3 Shell Plc +1.62% +38.00 2,379.50
4 Burberry Group Plc +1.50% +36.00 2,430.00
5 Itv Plc +1.20% +0.98 82.60
6 Ashtead Group Plc +1.06% +56.00 5,324.00
7 Hikma Pharmaceuticals Plc +1.00% +16.50 1,672.00
8 Tesco Plc +0.98% +2.40 248.00
9 Gsk Plc +0.91% +12.80 1,418.00
10 Easyjet Plc +0.89% +4.60 519.60

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Rolls-royce Holdings Plc -2.17% -2.46 111.02
2 Diageo Plc -1.37% -47.50 3,424.50
3 Carnival Plc -1.35% -10.40 760.80
4 Flutter Entertainment Plc -1.30% -165.00 12,495.00
5 Experian Plc -1.04% -30.00 2,858.00
6 Croda International Plc -1.01% -70.00 6,844.00
7 Rio Tinto Plc -0.97% -62.00 6,315.00
8 Smurfit Kappa Group Plc -0.95% -33.00 3,427.00
9 Smith & Nephew Plc -0.92% -10.50 1,125.00
10 Antofagasta Plc -0.83% -15.00 1,790.00

 

US close: Stocks end higher as GDP data keep hopes of soft landing alive

Wall Street’s main market indices put in solid gains on Thursday following the release of a raft of data that many economists said kept the hopes of a soft landing alive.

“As momentum fades, we expect the U.S. to slip into a mild recession later this year, although risks are tilted toward a ‘soft landing’ given the resilience of the labor market,” said Mickey Levy, economist at Berenberg Capital Markets.

Yet the details of the various economic reports arguably revealed slightly weaker than expected levels of activity, with the possible exception of the jobless claims figures.

Against that backdrop, the Dow Jones Industrials climbed 0.61% to 33,949.41, the S&P 500 was up by 1.10% to 4,060.43 and the Nasdaq Composite was ahead by 1.76% to 11,512.41.

Worth noting, boosting the latter was an 11% pop in shares of electric vehicle maker Tesla.

US gross domestic product expanded at an annualised rate of 2.9% over the last three months of 2022.

That was better than the 2.8% gain anticipated by economists.

But inventory building made a 1.5 percentage point contribution to GDP growth with foreign trade adding a further 0.6 points and neither were sustainable, said Ian Shepherdson at Pantheon Macroeconomics.

“We think final demand growth will be minimal in the next couple quarters, with headline GDP falling. Whether this eventually is declared a recession will depend on what happens to employment and incomes, but they are both likely to soften markedly, at least,” he explained.

“And note that the near-stalling in final demand does not reflect the full impact of the Fed’s tightening, so these data reinforce our view that further rate hikes are unnecessary.”

The initial jobless claims figures meanwhile did surprise again to the downside, but because analysts overlooked the seasonal patterns and layoff announcements “point unambiguously to much higher claims in Q2,” Shepherdson added.

Durable goods orders literally soared in December, but only due to rocketing orders for civilian aircraft which were notoriously volatile.

New home sales edged past forecasts during the same month, but that was offset by downwards revisions to the numbers for the preceding three months.

Perhaps key among all the noise, Shepherdson noted that the price data contained in Thursday’s GDP report was consistent with an in-line reading for the key personal consumption expenditures price deflator data due out the next day.

 

Friday newspaper round-up: Wise, Royal Mail, Shell

One of the UK’s fintech darlings, Wise, could face a regulatory investigation after a rival startup accused the money transfer firm of stifling competition. London-headquartered Atlantic Money has written to the Competition and Markets Authority (CMA) to raise concerns over potential conflicts of interest and anti-competitive behaviour after Wise blocked the firm from a swathe of its own price comparison sites. – Guardian

Royal Mail has been accused of “letting people down” after delays delivering post meant millions missed doctors appointments and received important legal documents late. More than 30 million people were struck by delays to their letters this Christmas, according to research from Citizens Advice. Many people had to resort to pricier services such as Special Delivery to guarantee their post would arrive on time, the charity said. – Telegraph

Tens of billions of pounds in additional funding will be required to keep public services running this year because of a collapse in productivity that experts blamed on weak management and working from home. Public sector productivity fell 1.3pc in the three months to September compared with the previous quarter, according to the Office for National Statistics (ONS). This compares with a 0.1pc increase in output per hour across the economy over the same period. – Telegraph

Shell is considering quitting Britain’s household energy supply market, putting 2,000 jobs at risk, after incurring hundreds of millions of pounds in losses over five years. The giant oil group cited “tough market conditions” as it told staff that it had begun a “strategic review” of Shell Energy Retail. The subsidiary provides energy to about 1.4 million homes, ranking as Britain’s seventh biggest household supplier, and also supplies broadband to about 500,000 households. – The Times

Rents throughout Britain have reached record highs and are expected to rise still further this year, putting additional pressure on household finances amid the cost of living crisis. The average rent outside London has reached £1,172 per calendar month, up almost 10 per cent since the start of last year, according to Rightmove, the online property portal. – The Times

 

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