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London open: FTSE in the red after retail sales; NatWest tumbles
London stocks fell in early trade on Friday, with NatWest under the cosh after results, as investors mulled the latest UK retail sales data.
At 0835 GMT, the FTSE 100 was down 0.6% at 7,968.34, having taken its opening cue from weak US and Asian sessions.
Steve Clayton, head of equity funds at Hargreaves Lansdown, said a higher-than-expected producer price report suggested US inflation could prove more stubborn than many expected.
“That kyboshed hopes of a rapid return to lower US interest rates, sending stocks sliding and bond yields rising in the States last night,” he said.
On home shores, data released earlier by the Office for National Statistics showed that retail sales unexpectedly rose in January but the outlook remains weak overall.
Retail sales were up 0.5% on the month following a 1.2% decline in December. Economists had been expecting a 0.3% fall.
Non-food stores sales rose 0.6% over the month following a 2.5% decline in December 2022. Feedback from retailers suggested that growth was supported by sales promotions, the ONS said. Still, sales remained 2.9% below their pre-pandemic levels.
On the year, retail sales were down 5.1% in January following a 6.1% decline the month before and versus expectations for a 5.5% fall.
The ONS said sales volumes were 1.4% below their pre-pandemic February 2020 level.
ONS director of economic statistics Darren Morgan said: “After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline.
“In the latest month, as prices continue to fall at the pumps, fuel sales have risen.
“Meanwhile, discounting helped boost sales for online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops.
“However, after four months of consecutive growth, clothing store sales fell back sharply.”
Paul Dales, chief UK economist at Capital Economics, said: “On the face of it, these data add to the view that activity is holding up fairly well. But there are two reasons not to get too carried away. First, retail sales were very weak last year but overall consumer spending held up due to stronger non-retail spending (particularly in restaurants). When households’ finances are under pressure, it possible that any improvement in retail sales will be just be met by a softening in non-retail spending.
“Second, although the biggest falls in real incomes are now behind us, the full drag on activity from higher interest rates has yet to be felt. As such, it is too soon to conclude that the retail sector is coming out of its funk and that the economy won’t yet fall into a recession.”
In equity markets, NatWest tumbled even as it said annual profits rose by more than a third and unveiled a £800m share buyback as it cashed in on surging interest rates, despite a net impairment charge of £337m.
Broker Shore Capital said in a note: “While the group continues to guide to a return on tangible equity of 14-16% in FY23F and is now suggesting this should be sustainable over the medium-term, we think the market may be disappointed by what appears to be a downgrade to pre-provision profit forecasts (offset by lower impairments).”
Lloyds also fell sharply.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
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| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Flutter Entertainment Plc | +1.90% | +255.00 | 13,650.00 |
| 2 |  |
Segro Plc | +1.65% | +13.80 | 850.00 |
| 3 |  |
Easyjet Plc | +1.56% | +7.80 | 508.20 |
| 4 |  |
Standard Chartered Plc | +0.87% | +6.60 | 765.80 |
| 5 |  |
Gsk Plc | +0.63% | +9.20 | 1,464.20 |
| 6 |  |
Glencore Plc | +0.58% | +2.95 | 510.35 |
| 7 |  |
Wpp Plc | +0.55% | +5.50 | 1,009.00 |
| 8 |  |
Imperial Brands Plc | +0.51% | +10.00 | 1,988.50 |
| 9 |  |
International Consolidated Airlines Group S.a. | +0.49% | +0.82 | 167.74 |
| 10 |  |
Hsbc Holdings Plc | +0.39% | +2.40 | 620.80 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
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| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Lloyds Banking Group Plc | -3.99% | -2.11 | 50.83 |
| 2 |  |
Carnival Plc | -2.87% | -25.40 | 860.00 |
| 3 |  |
Hargreaves Lansdown Plc | -2.84% | -24.60 | 841.80 |
| 4 |  |
Ocado Group Plc | -2.63% | -16.60 | 614.40 |
| 5 |  |
Rightmove Plc | -1.93% | -11.40 | 578.60 |
| 6 |  |
Scottish Mortgage Investment Trust Plc | -1.87% | -14.20 | 746.80 |
| 7 |  |
Diageo Plc | -1.67% | -60.00 | 3,533.50 |
| 8 |  |
Direct Line Insurance Group Plc | -1.54% | -2.85 | 182.30 |
| 9 |  |
Experian Plc | -1.53% | -46.00 | 2,959.00 |
| 10 |  |
Halma Plc | -1.50% | -34.00 | 2,226.00 |
US close: Stocks sharply lower as traders digest key data
Wall Street stocks closed sharply lower on Thursday as market participants digested a number of data points that seemed to stoke a fear of rate hikes.
At the close, the Dow Jones Industrial Average was down 1.26% at 33,696.85, while the S&P 500 slipped 1.38% to 4,090.41 and the Nasdaq Composite saw out the session 1.78% weaker at 11,855.83.
The Dow closed 431.20 points lower on Thursday, easily reversing gains recorded in the previous session following a stronger-than-expected January retail sales report.
Market participants were focussed on a number of key macro points on Thursday, with most hoping to gain further insight into the state of the US economy.
First up, Americans unexpectedly filed unemployment claims at a decelerated rate in the week ended 11 February and remained near a nine-month low. Initial jobless claims dropped to 194,000, according to the Department of Labor, down from the previous week’s downwardly revised level of 195,000 and below market expectations for a print of 200,000.
On another note, wholesale prices in the US rose more quickly than expected at the start of 2023. According to the Department of Labor, so-called final demand prices increased at a month-on-month pace of 0.7% – faster than the consensus forecast for a rise of 0.4%.
Still on data, manufacturing sector activity in the US mid-Atlantic region worsened in February, with the Federal Reserve Bank of Philadelphia‘s factory sector index falling from a reading of -8.9 in January to -24.3 for February.
Finally, homebuilding activity in the States slowed in January. According to the Department of Commerce, in seasonally adjusted terms, housing starts dropped at a month-on-month pace of 4.5% to reach an annual rate of 1.3m, while on annual basis, housing starts were off by 21.4%.
In the corporate space, Hyatt Hotels reported a fourth-quarter net income of $294.0m after reporting a loss at the same time a year earlier, Crocs posted earnings that came in $0.40 ahead of estimates, and WeWork fell $0.16 short of EPS estimates despite seeing revenue top expectations.
Dropbox posted quarterly earnings that matched expectations and revenues that topped estimates, while DoorDash reported a 40% year-on-year surge in revenues, and Hasbro missed earnings estimates but kept its expectations for the current year low even though it said it saw a turnaround coming.
Friday newspaper round-up: Meta, business taxes, PwC
Meta, the parent company of Facebook, has said in a filing that it is increasing its spend on the personal security of chief executive and co-founder Mark Zuckerberg by $4m (£3.3m) to $14m, at a moment when the company has cut thousands of jobs in what Zuckerberg has called the “year of efficiency”. Meta’s board declared that the 40% increase was “appropriate and necessary under the circumstances” and was in place “to address safety concerns due to specific threats to his safety arising directly as a result of his position as Meta’s founder, chairman, and CEO”. – Guardian
Jeremy Hunt should cut business taxes at next month’s budget to boost the economy, George Osborne has suggested. The former chancellor warned that the historically high burden on industry risked putting companies off investing in Britain. He referenced pharmaceutical firm AstraZeneca, which has decided to build its new vaccine factory in Ireland because of the UK’s high levies. – Telegraph
Lenders have been told by the City minister that they could sue the Bank of England over tough new financial rules amid fears that Threadneedle Street’s regulations are putting the City at risk. Andrew Griffith suggested that finance executives could take legal action against the Bank over reforms to so-called Basel rules, which risk forcing British lenders to hold back billions of pounds more in cash than their rivals in the European Union. – Telegraph
The head of Rolls-Royce’s passenger jet engine manufacturing division, the British engineer’s largest and most important business unit, has been removed from his post as the new chief executive begins to make his mark on the company. In the first shake-up of existing management since he arrived as chief executive at the turn of the year, Tufan Erginbilgic has told senior executives that Chris Cholerton, president of Rolls-Royce’s civil aerospace arm, is to step aside to other duties and that a search for his replacement has begun. – The Times
The UK accounting regulator has opened an investigation into PwC’s audits of Intu Properties, the collapsed shopping centres owner, bringing the number of regulatory inquiries into the Big Four firm to five. Specifically, the Financial Reporting Council is looking at Intu’s 2017 and 2018 audits. Apart from confirming that the decision to launch its inquiry was made at the end of last month, the watchdog gave no further information. – The Times
