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London open: Stocks gain as investors mull Powell comments
London stocks rose in early trade on Monday, as investors mulled the latest comments from Federal Reserve chairman Jerome Powell, who poured cold water on hopes of a rate cut in March.
At 0850 GMT, the FTSE 100 was up 0.4% at 7,648.05.
In an interview with US TV show ’60 Minutes’, Powell reiterated comments from the press conference last Wednesday, that the FOMC would most likely not begin cutting rates in March.
Danske Bank said: “He also backed the dot plot released at the December meeting indicating FOMC members expect three rate cuts this year. This compares to markets currently pricing in five cuts for 2024.
“Powell emphasised the strength of the economy, underlining a strong jobs market, and saying how the economic pain he forewarned in Jackson Hole in August 2022 may come with the following rate hikes in large parts have not materialised.”
Danske noted that the interview was filmed last Thursday, a day before the release of the surprisingly strong non-farm payrolls data.
On the macro front, a survey out earlier showed that activity in China’s services sector grew less than expected in January.
The Caixin services purchasing managers’ index to 52.7 from 52.9 in December, missing expectations for a jump to 53.0. A reading above 50.0 indicates expansion, while a reading below signals contraction.
“The economy contends with significant challenges marked by numerous uncertainties and adverse factors,” said Wang Zhe, senior economist at Caixin Insight Group. “This status quo has yet to experience a fundamental reversal.”
Julian Evans-Pritchard, head of China Economics at Capital Economics, said: “The Caixin services PMI edged down in January. But it remained more upbeat than its official counterpart, with the average of the two picking up slightly.
“Coupled with an improvement in the manufacturing PMIs, this adds to wider evidence that China’s economy is reaccelerating, albeit modestly. We think this recovery will continue in the near-term but go into reverse later in the year as the prop from stimulus wanes.”
On the UK calendar, the S&P Global/CIPS services PMI for January is due at 0930 GMT.
In equity markets, spreadbetting and CFD trading group CMC Markets surged as it announced plans to axe 200 jobs following a cost-cutting programme expected to save £21m.
The headcount reduction, which represents 17% of the total global workforce, will see the company merge support functions across multiple business lines, streamlining reporting lines and automating processes. The move will result in a one-off cost of around £2.5m to be taken in the current financial year ending 31 March, with savings realised the following year.
Telecoms giant Vodafone was in the red after it held full-year guidance as it reported a fall in third-quarter service revenues. The company said service revenues fell 1.4% to €9.3bn on a reported basis. Vodafone still expects adjusted core earnings of around €13.3bn and adjusted free cash flow of €3.3bn.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Ocado Group Plc | +4.00% | +20.20 | 525.20 |
| 2 |  |
Tui Ag | +2.19% | +11.50 | 536.00 |
| 3 |  |
Burberry Group Plc | +1.91% | +24.50 | 1,307.00 |
| 4 |  |
Land Securities Group Plc | +1.57% | +10.20 | 661.20 |
| 5 |  |
National Grid Plc | +1.49% | +15.50 | 1,056.00 |
| 6 |  |
Scottish Mortgage Investment Trust Plc | +1.41% | +10.80 | 775.20 |
| 7 |  |
Marks And Spencer Group Plc | +1.37% | +3.30 | 244.20 |
| 8 |  |
Informa Plc | +1.37% | +10.60 | 785.80 |
| 9 |  |
Rolls-royce Holdings Plc | +1.26% | +3.90 | 314.10 |
| 10 |  |
Hikma Pharmaceuticals Plc | +1.20% | +22.50 | 1,899.50 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Lloyds Banking Group Plc | -1.60% | -0.67 | 41.64 |
| 2 |  |
Bhp Group Limited | -1.31% | -31.50 | 2,377.50 |
| 3 |  |
Bp Plc | -0.99% | -4.55 | 454.15 |
| 4 |  |
Barclays Plc | -0.98% | -1.48 | 149.24 |
| 5 |  |
Spirax-sarco Engineering Plc | -0.92% | -92.00 | 9,858.00 |
| 6 |  |
Vodafone Group Plc | -0.89% | -0.61 | 67.99 |
| 7 |  |
Kingfisher Plc | -0.79% | -1.70 | 212.90 |
| 8 |  |
Glencore Plc | -0.72% | -3.00 | 414.60 |
| 9 |  |
Easyjet Plc | -0.70% | -4.00 | 571.20 |
| 10 |  |
Bunzl Plc | -0.69% | -22.00 | 3,186.00 |
US close: Stocks bounce back as labour market softens
Wall Street equities experienced a notable rebound on Thursday, bouncing back from a significant sell-off in the previous session.
The resurgence in confidence came on the back of a less severe reading on a crucial gauge of wage pressures, after both the Federal Reserve and the Bank of England stood pat on interest rates this week.
At the close, the Dow Jones Industrial Average was up 0.97% at 38,519.84 points.
The broader S&P 500 climbed 1.25% to settle at 4,906.19 points, and the tech-heavy Nasdaq Composite recorded a gain of 1.3%, closing at 15,361.64 points.
In currency markets, the dollar was last down 0.03% on sterling to trade at 78.45p, while it saw a similar small drop of 0.04% against the euro to 91.94 euro cents.
Meanwhile, against the yen, the greenback saw a slight dip of 0.03%, changing hands at JPY 146.38.
“After seeing its worst one-day decline since September, the S&P 500 along with the rest of US markets have seen a modest rebound as last night’s Powell pushback on a March rate cut shifts the focus to the latest set of earnings numbers from the likes of Amazon, Apple, and Meta Platforms after the bell,” said CMC Markets chief market analyst Michael Hewson.
“With the disappointment over Alphabet and Microsoft’s numbers very much front-of-mind, the hope is that tonight’s numbers from the rest of the ‘magnificent seven’ and call a halt to two days of decline on the Nasdaq 100.”
Labour market eases, cost of labour grows modestly
In economic news, the US labour market experienced a modest easing during the last week after several months of notable tightness.
According to the Department of Labor, initial unemployment claims increased by 9,000 to 224,000 for the week ended 27 January on a seasonally-adjusted basis, compared to consensus expectations for 212,000.
The four-week moving average of initial claims also saw a rise of 5,250, reaching 207,750, while secondary claims, which include those not filed for the first time and pertained to the week ended 20 January, surged 70,000 to 1.898 million.
“WARN notices and Challenger layoff announcements signal that claims will move higher over the next few months, to around 250,000,” noted Kieran Clancy, senior US economist at Pantheon Macroeconomics.
“That would still leave claims at an extremely low level by past standards, but the increase would be clearly visible after months of readings at 200,000 to 200,000, raising fears of a meaningful shift in labour market conditions.”
On another note, there was a positive development in terms of labour cost growth due to improved productivity at the close of 2023.
The Labor Department reported that seasonally adjusted labour productivity increased at a quarterly annualised pace of 3.2% in the fourth quarter, surpassing expectations for 2.5%.
At the same time, nominal hourly compensation saw a 3.7% rise, resulting in unit labour costs increasing by a modest 0.5%, well below the consensus estimate of 1.7%.
Elsewhere, fresh survey data revealed that factory sector activity bounced back at the beginning of the year.
S&P Global‘s manufacturing sector purchasing managers’ index (PMI) improved from December’s reading of 47.9 to 50.7 in January, surpassing the preliminary estimate of 50.3.
The 50-point mark distinguishes between expansion and contraction.
That improvement was supported by an increase in new orders and a slowdown in the rate of output contraction.
However, the survey noted a decline in supplier performance, longer input delivery times, higher transportation costs, and the quickest rise in selling prices since April last year.
Companies did, however, add staff for the first time since September.
In contrast, another closely-watched survey indicated that factory sector activity in the US continued to contract in January, albeit at a slower pace.
The Institute for Supply Management‘s manufacturing sector PMI rose from a December reading of 47.1 to 49.1 in January, which was still well ahead of expectations for 47.0.
The bulk of the improvement was attributed to a significant increase in the sub-index related to new orders, rising from 47.0 to 52.5.
Additionally, the sub-index tracking production levels in companies edged up from 49.9 to 50.0.
The sub-index for prices also saw a notable increase, climbing 7.7 points to reach 52.9.
On the international front, the Bank of England opted to maintain interest rates at 5.25% earlier in the day, aligning with widespread expectations.
Within the nine-member Monetary Policy Committee, six members voted in favour of keeping borrowing costs steady, while three favoured the status quo.
Merck and Plug Power rise, Honeywell falls back
In equity markets, Plug Power jumped 5.62% after it announced a significant milestone at its recently inaugurated plant.
Merck & Co also saw positive gains, climbing 4.64% on the back of robust earnings, primarily driven by strong growth in its cancer and vaccine products.
On the downside, Honeywell International slid 2.45% despite its earnings aligning with Wall Street’s expectations.
Monday newspaper round-up: Tax-free shopping, Asda, Morrisons
The Treasury’s independent forecaster is to review the axeing of tax-free shopping for tourists, raising the possibility that a decision that leisure companies and retailers have blasted for deterring visitors and losing the UK billions in sales could be reversed. With a change of heart likely to be seen as a shot in the arm for struggling businesses, the Office for Budget Responsibility (OBR) is to examine the costs and benefits associated with Rishi Sunak’s 2020 decision to end the retail scheme when he was chancellor of the exchequer. – Guardian
The ownership team behind the indebted supermarket Asda could be about to change again after one of the billionaire Issa brothers was reported to be exploring the sale of his stake in the business. Zuber Issa, 51, owns 22.5% of the grocer after a £6.8bn takeover alongside his older brother Mohsin and the private equity firm TDR Capital three years ago. – Guardian
Rishi Sunak’s stealth tax raid will hit up to 900,000 pensioners with a surprise income tax bill next year, new analysis shows. The Prime Minister’s six-year freeze on tax thresholds will force hundreds of thousands of retirees claiming a married couple’s tax break to pay a levy on their state pensions for the first time. – Telegraph
Morrisons has been hit by the abrupt departure of its stores chief as its new boss Rami Baitieh tightens his grip at the top of the supermarket. David Lepley is leaving the business four years after he was appointed group retail director, having worked at Morrisons for nearly eight years. His departure marks the latest leadership change at Morrisons, as the private equity-owned business pursues a bold transformation plan under new chief executive Mr Baitieh. – Telegraph
More than 80 per cent of British companies expect to increase the prices of their goods and services over the next two years, raising fears that inflation will not fall back to the Bank of England’s target. In a survey of companies carried out by PwC, 81 per cent said that rising energy costs, as a result of the withdrawal of government support and global political pressures, would lead them to increase prices for consumers until 2026. Surging global energy costs drove consumer prices inflation to the highest level in nearly 40 years in 2022, as well as raising transport and other costs for industry. – The Times
