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London open: Stocks edge up after US gains; BAT, Unilever rally
London stocks edged up in early trade on Thursday after US markets hit record highs, with well-received updates from the likes of Unilever and British American Tobacco lending a hand.
At 0825 GMT, the FTSE 100 was up 0.3% at 7,648.48.
Investors were mulling the latest data out of China, which showed that deflation accelerated at its fastest pace in 15 years in January, as weak demand continued to hamper efforts to bolster the struggling economy.
The consumer price index fell 0.8% year-on-year in January, faster than the 0.5% expected. It marked the fourth straight month of declines and the biggest contraction since the 2008 financial crisis.
Food prices fell 5.9% year-on-year, with a 17% slump in pork prices a major contributor to the decline.
Capital Economics said: “Looking forward, we expect easing food price deflation to lift consumer price inflation into positive territory in the coming months. But core inflation will probably stay low. While declines in car prices are likely to slow as the market finds a new equilibrium, close-to-zero rental inflation is here to stay given the sizeable oversupply of housing and declining population.
“All told, we think inflation will stay low, with CPI inflation to average only 0.5% in 2024, up from 0.2% in 2023.”
In UK equity markets, British American Tobacco was the standout gainer on the FTSE 100 despite saying it swung to a full-year loss mainly due to an impairment charge related to its US business.
Unilever rallied after the consumer goods giant announced a €1.5bn share buyback as it reported a return to volume growth in the final quarter of 2023 and said it expected a “modest improvement” in operating margin this year as prices eased.
Catering giant Compass gained after saying it delivered a strong start to its financial year with organic revenue growth currently running ahead of full-year guidance.
Babcock shot higher as JPMorgan lifted its price target on the shares to 630p from 610p as it upped its earnings per share estimates following the company’s capital markets day.
It said: “Our higher forecasts are driven by three takeaways from the CMD: (1) the scope of infrastructure work in BAB’s Devonport dockyard is greater than we expected; (2) BAB has circa £100m of incremental revenue from building military land vehicles; (3) the overall positive tone of the presentations.”
JPM rates Babcock at ‘overweight’.
Watches of Switzerland gained as it backed its full-year guidance but reported a dip in third-quarter revenues as it said consumers in the UK and Europe were choosing to spend their disposable income on other categories such as fashion and beauty.
AstraZeneca lost ground after it delivered a 6% increase in sales in 2023 despite a $3.7bn decline in Covid-19 medicines revenues, as it guided to a strong pick-up in growth this year, but profits came in slightly under analysts’ forecasts.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
British American Tobacco Plc | +6.77% | +157.00 | 2,476.00 |
| 2 |  |
Smith (ds) Plc | +5.83% | +16.40 | 297.50 |
| 3 |  |
Smurfit Kappa Group Plc | +5.11% | +152.00 | 3,124.00 |
| 4 |  |
Compass Group Plc | +3.77% | +81.00 | 2,231.00 |
| 5 |  |
Unilever Plc | +3.04% | +118.50 | 4,020.00 |
| 6 |  |
Mondi Plc | +2.79% | +38.50 | 1,419.50 |
| 7 |  |
Anglo American Plc | +2.15% | +37.80 | 1,792.40 |
| 8 |  |
3i Group Plc | +1.89% | +44.00 | 2,378.00 |
| 9 |  |
Tui Ag | +1.68% | +9.00 | 546.00 |
| 10 |  |
Hiscox Ltd | +1.45% | +15.00 | 1,051.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Astrazeneca Plc | -2.59% | -272.00 | 10,218.00 |
| 2 |  |
Sse Plc | -2.12% | -35.00 | 1,618.00 |
| 3 |  |
Centrica Plc | -1.55% | -2.10 | 133.10 |
| 4 |  |
Standard Chartered Plc | -1.48% | -8.80 | 585.00 |
| 5 |  |
Burberry Group Plc | -0.97% | -12.50 | 1,280.00 |
| 6 |  |
Barratt Developments Plc | -0.96% | -4.80 | 496.20 |
| 7 |  |
Persimmon Plc | -0.90% | -13.00 | 1,426.00 |
| 8 |  |
Bp Plc | -0.83% | -3.95 | 470.65 |
| 9 |  |
Hsbc Holdings Plc | -0.78% | -4.90 | 622.30 |
| 10 |  |
Coca-cola Hbc Ag | -0.71% | -16.00 | 2,223.00 |
US close: Both Dow and S&P 500 reach new highs as earnings impress
Both the Dow and S&P 500 finished at all-time closing highs on Wednesday on the back of a batch of strong corporate earnings.
The Dow finished 0.4% higher at a new closing record of 38,677.36, while the S&P 500 jumped 0.8% to a new peak of 4,995.06. The Nasdaq meanwhile rose nearly 1% to 15,756.44 as it continues to inch closer to its all-time closing high of 16,057.44 reached in November 2021.
So far this year, Wall Street’s three main equity indices have risen 2.55%, 5.32% and 6.71%, respectively, as earnings season has been broadly well-received by the market.
“Even as US yields backed up a touch, notably, the S&P 500 approached the 5,000 mark for the first time, hinting at mega-cap tech’s de-coupling from bond yields but supported by an upbeat macro story, where the economy continues to operate at an above-trend pace with no material signs of falling below trend in the near-term,” said Stephen Innes, managing partner at SPI Asset Management.
“Indeed, higher rates don’t appear to burden consumers or corporations significantly, enabling the Fed to wait longer to ensure inflation control without disrupting the stock market’s momentum amid robust US growth dynamics.”
Nevertheless, investors continued to digest incoming comments from members of the Federal Reserve on Wednesday as the central bank grapples with questions surrounding the outlook for monetary policy – specifically around the timing of the first interest-rate cut.
Fed governor Adriana Kugler said she is optimistic that inflation will continue to fall and that it would be “appropriate” to cut rates if inflation returns to the bank’s 2% target, but noted that stronger consumer spending on the back of a tight labour market could hinder these plans.
Meanwhile, Richmond Fed president Tom Barkin reiterated what many Fed members have said in recent days that policymakers should not rush into an early rate-cut decision, saying he’s “very supportive” of a patient approach. “In all honesty, my forecast is uncertain,” he said.
On the macro front, US mortgage applications rose by 3.7% in the week ended 2 February, according to the Mortgage Bankers Association of America, trimming the 7.2% slump seen in the previous week and the fourth increase in the first five weeks of the year. Applications to refinance a home soared by 12.6%, while applications to purchase a new home slipped 0.6%.
CVS, Ford and Emerson Electric rise
CVS Health delivered fourth-quarter results that comfortable beat analysts’ projections, causing shares to rise over 3%. The healthcare and pharmacy store group however did cut its full-year profit guidance due to higher medical costs.
Emerson Electric was in demand after guiding to 2024 profits ahead of market estimates after first-quarter revenues jumped 22%, causing shares in the industrial manufacturer up 10%.
Automaker Ford finished with decent gains beat consensus forecasts comfortably with its quarterly sales, and announced plans to launch a new, smaller electric car to rival Tesla’s Model 2.
Ride-hailing and food delivery behemoth Uber Technologies edged higher after reporting a 15% improvement in fourth-quarter revenue to $9.9bn, beating market expectations for revenue of $9.8bn. Gross bookings were also up 22% on the year, coming in at $37.6bn, beating the expectations reported by FactSet for a figure of $37.1bn.
Vans and North Face owner VF Corp was the notable faller of the day, dropping 9% after missing profit forecasts for its third quarter and revealing a “strategic review” regarding a possible divestment from its portfolio.
Thursday newspaper round-up: Thames Water, HS2, Yodel
Thames Water has been ordered to update its service commitment plan by the regulator Ofwat after a minister said the company’s performance in regards to sewage dumping and serving customers was “completely unacceptable”. Robbie Moore, the floods minister, said Britain’s biggest water supplier was “under no illusions over the scale of the challenge” as MPs heard that Thames had allowed waterways to become polluted and homes to be flooded with sewage. – Guardian
Andy Burnham, the Labour mayor of Greater Manchester, and Andy Street, the Tory mayor of the West Midlands, have joined forces on alternative and cheaper plans for the scrapped section of HS2, warning that “to do nothing is not an option”. Burnham and Street shared a stage on Wednesday to put forward three options after the government abandoned the long-promised northern section of the high-speed rail line. – Guardian
The struggling parcel courier Yodel is preparing to call in administrators as hopes of a rescue deal fade, threatening disruption to online shopping. Insolvency experts at Teneo have been lined up after efforts to find a buyer for a company which provides delivery services for some of the high street’s biggest names began to flounder. Yodel’s customers include John Lewis, Argos, Zara and AO World, according to its website. – Telegraph
Deloitte has put a further 100 roles at risk of redundancy in the UK as part of its attempt to cut costs. The Big Four accountant has said the proposed job cuts will be made across the firm’s employee ranks, affecting roughly 5pc of Deloitte’s financial advisory business. It comes as Deloitte battles a slump in dealmaking amid high interest rates. – Telegraph
Government staff have been sacked for allegedly sharing details of potential jobs with private sector insolvency practitioners. The government’s Insolvency Service said three people had been dismissed “following an investigation into case data being improperly shared with two insolvency practitioners”. – The Times
An investigation by the City regulator into car finance loans could have “significant financial ramifications” for lenders, a top official at the Bank of England has warned. The comments by Sam Woods, a deputy governor at the Bank, will fuel speculation that lenders face the threat of big fines or hefty compensation payouts as a result of the inquiry, which was announced by the Financial Conduct Authority last month. – The Times
