ADVFN Morning London Market Report: Thursday 24 November 2022

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London open: Stocks steady as sterling strengthens

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London stocks were steady at the open Thursday, underperforming European peers amid a firmer pound, as investors digested the latest minutes from the US Federal Reserve.

At 0920 GMT, the FTSE 100 was flat at 7,465.12, while sterling was 0.3% higher versus the dollar at 1.2091. Markets were expected to be fairly quiet as Wall Street will be closed for Thanksgiving.

Russ Mould, investment director at AJ Bell, said the top-flight index was being dented by the fact the pound reached its highest levels against the dollar “since the start of Liz Truss’ ill-fated premiership”.

“A stronger pound hits the relative value of the FTSE 100’s largely overseas earnings but the reason for the dollar’s slide is a positive one for sentiment,” he said.

“Stocks made gains on Wall Street as the latest minutes from the US Federal Reserve provided the reassuring message investors wanted to hear – the pace of rate increases is set to slow from here.

“While there’s no suggestion the Fed will stop hiking interest rates anytime soon, the messaging at least allows markets to start to look forward to that point.”

In equity markets, VodafoneImperial BrandsNational GridBritish Land and Diversified Energy all fell as they traded without entitlement to the dividend.

B&Q and Screwfix owner Kingfisher was also in the red as it narrowed its full-year profit guidance despite an improvement in third-quarter sales.

Iconic bootmaker Dr Martens tumbled as it reported a fall in first-half profits as direct-to-consumer sales fell in the second quarter but maintained annual revenue guidance. The company, famed for its lace up boots now popular again with celebrities, said pre-tax profit fell 5% to £57.9m. Revenue rose 13% to £418.6m, while the dividend was lifted 28% to 1.56p a share.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Segro Plc +4.78% +39.00 855.00
2 Tui Ag +3.65% +5.15 146.15
3 Direct Line Insurance Group Plc +2.54% +5.60 225.70
4 Persimmon Plc +2.43% +32.00 1,346.50
5 Barratt Developments Plc +2.25% +9.10 412.80
6 Taylor Wimpey Plc +2.21% +2.30 106.30
7 Easyjet Plc +2.10% +8.10 394.70
8 Melrose Industries Plc +2.08% +2.75 135.20
9 Johnson Matthey Plc +1.81% +38.00 2,143.00
10 Berkeley Group Holdings (the) Plc +1.77% +67.00 3,858.00

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Imperial Brands Plc -3.75% -82.00 2,103.00
2 Vodafone Group Plc -3.52% -3.33 91.33
3 Kingfisher Plc -1.77% -4.50 249.10
4 National Grid Plc -1.45% -15.00 1,017.00
5 Bae Systems Plc -0.83% -6.60 791.40
6 British Land Company Plc -0.77% -3.20 411.80
7 Burberry Group Plc -0.71% -15.00 2,086.00
8 Compass Group Plc -0.66% -12.00 1,810.50
9 British American Tobacco Plc -0.64% -21.50 3,332.00
10 Astrazeneca Plc -0.62% -68.00 10,928.00

 

US close: Fed minutes give stocks a pre-Thanksgiving bump

Wall Street stocks finished in positive territory on the eve of the Thanksgiving holiday on Wednesday, with the release of the Federal Reserve’s latest meeting minutes giving equities a small boost late in the session.

At the close, the Dow Jones Industrial Average was up 0.28% at 34,194.06, as the S&P 500 added 0.59% to 4,027.26 and the Nasdaq Composite was ahead 0.99% at 11,285.32.

The Dow closed 95.96 points higher on Wednesday, extending the gains it recorded on Tuesday as market participants digested the Fed minutes, and shrugged off fears of further lockdowns in China.

“Wall Street has moved higher again in the opening hours of the last full day of trading before the Thanksgiving holiday, dragging more reluctant European markets behind in its wake,” said IG chief market analyst Chris Beauchamp earlier.

“The usual pre-Thanksgiving drift higher has been seen despite the negative tone to trading this year, but with little in the way of strong performances from individual stocks this session has the feel of buyers piling into index trackers and others, rather than a sustained move back into individual stocks.”

Minutes from the Federal Open Market Committee’s most recent meeting were met with some Thanksgiving cheer late in the session, as most policymakers agreed that smaller interest rate hikes would “soon be appropriate”.

The central bank was still expecting interest rates to reach a higher place than previously thought, but slowing the pace of tightening was very much front-of-mind at the Fed meeting.

Slower rate hikes would give the Fed time to see how much of an effect ‘lagging’ was having on the American economy, given the effects of any monetary policy changes take time to filter through to inflation and economic activity.

“There wasn’t a lot of new information in the minutes from the November meeting of the FOMC, as they appeared set to slow the pace of rate hikes soon,” said Ryan Sweet, chief US economist at Oxford Economics.

“This mirrors the comments from Fed officials since the meeting and is consistent with our forecast for a 50-basis point rate hike in December.

“That said, ‘various members’ saw the fed funds rate peaking higher than previously thought, which isn’t a glaring endorsement.”

Sweet said Oxford would be adding a 25-basis point rate hike at the February meeting to its next baseline forecast as a result.

What was new, however, was the mention of possible recession, which the Federal Reserve said was possible in the next year.

Its previous minutes and reports had not mentioned the possibility of an economic recession in the US.

Ryan Sweet noted that the Fed still had a path towards a ‘soft landing’, including returning inflation to its 2% target and avoiding a recession, but he described it as an “extremely narrow” path.

“They assign a probability of a recession in the next year at 50%.

“Recall, the Fed’s last summary of economic projections were not updated at the November meeting, showing an increase in the unemployment rate between the end of this year and next, something that hasn’t occurred without the economy falling into recession.”

On the economic front, the closure of Wall Street for the Thanksgiving holiday on Thursday, and the planned short session on Friday meant traders were left with an avalanche of data to sift through on Wednesday.

First up, mortgage applications rose 2.2% in the week ended 18 November, according to the Mortgage Bankers Association of America, marking the first time since August that applications increased for two consecutive weeks.

The purchase index went up 2.8%, while applications to refinance a home loan increased by 1.8%.

Elsewhere, Americans lined up for unemployment benefits at an accelerated clip last week, with first-time claims easily beating expectations.

According to the Labor Department, new claims for unemployment benefits rose by 17,000 to 240,000 in the week ended 19 November, the highest level seen since August and easily exceeding expectations for a reading of 225,000.

Moving on, orders for goods made to last more than three years expanded more quickly than expected last month.

According to the Department of Commerce, durable goods orders rose at a month-on-month pace of 1.0% in October to reach $277.4bn.

Still on data, economic activity in the US slowed more quickly than expected last month, according to the results of two surveys.

S&P Global‘s composite purchasing managers’ index for manufacturing and services sector activity fell from a reading of 48.2 in October to 46.3 in November – a three-month low.

The services PMI fell from 47.8 to 46.1 and the manufacturing PMI dropped from 50.4 to 47.6.

On another note, a final reading of the University of Michigan‘s consumer sentiment index printed at 56.8 in November, up from a preliminary reading of 54.7 and beating expectations for a print of 55.

The current conditions subindex was revised higher to 58.8 from 57.8, while the gauge for expectations was revised higher to 55.6 from 52.7.

Finally, new home sales rose 7.5% to a seasonally adjusted clip of 632,000 in October, according to the Census Bureau, well above market forecasts for a reading of 570,000, while building permits dropped 3.3% month-on-month to a seasonally adjusted annual rate of 1.51m in October, below a preliminary estimate of 1.52m.

In equities, farm equipment behemoth Deere & Company closed up 5.03% after it posted fourth-quarter earnings of $2.25 per share and revenue of $15.54bn on Wednesday, topping Wall Street expectations.

For the year as a whole, the company reported profits of $7.13bn and revenues of $47.92bn.

On the downside, energy plays were in the red as crude prices tumbled amid ongoing talks of a price cap on Russian oil among G7 nations.

West Texas Intermediate futures were last down 4.32% on NYMEX at $77.45 per barrel, while the ICE quote for Brent crude was 4.18% weaker at $84.67.

That led to Baker Hughes closing down 2.24%, ConocoPhillips falling 2.49%, and Occidental Petroleum ending the day 2.27% weaker.

Elsewhere, engineering and design software developer Autodesk was 5.66% lower after it slashed its earnings guidance for 2023.

 

Thursday newspaper round-up: Ofgem, pensions, Bulb, Purplebricks

The energy regulator Ofgem has said its price cap will reach £4,279 from January – but households will be shielded by the government’s emergency intervention to keep a lid on bills. Ofgem said the cap, which is adjusted every quarter, will increase by £730 for the three months from the start of next year. However, the government’s energy price guarantee (EPG) will limit typical household bills to £2,500. Analysts had expected the cap to sit at about £4,200. – Guardian

Pensions experts have told MPs they were “absolutely shocked” at the level of “hidden” borrowing across UK pensions schemes, which nearly toppled some funds during the bond market crisis in September and forced cash-strapped trustees to sell up to £500bn in assets. Speaking to politicians on the work and pensions committee on Wednesday, academics and pensions experts laid bare the risks that certain kinds of liability-driven investing, or LDI, posed for retirement savings. – Guardian

Rishi Sunak has abandoned plans to give ministers the power to overrule City regulators in a major climbdown by the Prime Minister. Andrew Griffith, the City minister, said the Government has decided not to proceed with a so-called “call-in” power in a move that will be seen as Mr Sunak bowing to pressure from the Bank of England and the Financial Conduct Authority (FCA). – Telegraph

The government has been criticised by MPs over the “secrecy” attached to the cost of bailing out Bulb. The Treasury select committee yesterday told Jeremy Hunt, the chancellor, to provide details on why running the failed energy supplier is expected to add more than £200 to energy bills for every UK household. – The Times

Shareholders in Purplebricks will vote on whether to oust the hybrid estate agent’s long-term chairman in the week before Christmas after an activist investor forced a general meeting. Lecram Holdings, which has built a 5.2 per cent stake in Purplebricks this year, has been agitating for the removal of Paul Pindar since the summer. – The Times

 

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