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ADVFN Morning London Market Report: Thursday 1 December 2022

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London open: FTSE edges up after Powell comments

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London stocks edged up in early trade on Thursday following a surge on Wall Street, after Fed Chair Jerome Powell suggested the pace of rate hikes might ease as soon as this month.

At 0900 GMT, the FTSE 100 was up 0.2% at 7,586.93.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: “The S&P 500 added more than 3% yesterday evening following comments from Federal Reserve Chair, Jay Powell, that signalled a potential slowing of interest rate hikes.

“Markets have been clinging to every scrap of positive news lately and this was a continuation of that trend. Comments from the Fed chair might have suggested a slight breather from the pace of hikes we’ve seen more recently, but there were clear warnings that the Fed was committed to returning inflation to levels akin to longer term targets.

“Mr Powell will be fully aware markets are hanging on every word he says – but the reality is, given the time lag from rate rises to any real impact on the economy, it’s an almost impossible task to slow at the perfect time and the jobs far from complete.”

On home shores, the latest survey from Nationwide showed that house prices fell in November as the fallout from the government’s disastrous mini-budget continued to reverberate.

According to the latest Nationwide House Price Index, prices fell by 1.4% month-on-month in November, the biggest decline since June 2020. In October, they eased 0.9%.

On an annual basis, UK house price growth was 4.4% last month, sharply down on October’s 7.2% increase. The average price of a house in the UK is now £263,788.

The 23 September mini-budget – which included large, unfunded tax cuts but no spending plans or economic forecasts -sparked turmoil across markets, sending mortgage rates sharply higher and lending to the temporary withdrawal of some offers.

Robert Gardner, chief economist at Nationwide, said: “The fallout from the mini-budget continued to impact the market.

“While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum. Housing affordability for potential buyers and home movers has become much more stretched at a time when household finances are already under pressure from high inflation.”

Elsewhere, data from retail consultancy Springboard showed that retail footfall sparked in November, boosted by Black Friday, although it remains well below pre-pandemic levels.

In equity markets, AJ Bell gained as it reported a jump in revenues and profits despite a “challenging” year for markets.

Components maker Essentra rose after saying it had bought Wixroyd Group, a UK supplier of industrial parts for the engineering sector, for an initial £29.5m with a further £7m potentially payable on a deferred earn-out basis.

Darktrace rallied after an initiation at ‘buy’ by Redburn.

On the downside, educational publisher Pearson was knocked lower by a downgrade to ‘neutral’ at Exane.

Ninety One and Telecom Plus were in the red as they traded without entitlement to the dividend, while Auction Technology slumped after full-year results.

 

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# Name Change Pct Change Cur Price
1 Ocado Group Plc +6.97% +43.40 666.00
2 Schroders Plc +4.27% +18.90 461.30
3 Segro Plc +4.00% +31.60 822.40
4 Prudential Plc +3.58% +35.10 1,014.50
5 Auto Trader Group Plc +2.72% +15.40 581.20
6 Carnival Plc +2.21% +15.80 731.60
7 United Utilities Group Plc +2.15% +22.00 1,046.00
8 Croda International Plc +2.12% +144.00 6,938.00
9 Admiral Group Plc +1.92% +39.00 2,065.00
10 Rightmove Plc +1.88% +10.40 563.80

 

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# Name Change Pct Change Cur Price
1 Pearson Plc -3.64% -36.20 959.00
2 Standard Chartered Plc -2.66% -16.40 601.00
3 Rolls-royce Holdings Plc -2.44% -2.22 88.70
4 Next Plc -1.99% -116.00 5,724.00
5 3i Group Plc -1.37% -18.50 1,330.00
6 Shell Plc -1.37% -33.50 2,410.50
7 Burberry Group Plc -1.29% -28.00 2,149.00
8 Hsbc Holdings Plc -1.28% -6.50 503.20
9 Aviva Plc -1.22% -5.40 438.90
10 Anglo American Plc -1.19% -40.50 3,367.00

 

US close: Stocks surge after Jerome Powell speech

Wall Street stocks closed well above the waterline on Wednesday, as market participants digested comments from Federal Reserve chairman Jerome Powell after an avalanche of economic data.

At the close, the Dow Jones Industrial Average was up 2.18% at 34,589.77, as the S&P 500 added 3.09% to 4,080.11, and the Nasdaq Composite was ahead 4.41% at 11,468.00.

The Dow closed 737.24 points higher on Wednesday, easily reversing the previous session’s single-digit gain.

The head of the US central bank earlier opened the door to a downshift in the pace of interest rate hikes as soon as December, in remarks to the Brookings Institution.

However, what now mattered most was how much more rates needed to rise and for how long they should be kept at a “restrictive” level to return inflation to 2%, Jerome Powell said.

In the speech, even as he said twice that inflation remained “far too high”, the Fed chair explained that the path ahead for prices was “highly uncertain”.

“Despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation.”

Powell went on to stress the so-called core services inflation was what mattered most for the path ahead for inflation.

The key to that component of inflation was the labour market, he explained.

Chairman Powell also discussed how the US labour force was currently 3.5 million people smaller than the Congressional Budget Office had forecast before the pandemic.

He linked that to Covid-related sickness, a wave of early retirements brought on by the pandemic, slower population growth and Covid-related deaths.

The latter two probably accounted for around 1.5 million missing workers, he said.

On the economic front, US mortgage applications fell 0.8% in the week ended 25 November, according to the Mortgage Bankers Association, following a 2.2% advance in the previous week.

Applications to refinance a home loan dropped 12.9%, while the purchase index rose 3.8%.

Elsewhere, hiring in the US slowed by more than expected in November, according to consultancy ADP, with hiring in America’s private sector declining from 239,000 in October to 127,000 in November.

Economists had pencilled in an increase of 195,000.

Still on data, America’s economy expanded at a slightly quicker pace than expected over the three months ended 30 September.

According to the Department of Commerce, US gross domestic product grew at a quarterly annualised clip of 2.9% over the third quarter.

Consensus had been for growth of 2.7%.

On another note, manufacturing sector activity in the Chicago region registered an outsized slump in November, according to Market News International‘s Chicago factory sector purchasing managers’ index, which cratered to a reading of 37.2 – down from an October print of 45.2 and well below economists’ forecasts for a reading of 47.0.

Moving on, an advance reading of October’s goods trade balance showed the US trade gap on goods widened sharply, down from a revised print of $91.9bn in September to $99.0bn in October, according to the Census Bureau.

Meanwhile, contracts to buy previously owned US homes fell for a fifth month in a row in October, according to the National Association of Realtors, which said its pending home sales index, based on signed contracts, fell to 4.6% to 77.1 last month.

Finally, the number of job openings in the US dropped by 353,000 to 10.3m in October, according to the Bureau of Labor Statistics, with job openings decreasing in state and local government, excluding education, nondurable goods manufacturing, and federal government, while the number of job openings increased in other services and in finance and insurance.

In equities, Hewlett Packard Enterprise jumped 8.54% as its latest numbers met expectations, with the firm serving up some strong revenue guidance.

Walt Disney gained 3.36% after the entertainment giant said it could be accounting for impairment charges as recently-reappointed chief executive Bob Iger mulled some serious changes to boost profits.

On the downside, Spam maker Hormel Foods slipped 2.47% after it fell short of expectations on fourth quarter sales, although it did beat on profit forecasts.

 

Thursday newspaper round-up: Fuel poverty, strikes, Lloyds Banking

More than 7 million people who no longer qualify for energy support from next spring face years in fuel poverty if average heat and light bills remain at £3,000, according to a report calling for more targeted help. In his November budget the chancellor, Jeremy Hunt, announced that the government’s energy price guarantee (EPG) would rise from April to £3,000 a year for the typical home, and the £400 help paid to all households this winter – regardless of income – would not be repeated. – Guardian

Britain is to be disrupted by strikes every day until Christmas as trade unions seek to bring the country to a halt in a new winter of discontent. Rail workers, including staff at Eurostar, nurses, teachers, security guards handling cash, driving examiners and rural payments officers are planning industrial action that will affect every day over advent. – Telegraph

Google has been hit with a £13.6bn lawsuit over claims the tech giant’s stranglehold on the online advertising market has deprived publishers of revenue. The class action lawsuit, filed in the Competition Appeals Tribunal on Wednesday, claims that Google raked in “super profits” at the expense of hundreds of thousands of websites and mobile apps in the UK. – Telegraph

Italian oil major Eni is in early stage talks to buy Sam Laidlaw’s Neptune Energy for up to $6 billion. Preliminary talks are under way but no formal offer has been made, a source said, confirming a report by Reuters. – The Times

Lloyds Banking Group’s £52 billion staff pension fund was forced into fire sales of equities and faced collateral calls of billions of pounds at the height of the gilts market crisis, according to unusual evidence tabled in parliament. Henry Tapper, a pensions expert who gave evidence to the work and pensions committee last week, made a written disclosure in which he referred to his partner, Stella Eastwood, who is head of group pensions at Lloyds. – The Times

 

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