ADVFN Morning London Market Report: Tuesday 24 January 2023

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London open: Stocks fall as investors mull borrowing figures

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London stocks edged lower in early trade on Tuesday despite strong gains on Wall Street, as investors mulled a surge in public borrowing.

At 0825 GMT, the FTSE 100 was down 0.2% at 7,768.01.

According to data released earlier by the Office for National Statistics, government borrowing hit a record high in December, mostly due to the household energy support scheme and high debt interest costs.

Public sector net borrowing came in at £27.4bn, up £16.7bn on December 2021.

This marked the highest December figure since records began in January 1993 and was above consensus expectations of £17.8bn and the Office for Budget Responsibility’s forecast of £17.6bn.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Public borrowing was high again in December due to the surging inflation, the high cost of subsidising households’ energy bills and the decision to reverse April’s National Insurance hike.

“Most of the difference between the ONS’ first estimate and the OBR’s forecast, however, can be explained by the treatment of student loans. Changes to the terms of student loan contracts earlier this year prompted the OBR to revise up the valuation of outstanding loans by £8.6bn; it credited this to the governments’ accounts in December as a capital transfer from the private sector to central government. The ONS has decided to wait for more data to become available before incorporating this windfall into its borrowing estimates.”

Ruth Gregory, senior UK economist at Capital Economics, said: “Overall, today’s worse-than-expected public finances figures will only embolden the Chancellor in the Budget on 15th March to keep a tight grip on the public finances and mean that he waits until closer to the next general election, perhaps in 2024, before announcing any significant tax cuts.”

In equity markets, Primark owner Associated British Foods was in the red even as it posted a 20% rise in sales during the Christmas period as consumers continued to hunt for bargains amid the cost-of-living crisis.

The company, which also has agriculture, sugar and food ingredients operations, said revenue in the 16 weeks to January 7 rose to £6.7bn, with Primark sales up 18% to £3.1bn. Group full-year expectations remain unchanged.

Senior surged to the top of the FTSE 250 after it said adjusted pre-tax profit for 2022 was set to be above the top end of the range of consensus expectations following a strong performance from its Flexonics division. The range is between £16.2m and £18m.

In broker note action, Direct Line was hit by a downgrade to ‘sell’ at Citi, while DS Smith was boosted by an upgrade to ‘outperform’ at Davy.

Sage was weaker after a downgrade to ‘add’ from ‘buy’ at Numis.

 

Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Rolls-royce Holdings Plc +2.05% +2.22 110.42
2 United Utilities Group Plc +1.90% +20.00 1,071.50
3 Severn Trent Plc +1.69% +47.00 2,830.00
4 Easyjet Plc +1.67% +7.50 457.50
5 International Consolidated Airlines Group S.a. +1.60% +2.60 164.98
6 Hiscox Ltd +1.13% +12.50 1,122.00
7 Fresnillo Plc +1.12% +9.80 881.20
8 Smith (ds) Plc +1.05% +3.70 355.10
9 Whitbread Plc +1.02% +31.00 3,063.00
10 Taylor Wimpey Plc +1.01% +1.15 114.65

 

Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Astrazeneca Plc -2.23% -246.00 10,792.00
2 Glencore Plc -1.82% -10.50 567.60
3 Hikma Pharmaceuticals Plc -1.69% -29.00 1,684.50
4 Sage Group Plc -1.30% -10.00 756.60
5 Anglo American Plc -1.06% -38.00 3,550.50
6 Associated British Foods Plc -1.04% -19.50 1,850.00
7 Shell Plc -0.95% -22.50 2,343.00
8 Direct Line Insurance Group Plc -0.91% -1.60 174.10
9 Gsk Plc -0.86% -12.20 1,398.60
10 Bp Plc -0.83% -4.00 476.80

 

US close: Stocks extend gains as traders await earnings

Wall Street stocks closed higher on Monday as market participants looked ahead to a busy week of earnings.

At the close, the Dow Jones Industrial Average was up 0.76% at 33,629.56, while the S&P 500 advanced 1.19% to 4,019.81 and the Nasdaq Composite saw out the session 2.01% firmer at 11,364.41.

The Dow closed 254.07 points higher on Monday, extending solid gains recorded in the previous session.

Investors will be zeroed in on the Federal Reserve throughout the course of the week, with many weighing the possibility that the central bank may be close to slowing the pace of its inflation-fighting rate hikes after Governor Christopher Waller said he was in favour of a 0.25% rate increase at Fed’s next meeting.

Outside of monetary policy, traders will also have a veritable array of macro data and corporate earnings to sift through this week, with the Federal Reserve‘s preferred inflation thermometer, the personal consumption expenditure price index, due out on Friday, and earnings from MicrosoftIBMTeslaVisa, and Mastercard all set to be published before the week is out.

On the macro front, the Conference Board‘s leading index declined sharply yet again in December 2022, dropping 1% to 110.5, following a 1.1% contraction in November. With December’s fall factored in, the LEI was down 4.2% over the six months ended December – a much steeper decline that the 1.9% fall seen between December 2021 and June 2022.

No major corporate earnings were released on Monday.

 

Tuesday newspaper round-up: UK steel, Google, BT

The companies running Britain’s four remaining steel blastfurnaces have been offered £600m in government support to help fund the switch from coal and invest in lower-emissions technology. The chancellor, Jeremy Hunt, is expected to confirm £300m each for British Steel and Tata Steel in an announcement as soon as this week, although the timing will depend on them accepting the offers. The BBC first reported the government offer to both companies. – Guardian

Google staff are overpaid and the tech giant must cut thousands more jobs, a British activist investor has said. Sir Chris Hohn, who previously donated to Extinction Rebellion, wrote in a letter dated January 20 that Google’s 12,000 layoffs did not cut deep enough to reduce bloat at the tech giant. The billionaire founder of The Children’s Investment Fund Management (TCI) , who holds a $6bn stake in Google-parent company Alphabet, wrote to chief executive Sundar Pichai, warning: “Ultimately management will need to go further.” – Telegraph

BT is facing a fresh investigation into whether it obscured inflation-busting price rises in its contracts, as customers brace for a sharp increase in their bills. Ofcom said it will examine whether the telecoms giant had failed to provide clear warning of upcoming price increases to customers of its broadband subsidiary Plusnet. – Telegraph

The government’s strategy for Britain’s £94 billion life sciences sector is at risk of failing unless ministers act to stem a loss of manufacturing investment, jobs and exports to international rivals. In a report, the Medicines Manufacturing Industry Partnership warns that there has been a significant loss of traditional medicines manufacturing capacity over the past 25 years and that the global proportion of capital investment has fallen “dramatically”. – The Times

The Bank of England’s staff pension scheme assets lost £1.5 billion in value in six months as part of its liability-driven investment policy. In response to a freedom of information request, the central bank disclosed that the fund’s investments in gilts, bonds and derivatives had dropped from £5 billion to £3.5 billion in the half-year to September 30 as the mini-budget of Liz Truss and Kwasi Kwarteng triggered panic in the gilts market. – The Times

 

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