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London open: Stocks nudge down ahead of Fed; UK economy returns to growth
London stocks nudged lower in early trade on Wednesday as investors eyed a policy announcement from the US Federal Reserve, and digested the latest UK GDP reading.
At 0825 BST, the FTSE 100 was down 0.1% at 7,587.48.
CMC Markets analyst Michael Hewson said: “Having seen US CPI for May come in at a two year low of 4%, in numbers released yesterday, market expectations are for the US central bank to take a pause today with a view to looking at a hike in July.
“Of course, this will be predicated on how the economic data plays out over the next 6-7 weeks but nonetheless the idea that you would commit to a hike in July begs the question why not hike now and keep your options open regarding July, ensuring that financial conditions don’t loosen too much.”
On home shores, figures from the Office for National Statistics showed the economy returned to growth in April.
Gross domestic product rose 0.2%, in line with expectations, following a 0.3% contraction in March.
The services sector was the main contributor, growing by 0.3% in April after shrinking by 0.5% the month before.
The data showed that production output fell 0.3% in April following growth of 0.7% in March, while the construction sector declined by 0.6% following 0.2% growth.
In the three months to April, the economy grew by just 0.1%.
Darren Morgan, director of economic statistics at the ONS, said: “GDP (gross domestic product) bounced back after a weak March.
“Bars and pubs had a comparatively strong April while car sales rebounded and education partially recovered from the effect of the previous month’s strikes.
“These were partially offset by falls in health, which was affected by the junior doctors’ strikes, along with falls in computer manufacturing and the often-erratic pharmaceuticals industry.
“Housebuilders and estate agents also had a poor month.
“Over the last three months as a whole the economy grew a little, driven largely by the construction industries.
“The services sector dragged growth downwards, partly due to the impact of public sector strikes.”
Ruth Gregory, deputy chief UK economist at Capital Economics, said: “The overall sense is that the economy is still proving fairly resilient to the drag from high interest rates. This resilience will further increase hopes that a recession is no longer likely. We are not convinced.
“We estimate that by the end of Q2 2023 less than 40% of the drag will have been felt and that more than 60% lies ahead. And we think interest rates need to rise further to quash inflation, from 4.50% now to a peak of 5.25%. That’s why we still think a recession is on its way in the second half of this year.”
In equity markets, Games Workshop rallied after saying it expects to post increased annual profit of at least £170m, up from £157m a year ago, driven by a strong rise in revenue and licensing income.
Victrex tumbled, however, as it warned annual profits would be sharply lower as group volumes continued to fall due to industrial headwinds.
Recruiters PageGroup and Hays were also under the cosh after Robert Walters cautioned that profit for the full year ending 31 December 2023 will be “significantly” lower than current market expectations.
Top 10 FTSE 100 Risers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Smith & Nephew Plc | +2.61% | +31.00 | 1,220.00 |
| 2 |  |
Ashtead Group Plc | +2.48% | +134.00 | 5,546.00 |
| 3 |  |
Tui Ag | +2.48% | +14.00 | 579.50 |
| 4 |  |
Ocado Group Plc | +2.41% | +9.70 | 412.70 |
| 5 |  |
Carnival Plc | +2.30% | +24.50 | 1,089.00 |
| 6 |  |
Bhp Group Limited | +2.06% | +50.00 | 2,478.50 |
| 7 |  |
Rio Tinto Plc | +1.96% | +102.00 | 5,305.00 |
| 8 |  |
Standard Chartered Plc | +1.91% | +12.60 | 673.60 |
| 9 |  |
Antofagasta Plc | +1.72% | +26.00 | 1,533.50 |
| 10 |  |
Crh Plc | +1.63% | +64.00 | 3,984.00 |
Top 10 FTSE 100 Fallers
| Sponsored by Plus500 |
|
| # | Name | Change Pct | Change | Cur Price | |
|---|---|---|---|---|---|
| 1 |  |
Hargreaves Lansdown Plc | -2.06% | -17.80 | 845.60 |
| 2 |  |
Flutter Entertainment Plc | -1.55% | -245.00 | 15,530.00 |
| 3 |  |
Bt Group Plc | -1.35% | -1.90 | 138.75 |
| 4 |  |
Halma Plc | -1.31% | -32.00 | 2,420.00 |
| 5 |  |
Sage Group Plc | -0.94% | -8.20 | 864.80 |
| 6 |  |
Bunzl Plc | -0.89% | -28.00 | 3,109.00 |
| 7 |  |
Whitbread Plc | -0.88% | -30.00 | 3,391.00 |
| 8 |  |
Melrose Industries Plc | -0.68% | -3.60 | 522.40 |
| 9 |  |
Sse Plc | -0.68% | -12.50 | 1,832.50 |
| 10 |  |
Taylor Wimpey Plc | -0.63% | -0.70 | 110.20 |
US close: Stocks rise on cooler-than-expected inflation reading
Stock markets on Wall Street wrapped up trading on a strong note on Tuesday, bolstered by cooler-than-expected consumer inflation data that fuelled expectations of the Federal Reserve holding off on interest rate hikes at its imminent meeting.
At the close, the Dow Jones Industrial Average was up 0.43% at 34,212.12, while the broader S&P 500 climbed 0.69% to settle at 4,369.01 points.
The tech-heavy Nasdaq Composite took the lead, appreciating 0.83% to finish the session at 13,573.32 points.
In currency markets, the dollar was last up 0.01% on both sterling and the euro to trade at 79.3p and 92.66 euro cents, respectively.
The greenback did, however, lose some ground to the yen, sliding 0.06% to change hands at JPY 140.14.
“As soon as US CPI beat expectations, the percentage of traders expecting the Fed to ‘skip’ a rate hike at Wednesday’s FOMC meeting jumped from around 75% to over 95%,” said IG senior market analyst Axel Rudolph.
“The percentage of those believing in a 25-basis point rate hike at the July meeting has risen to nearly 65%.”
Consumer inflation comes in cooler than expected
On the economic front, the Department of Labor reported that the country’s consumer price index showed a slower-than-anticipated rise in living costs in May, easing inflationary concerns.
The data showed a 0.1% month-on-month increase in the CPI for the month, driving the annual rate of increase down from 4.9% to 4.0%, slightly below the consensus of 4.1%.
When looking at core CPI, which eliminates the impact of frequently fluctuating sectors such as food and energy, the rise was reported at 0.4% over the month, aligning with the predicted consensus.
In the food sector, prices inched up by 0.2% after maintaining a flat trajectory in the two preceding months.
Conversely, energy costs followed a downward trend, falling by a substantial 3.6%.
Notable contributors to the core CPI included used car and truck prices, which continued their upward trend for the second month in a row with a 0.6% increase.
The cost of shelter also saw an accelerated rise, posting a 0.6% monthly increase, following a 0.4% gain in April.
Prices for commodities excluding food and energy were also on an upward swing, reporting a 0.6% rise, matching the rise in medical care commodities.
However, the cost of medical care services bucked the trend with a slight 0.1% dip.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said there was a “good chance” that monthly core CPI gains would soon start printing at 0.2%.
“Given that rents and used vehicles accounted for four-fifth of the increase in the May core, this signals a good chance of 0.2% core prints very soon,” he noted.
Oracle in the green while Home Depot slips
In equities, tech giant Oracle Corporation saw its stock rise 0.21%, buoyed by encouraging fourth-quarter results that surpassed expectations, released late on Monday.
On the merger and acquisition front, agricultural firms Bunge and Viterra announced an $18bn merger agreement, leading to a 2.54% increase in Bunge’s stock.
“Together, the highly complementary organizations will benefit from more diversified capabilities, greater operational flexibility across oilseed and grain supply chains and processing, greater resources, and combined employee talent to innovate and deliver for customers in every environment, creating value for all stakeholders,” the firms said.
On the downside, hardware retailer Home Depot saw a 0.26% dip in its shares after it reaffirmed the full-year earnings guidance it provided last month.
Wednesday newspaper round-up: Amazon, EY, Entain, smart meters
Amazon has been accused of being “no friend of the small business” after a report discovered evidence that the online marketplace has ramped up fees and advertising costs for sellers. It found that between 2017 and 2022 Amazon had tripled the amount it earned from fees for independent sellers in Europe, including for listings, deliveries and digital support. That growth far outstripped the rise in sales, which doubled over the same period. – Guardian
Woking council plans to sever ties with the Northern Irish developer behind a skyscraper venture that helped tip the tiny Surrey local authority into effective bankruptcy. Amid ballooning costs and delays, a dramatic plunge in the value of the council’s Victoria Square development – which is 52% owned by Moyallen, a business from Dungannon, County Tyrone – is at the centre of the local authority’s financial meltdown. – Guardian
EY’s global boss is set to leave the firm after his plan to split its consulting and accountancy arms fell apart. Carmine Di Sibio, global chief executive of the Big Four firm, told partners on Tuesday that he plans to retire next summer, despite receiving an extension last year to remain in the position until June 2025. – Telegraph
Entain, the Ladbrokes and Coral owner, said last night that it planned to bid about £750 million for Poland’s STS Holding, a sports betting company, and has secured backing from the two biggest shareholders. Mateusz Juroszek and his father, Zbigniew Juroszek, together own about 70 per cent of the shares in STS and have accepted the offer, the London-listed gambling group said. – The Times
Britain’s rollout of energy smart meters is facing more delays and cost increases amid a shortage of installation engineers and claims that many households do not want the devices, the public spending watchdog has warned. The meters transmit real-time usage data to suppliers and are seen as crucial to enabling a modern energy system and encouraging households to save energy. – The Times
