FTSE 100 down, but off earlier lows, rebound in UK GDP seen as short-lived

Proactive Investors -

• FTSE 100 lower, down 8 points
• UK economy grew 0.5% in October
• London Stock Exchange rises on Microsoft tie-up

11.10am: BoE to " decelerate" to 50bps rate rise this week - Citi

The Bank of England (BoE) will increase UK interest rates on Thursday but at a slower pace than last month’s 75 basis points rise according to Citi.

The bank forecast the BoE’s Monetary Policy Committee will “decelerate” to a 50 basis points increase this week although it cautioned “75bps remains more likely than 25bps, with the recent data highlighting the ongoing risk of downward real rigidities.”

But it pointed out November’s acceleration primarily reflected credibility issues that have since dissipated in its view.

“With recent data indicating 1) rates already in restrictive territory and 2) slack beginning to emerge, we think there is little in the underlying data compared to September that would now warrant an acceleration” the broker said.

As a result Citi forecast the median voters in the MPC to once again back a 50bps hike, but suggested this could be in the context of a broader four-way vote split.

“From here, we see the risks as increasingly skewed towards smaller increments as the MPC moves from urgent tightening to a more cautious period of close monitoring – especially with respect to the wage data.”

“For the MPC, this effectively means playing for time” it concluded.

The Bank of England will announce its interest rate call on Thursday.

10.44am: ASOS (LON:ASOS) seeking to bolster finance department with restructuring specialist

FTSE 100 has recovered most of its early falls to trade just seven points lower now at 7,469.

On weak featurre is ASOS PLC which weakened following reports the ailing retailer was holding talks with lenders about adding a restructuring expert to its finance department following the departure of interim CFO Katy Mecklenburgh.

Russ Mould, investment director at AJ Bell said the reports hinted “at the level of stress the ASOS balance sheet could be under.”

“The online fashion lender should not be in the mess it is now. Yes, times are tough, but ASOS is coming off the back of favourable trading conditions during the pandemic” he added.

“By ignoring the adage that you should fix the roof when the sun is shining, ASOS has left itself vulnerable to the effects of people returning to shops in person, a greater number of costly product returns to process, rising costs across the rest of the business and a downturn in demand thanks to the weak economic backdrop.”

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10.14am: Government to hold Cobra meeting as strikes mount

The government is to discuss contingency plans for upcoming strikes, including using the military and civil servants to cover Border Force staff, at an emergency Cobra meeting later.

The armed forces will also be deployed to hospital trusts ahead of an ambulance strike, the government says.

But industrial action is still expected to cause major disruption.

Cobra is an emergency response committee made up of ministers, civil servants and others.

It comes amid a wave of strikes over pay this month from nurses, paramedics, rail workers, and Border Force staff.

Cabinet Office minister Oliver Dowden, who will chair the meeting on Monday, has urged unions to call off the "damaging" strikes.

10.00am: Trade deficit narrows in three months to October

Some more economic news. The UK’s trade deficit narrowed in the three months to October by £5.1bn to £9.8bn, according to the Office for National Statistics, after adjusting for the effect of inflation.

However, in nominal terms, it grew to £23.9bn, reflecting a huge jump in energy costs in the past year in the wake of Russia's invasion of Ukraine.

The value of goods imports decreased by £1.4bn (2.6%) in October, however when removing the effect of inflation, imports of goods increased by £0.9bn (2.3%).

The services sector grew by 0.6% in October, after falling by 0.8% in September; the largest contribution to the growth came from wholesale and retail trade; repair of motor vehicles and motorcycles, which rose by 1.9% in the month.

Output in consumer-facing services grew by 1.2% in October, after falls of 1.7% in September and 1.6% in August.

Production remained broadly flat in October, after growth of 0.2% in September; manufacturing was the only sub-sector to contribute positively to production in October, offset by negative contributions from electricity, gas, steam and air conditioning supply, and water supply, sewerage, waste management and remediation activities.

The construction sector grew by 0.8% in October; this is its fourth consecutive increase after growths of 0.4% in September, 0.6% in August and 0.2% in July.

7.00am: Footsie seen lower eyeing central bank moves

FTSE 100 expected to open lower on Monday ahead of a busy week of central bank announcements from the ECB, the Bank of England and the Federal Reserve.

Spread betting companies are calling the lead index down by around 21 points.

US stocks finished the trading week lower on Friday after hotter-than-expected producer price index data for November sparked further Federal Reserve interest rate hike fears.

At the close, the Dow lost 305 points to 33,476, while the S&P 500 eased 29 points at 3,934 and the tech-heavy Nasdaq fell 77 points to 11,005.

“This late Friday slide in the US looks set to weigh on today’s European open” said Michael Hewson chief market analyst at CMC Markets UK.

“We have an absolute avalanche of data announcements this week not only from the US, but also the UK, starting today with the latest monthly GDP numbers for October, as well as industrial and manufacturing production numbers, which are expected to show that the UK economy is in a poor state of health, despite low levels of unemployment” noted Hewson.

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