Proactive Investors -
- FTSE 100 up 38 points
- Housebuilders hit by Deutsche downgrade
- Vue secures financing for Cineworld bid - reports
2.06pm: Gas continues to slip
UK natural gas futures continued to slip, falling below 130p a therm, the lowest since June 2022, as supplies outpaced demand.
Warm weather kept a lid on heating demand, and robust LNG shipments, particularly from the US, allowed gas stockpiles to remain above 50% in the peak of winter.
Talks between the UK government and Centrica (LON:CNA), the nation's biggest energy supplier, on funding the expansion of its natural gas storage stalled, however.
Curbed capacities at UK's major storage facility leave the country with just nine days of gas storage, compared with 89 days in Germany, highlighting Britain's vulnerability to prolonged cold snaps or supply disruptions.
1.40pm: FTSE set for another record close
FTSE 100 is on course for another record close. The index is currently 23 points up today at 7,906.
Should it continue this trajectory, it would beat the record set on 3 February of 7,901 points.
1.23pm: Market movers
A quick look at some of today’s risers and fallers in London.
Risers
Brickability- up 8% to 74.7p
Brickability Group PLC shares jumped after the construction materials distributor said profit for the current year will exceed market predictions.
MYCELX- up 12% to 29.7p
Shares in MYCELX Technologies leapt after the clean water and air technology company announced upbeat contract news in the Middle East and forecast full-year results in line with expectations.
In a statement, MYCELX said it has secured its second REGEN sale to another national oil company in the Middle East for water treatment during Enhanced Oil Recovery (EOR) production.
Bidstack- up 10% to 1.7p
The in-game advertising platform’s latest trading update announced that revenues for the year are expected to double, despite a contract termination with Azerion.
The board said it is confident it can operate independently of Azerion, citing future growth in the US and success in its licensing business.
Fallers
Non-standard finance- down 11% to 0.42p
Consumer lending group Non-Standard Finance slipped after telling investors its balance sheet remains “deeply insolvent” without the successful completion of a scheme arrangement with the Financial Conduct Authority (FCA).
If the scheme of arrangement is not sanctioned by the court, or in the event that the subsequent recapitalisation of the business fails, there would then be a very significant likelihood of group-wide insolvency, most likely administration, it said.
1.00pm: Mixed start seen in the US
Wall Street is expected to open mixed following the worst week for US equities so far in 2023 and as investors prepare for an inflation report that will play a pivotal role in the Federal Reserve’s monetary policy decisions this year.
Futures for the Dow Jones Industrial Average fell 0.1% in Monday's pre-market trading, while those for the broader S&P 500 index gained 0.1% and contracts for the Nasdaq-100 added 0.4%.
US indices ended mixed on Friday as companies continued to report quarterly earnings and after a revision to last year’s Consumer Price Index (CPI) inflation readings showed the trend in core CPI hasn’t fallen as much as expected. An uptick in used car prices may also result in higher-than-expected CPI inflation for January.
The Dow closed 0.5% up at 33,869 and the S&P 500 inched 0.2% higher to 4,090, but the Nasdaq slipped 0.6% to 11,718 for its first negative week of the year.
“US equities recorded their worst week since the year started,” commented Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Hawkish comments from many Federal Reserve (Fed) members hammers sentiment, as stress mounts before the much-important US CPI data due Tuesday."
The CPI is expected to show headline inflation for January eased to 6.2% from the 6.5% annual increase registered in December. Headline inflation is expected to show a month-over-month rise of 0.5%.
Core inflation, which excludes volatile food and energy prices, is expected to slow to an annual rate of 5.4%, down from 5.7% in December
“If US inflation hasn’t eased or eased enough, or God forbid, ticked unexpectedly higher on yearly basis, we could rapidly see the post-NFP (non-farm payroll) optimism, and the pricing on the goldilocks scenario to leave its place to fear and chaos," Ozkardeskaya added.
Mounting pessimism that the Fed still has some way to go before peak interest rates are reached is taking a toll on Wall Street, added James Hughes, chief market analyst at Scope Markets.
"There’s concern that with the improving outlooks for growth, the FOMC can’t afford to ease off too quickly here, although the inflation data that’s due for release on Tuesday plus the retail sales data on Wednesday could well provide some useful insight as to just how strong demand is," Hughes said.
"Earnings season continues but releases in the coming hours are fairly low key, but this picks up as the week progresses with highlights set to include Airbnb and Coca-Cola (NYSE:KO) tomorrow, then Kraft Heinz (NASDAQ:KHC) on Wednesday," he added.
Back in London and the FTSE 100 is now at 7,916.29, up 33.84 points, or 0.43%, just off best levels of the day of 7,917.63.
12.40pm: Vue lines up financing to bid for Cineworld - reports
Shares in Cineworld Group PLC (LON:CINE) soared 21% on reports that Vue International, Europe's biggest privately owned cinema operator, has lined up financial backing from its new shareholders to help assemble a takeover tilt at Cineworld, its stricken rival.
Sky News has learnt that funds managed by Barings and Farallon Capital Management have agreed to provide capital to Vue International to support strategic acquisitions.
City sources said that Vue, with support from the two funds, would be among the bidders for Cineworld ahead of a deadline set by the latter's advisers later this week.
Revealed: The cinema operator Vue International has lined up financial backing from shareholders Barings and Farallon Capital Management to support a blockbuster takeover bid for Cineworld, its stricken rival, ahead of a deadline for offers this week. https://t.co/nBgWx9fL71— Mark Kleinman (@MarkKleinmanSky) February 13, 2023
Cineworld, which is listed in London and like Vue ranks among Britain's biggest cinema chains, has filed for Chapter 11 bankruptcy protection in the US, and is now running a formal auction of its assets.
Last month, the company announced that it would "run a marketing process in pursuit of a value maximizing transaction for the Group's assets, focused on proposals for the Group as a whole".
Shares in Cineworld are up 21.40% in London on Monday at 5.15p while the FTSE 100 has extended its gains, now at 7,915.31, up 32.86 points, or 0.42%.
12.30pm: RBC downgrades Pennon and Severn Trent (LON:SVT)
RBC has taken a look at water companies Pennon PLC and Severn Trent PLC (LSE:SVT) and downgraded both to ‘sector perform’ from ‘outperform’.
On Pennon, it has an unchanged price target of 975p and now believes its valuation is more balanced.
"Pennon continues to focus on its environmental performance as the market awaits the outcome of the ongoing investigation," it said.
We believe the business will continue to be one of the top RoRE performers in the sector, however we downgrade to sector perform on valuation as PNN has recovered some of its underperformance versus peers."
The bank also downgraded Severn Trent to ‘sector perform’ from ‘outperform’, lifting the price target to 3,000p from 2,900p, as it said there was less potential for upside at current levels.
"We like SVT as a business and believe that growth coupled with a strong focus on ODIs and the 4* EPA status will position the company well into AMP8," it said.
12.00pm: Brexit costing UK £1,000 per household - MPC's Haskel
A bit from Jonathan Haskel’s interview in the Overshoot.
Haskel who is an external member of the Bank of England’s Monetary Policy Committee, said that business investment had “basically flattened out” after the 2016 Brexit referendum.
That drop in business investment growth, the Bank has calculated, has created a productivity penalty of about 1.3% of GDP.
This is based on what would have happened if investment carried on growing at the pre-referendum rate.
Haskel explained to the Overshoot: “That 1.3% of GDP is about £29bn, or roughly £1000 per household.”
“At the end of the forecast period, the penalty goes up to something like 2.8% of GDP, which is very close to the 3.2% number we found using the totally different reduced form methodology based on goods trade volumes.”
11.35am: Water company fines could be diluted
Water companies are set to avoid fines of up to £250mln for spilling sewage into rivers and seas, according to reports.
Environment Secretary Therese Coffey is understood to believe the penalties are ‘disproportionate’.
Ministers last year promised a rise in the maximum fines from £250,000 following persistent spills.
But Coffey is said to have refused to commit to higher fines and allies say she wants to ‘look at the evidence with a fresh pair of eyes and do what is most effective’.
Shares in Severn Trent PLC rose 0.3% while the FTSE 100 is at 7,907.22, up 24.77 points, or 0.31%.
10.58am: UK employers to pay more, but hire less - CIPD
UK companies plan to cut hiring as the economic outlook darkens, but a shortage of workers means they'll pay record salaries for the staff they need.
That was the conclusion of a report from the Chartered Institute of Personnel and Development (CIPD) which found the typical UK employer is planning to raise pay by 5%, the highest since records began in 2012.
The industry group said more than half of firms intend to recover their costs by raising prices rather than finding savings, a move that threatens to push inflation even higher.
The CIPD said: "The opposite was true 12 months ago, suggest that the tight labour market will increasingly feed through into price rises for organisations' goods and services."
Jon Boys, senior labour market economist at CIPD, said: ““Skills and labour remain scarce in the face of a labour market which continues to be surprisingly buoyant given the economic backdrop of rising inflation and the associated cost-of-living crisis.”
Back in the market and the FTSE 100 is at 7,906.99, up 24.54 points, or 0.31%.
10.35am: Europe to avoid recession – EC
Europe’s economy is expected to avoid falling into recession this year, the European Commission said on Monday, with inflation expected to be lower than feared.
The EC has just released its new winter forecasts, and has increased its forecasts for growth in 2023 and now expects eurozone GDP to rise by 0.9% during 2023, up from the 0.3% predicted three months ago.
“Almost one year after Russia launched its war of aggression against Ukraine, the EU economy entered 2023 on a better footing than projected in autumn,” the EC said.
Despite exceptional adverse shocks, the EU economy is set to avoid the technical recession that was anticipated for the turn of the year.After peaking in 2022, inflation to ease over the forecast horizon. The decline was driven mainly by falling energy inflation.#ECForecast
— European Commission ???????? (@EU_Commission) February 13, 2023
The wider European Union is expected to grow by 0.8%, up from 0.3% before.
The EC said that “favourable developments” since its Autumn Forecast was released in November have improved the growth outlook for this year.
Crucially, wholesale gas prices have fallen “well below pre-war levels”, it said, and the EU labour market has continued to perform strongly.
Confidence is improving and January surveys suggest that economic activity is also set to avoid a contraction in the first quarter of 2023, the EC added.
For 2024, the growth rate forecast for 2024 remained unchanged, at 1.5% for the euro area and 1.6% for the EU.
Ireland is expected to be the fastest-growing EU member this year with GDP forecast to grow by 4.9% in 2023, stronger than the 3.2% forecast in the autumn forecasts three months ago.
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— European Commission ???????? (@EU_Commission) February 13, 2023
10.00am: Housebuilders fall as Deutsche downgrades
Housebuilders are a weak feature in the FTSE 100 after Deutsche Bank (ETR:DBKGn) downgraded ratings for a number of market leaders in the sector despite raising price targets across the board.
The German bank has downgraded Taylor Wimpey PLC (LSE:LON:TW.) to hold from buy with a price target of 128p (from 115p), Redrow PLC (LSE:LON:RDW) to hold from buy with 520p price target (from 499p), Barratt Developments PLC (LON:BDEV) to hold from buy with a 464p price target (from 462p), Persimmon PLC (LON:PSN) to sell from hold with a 1,267p price target (from 1,207p) and Crest Nicholson PLC (LON:CRST) to hold from buy with a 243p price target (from 235p).
Price targets for Berkeley Group PLC (LON:BKGH) have been increased to 3,992p from 3,807p and for Vistry PLC to 724p from 710p.
The falls came in an otherwise positive market with the FTSE 100 now at 7,902.99, up 20.54 points, or 0.26%.
9.26am: MPC member, Jonathan Haskel, warns of risks of embedded inflation
Jonathan Haskel, an external member of the Bank of England’s (BoE) Monetary Policy Committee (MPC) has cautioned that the BoE should be "really, really careful" about the risk of high inflation becoming embedded and he would watch data closely in the coming months given the high levels of uncertainty.
"What I would prefer to do is make policy with much more attention on the data flow over the next few months," Haskel said in an interview published by website The Overshoot on Monday.
$GBP #BOE's Haskel - Our role is to ward off second round inflation: https://t.co/YGPWwCKSOg https://t.co/9e0vawR1T8— Forex Analytix (@forexanalytix) February 13, 2023
“We in Britain are caught in this terrible bind of having a U.S.-style tight labor market with a European-style tight energy market,” he said.
He said there was still enormous uncertainty over whether inflation would fall as fast as expected.
On interest rates Haskel commented: “What I would hope is that we only have to raise rates for a small time relative to some equilibrium level, and so therefore it would be hopefully a small period of time over which investment would be held back.”
Back in the markets and the FTSE 100 is now at 7,904.54, up 22.09 points, or 0.28%.
9.00am: FTSE holds gains
The FTSE is holding its early gains, now at 7,901.93, up 19.48 points, or 0.25%.
Richard Hunter, head of markets at interactive investor said the lead index was “bolstered by a noticeable switch towards defensive companies by investors.”
“Such a fallback option has served the UK’s primary index well over the challenges of the last year as investors hunker down in the face of potential recessionary and particularly inflationary pressures,” he added.
Inflation will be at the forefront of investor’s minds ahead of prints in the UK and US this week.
Neil Wilson, chief market analyst, at markets.com cautioned “if the market thinks inflation is coming down, then any print that points in the opposite direction will have a very severe disruptive effect on equity prices, as well as bonds. That’s the new data-dependent Fed.”
“This all makes tomorrow’s CPI print all the more important for the market. Core inflation is expected to decline to 5.4% from 5.7%, with persistently high rents preventing a bigger drop.”
“Remember the Fed has ditched full gremlin mode and is now data dependent,” he added.
Back to today and in London gains would have been more marked but for falls in housebuilders where Deutsche Bank is understood to have cut ratings for a number of market leaders in the sector.
The German bank is understood to have downgraded Taylor Wimpey PLC (LSE:TW.) to hold with a price target of 128p, Redrow PLC (LSE:RDW) to hold with 520p price target, Barratt Developments PLC (LSE:BDEV) to hold with a 464p price target and Persimmon PLC (LSE:PSN) to sell with a 1,267p price target. Shares in all four headed south.
But heading the other way was Brickability Group PLC (AIM:BRCK) which rose 8% after it said it expects full-year earnings to be ahead of market expectations, following a strong performance across all of its business divisions.
The Bridgend, Wales-based company said it has continued to deliver a strong performance across all of its business divisions.
8.15am: FTSE pushes higher
The FTSE 100 opened higher, moving back above 7,900, as investors look ahead to inflation prints either side of the Atlantic with company news thin on the ground.
At 8.15am the FTSE 100 was at 7,903.82, up 21.37 points, or 0.27%, while the FTSE 250 was little changed, at 20,018.02, down 12.05 or 0.060%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank noted: “If US inflation hasn’t eased, or eased enough, or God forbid, ticked unexpectedly higher on yearly basis, we could rapidly see the post-NFP optimism, and the pricing on the goldilocks scenario to leave its place to fear and chaos.”
“So, investors are holding their breath before they see how the recent developments impacted the US inflation, and how the US inflation will impact the Fed expectations and the market sentiment,” she suggested.
Back in the UK and the tough economic climate reflected in the anaemic GDP figures on Friday was seen in a report by accountancy group, UHY Hacker Young, which said pub and bar bankruptcies across the UK rose from 280 in 2021 to 512 last year.
That’s the highest total in a decade, as hospitality venues were hit by rising costs due to the energy price crunch, and tepid demand.
Peter Kubik of UHY Hacker Young says the cost of living crisis has made it hard for hospitality firms to keep operating.
Kape Technologies soared 11% after the 285p bid from Unikmind although the group has urged shareholders to take no action at this stage.
Unikmind, owned by Teddy Sapi, already holds around 55% in the company.
DX (Group) PLC fell 9.25% after it confirmed receiving a claim from Tuffnell Parcels Express in relation to confidential competitor information being obtained by DX in the past.
DX said it would defend its position robustly, adding the matters referred to in the claim were subject to a corporate governance inquiry and investigation by DX, the conclusions of which were reported in an announcement made on 20 September 2022.
DX was responding to an article in The Sunday Times yesterday titled, "The driver, the logistics firm and the 'espionage'".
In a claim filed last week, Sheffield-based logistics firm Tuffnells alleged that DX (Group) (AIM:DX.) employees Tom Middlewood, Jim Sinden and Joe Trappitt — all former employees of Tuffnells — conspired to obtain daily customer service reports.
Network International Holdings PLC (LSE:NETW) was another weak feature, down 3.8%, as Barclays (LON:BARC) Capital downgraded its rating to equal weight.
7.43am: EY resigns as auditor to MJ Hudson
Asset management consultancy MJ Hudson said on Monday that auditor EY has resigned with immediate effect less than 18 months after it was appointed, citing a loss of confidence in management.
In its letter of resignation, EY said it was "ceasing to hold office because we have lost trust and confidence in the company's management and those charged with governance, and in their ability, along with your finance team, to provide us with accurate and reliable information for audit".
MJ Hudson said it "continues to work with an external accounting and financial services firm to assist it in achieving the necessary clarity to enable the year end FY 2022 reporting to be completed".
The company also said there gave been a number of encouraging initial bids for all of its business units from what it called "credible potential acquirers."
"The process will now enter a confirmatory diligence phase before the board will seek best and final offers," the group said.
MJ Hudson, which floated on London's junior stock market on the day of the 2019 general election, is an asset management consultancy which advises on issues such as sustainability and helping clients to benchmark themselves against their competitors.
In December, it announced that its shares were being suspended after being made "aware of…issues, including in relation to the reporting of historical trading of the business in relation to [fiscal year] 2022, the full impact of which is unclear".
7.25am: Unikmind looks to buy remaining shares in Kape Technologies
Unikmind Holdings Limited has made a move to buy the remaining shares in Kape Technologies that it does not already own.
Unikind already owns 54.8% of Kape and has made an offer which values Kape at £1.25bn or 285p per share.
Unikmind said it strongly believes that the offer provides attractive liquidity and represents a compelling opportunity for Kape shareholders to realise the value of their holdings at a significant premium to the current share price.
“Unikmind now believes that the most appropriate way to support Kape in its buy-and-build strategy is through long term capital investment conducted away from public markets,” it said in a statement.
Kape had not yet given a view on the offer but Unikmind said it was hopeful that the Kape board will recommend that Kape shareholders accept the terms.
Mr. Teddy Sagi, the owner of Unikmind said: “We are committed to Kape's further growth within our group of companies, enabling it to exploit operational synergies and to access capital for its continuous growth, especially as the convergence of technologies is gaining momentum.“
Shares in Kape Technologies closed on Friday at 260p in London.
7.00am:
FTSE 100 is expected to open little changed on Monday ahead of a big week for economic data.
Spread betting companies are calling the lead index up by around 3 points.
In the US on Friday, markets ended the day mixed with the Dow ahead by 0.5% at 33,869, the S&P 500 inching 0.2% higher at 4,090 and the Nasdaq slipping below opening levels to finish at 11,718 for a 0.6% loss.
In Asia on Monday, stock markets were mostly lower. The Nikkei 225 index in Tokyo was down 0.9%. In China, the Shanghai Composite was up 0.7%, while the Hang Seng index in Hong Kong was down 0.5%. The S&P/ASX 200 in Sydney closed down 0.2%.
Economic data will be a key focus this week with US CPI figures due tomorrow and UK inflation numbers the day after and average earnings figures tomorrow.
Michael Hewson, chief market analyst at CMC Markets said: “Headline inflation is still well above 10% and expected to remain so even after this week’s CPI reading, which means consumers are likely to remain cash-strapped for some time to come, a trend that is likely to be reinforced by January retail sales numbers on Friday.”