Proactive Investors -
- FTSE 100 firmer, but off highs, up 13 points
- Retail sales fall unexpectedly, down 1% in December
- Google to cut 12,000 jobs
1.56pm: Government close to £300mln aid package for British Steel - Sky
The Treasury is close to agreeing a £300mln aid package for British Steel according to Sky News.
The report said that Jeremy Hunt, the chancellor, has been advised by officials to approve a request from British Steel for public money following an intervention by Grant Shapps, the business secretary, and Michael Gove, the levelling-up secretary.
Such a move would avert the loss of thousands of industrial jobs across northern England, Sky said.
Exclusive: Jeremy Hunt, the chancellor, is close to approving a request from British Steel, the UK's second-biggest steel producer, for £300m of taxpayer funding that would be tied to job retention and investment in decarbonising its Scunthorpe plant. https://t.co/AQJ5VNQmZI— Mark Kleinman (@MarkKleinmanSky) January 20, 2023
Whitehall sources said the government was expected to communicate a decision to the company in the coming days, which would see around £300mln handed to it in instalments during the next few years.
The funding would be "directly linked" to a project to replace British Steel's blast furnaces at its Scunthorpe site with a greener electric arc furnace, according to one person close to the situation.
Jingye Group, British Steel's Chinese owner, would also be obliged to invest at least £1bn in the business by 2030 and make commitments relating to job retention, the person added.
If those conditions are not met, the Treasury could still decide not to proceed with the funding, the report said.
1.47pm: UBS downgrades Crest Nicholson (LON:CRST)
Crest Nicholson PLC could be most at risk of land impairments if house prices materially decline given its lower margins according to analysts at UBS.
The bank has downgraded the UK housebuilder to ‘sell’ from ‘neutral’ with a 210p 12-month price target which also reflects a strong run by the shares (+18% above pre-mini budget level).
Over the medium term, Crest's divisions are in areas where planning restrictions appear the most acute, UBS explained, which could constrain volume recovery and/or reduce intake margins on land approvals.
Although the shares trade at around a 30% discount to its tangible NAV, which initially appears cheap, it does not reflect the higher risk, in the broker’s view.
UBS estimated fiscal year pre-tax profits for 2023 fall by around 59% to £57mln and trough at £23mln in fiscal year 2024, following a -10% decline in house prices.
Shares were trading 0.2% lower in early afternoon trading.
1.21pm: Bumpy road ahead
FTSE is off its highs, but still in positive territory, up 13 points, as we await the restart across the pond.
Craig Erlam, senior market analyst, UK & EMEA, OANDA reflected on a another eventful week and “one that serves to remind us that while there may be more sources of optimism this year, compared with last, it's going to be a very bumpy ride.”
On the UK he suggested that after a busy week of data “many may be just as confused about the outlook as they were before.”
“Data has previously indicated that the country may have managed to avoid a recession in the fourth quarter but at the same time, retail sales strongly suggest that households are feeling the strain which begs the question, did the World Cup just delay the inevitable?” he asked.
But with labour market figures strong, so much so that wages are continuing to accelerate higher, it doesn't alleviate fears within the Bank of England that getting inflation sustainably back to 2% could necessitate inflicting more pain on households.
“An unenviable dilemma, but policymakers are in agreement that inflation must take priority. And when that is still above 10%, it's clear that means the rate hikes will keep coming” he pointed out.
12.34pm: Bank of England rate call finely balanced - Berenberg
Today’s weak retail sales figures have added to the depth of evidence available to the Bank of England (BoE) as it mulls its next move on interest rates.
Holger Schmieding, chief economist at Berenberg, forecast hard choices ahead for the BoE with the decision at the upcoming monetary policy committee (MPC) meeting finely balanced.
He predicted the split amongst the MPC in December may well be replicated at the next meeting on 2 February.
“On the one hand, still elevated domestic price pressures argue for staying the recent course and going for another 50bp hike” Schmieding said but “on the other hand, prices and wages tend to lag broader economic activity – which appears to be weakening sharply.”
“That argues for slowing the pace to 25bp or even holding steady – acknowledging that the full impact of previous hikes on demand and inflation remains unknown” Schmieding added.
He said he expects the committee to compromise on a smaller 25bp hike but signal that they will hike by a further 25bp to a peak of 4% at the 23 March meeting although he noted the risks to this call were skewed to the upside.
11.42am: Wall Street seen slightly higher
Wall Street is expected to open flat to modestly higher, ending two days of heavy loss following mixed economic data and even more mixed corporate earnings that have added to market uncertainty.
Futures for the Dow Jones Industrial Average fell less than 0.1% in Friday pre-market trading, while those for the broader S&P 500 index rose 0.1% and contracts for the Nasdaq-100 gained 0.4%.
Stocks ended weaker on Thursday as traders shrugged off a decline in initial jobless claims to their lowest level since September, focusing instead on disappointing housing market data that added to the worries that the US economy has tipped into recession.
At the close the Dow Jones was down 0.8% to 33,045, the S&P 500 was also 0.8% lower at 3,899 and the Nasdaq Composite fell 1% to 10,852.
Netflix (NASDAQ:NFLX) declined 3% before surging more than 7% in Friday pre-market trading after the streaming giant announced subscription growth that topped expectations and said co-CEO Reed Hastings was stepping down. Proctor & Gamble lost 2% after it reported a 6% decline in sales volumes for the December quarter.
“A generally tepid start to the quarterly reporting season has added to investor concerns, with earnings being subject to some downgrades, particularly in the months to come,” commented Richard Hunter, head of markets at interactive investor.
“The major concern is that earnings valuations have not yet been adjusted to reflect the impact of a possible recession, which would be highly negative for equities on any number of fronts.”
Hunter noted that the ongoing fight against inflation at the risk of central bank overtightening remains centre stage.
“Recent comments from certain Federal Reserve members seem to accept that progress is being made in taming inflation, while at the same time reiterating that a terminal rate of around 5% and higher rates for longer seem the most likely outcome,” he added.
“The recessionary rumbles which have loudened over recent days have also resulted in a blow to what was a promising start to the year."
11.14am: IMF's Georgiev less pessimistic about global economy but "less bad does not yet mean good"
The good and the great of the business community continue to share their thoughts on the world as they see it at the World Economic Forum in Davos.
The managing director, International Monetary Fund, Kristalina Georgieva has been speaking and suggested that the economic outlook is “less bad than we feared a couple of months ago”.
But she tempered that with “less bad does not yet mean good.”
Why the optimism? Well, inflation is starting to head down; headline inflation in particular, China’s potential to boost growth has improved and labour markets have remained strong.
She forecast that with the reopening of China, “we now expect its growth to exceed the global average.”
But there still reason to remain cautious, how will inflation march downwards, will China’s reopening push prices back up and the Ukraine war is still a tremendous risk to confidence, she said.
Don’t get carried away, Georgieva concluded.
10.54am: Google to axe 12,000 jobs, 6% of workforce
Google's parent company Alphabet (NASDAQ:GOOGL) Inc. has announced it will cut about 12,000 jobs, becoming the latest tech giant to slash its workforce after years of growth.
The cuts represent more than 6% of the company's global workforce.
The reductions will cut across Alphabet units and geographies, the company said, though some areas, including recruiting and projects outside of the company’s core businesses, would be more heavily affected.
“Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today,” Alphabet chief executive Sundar Pichai wrote in a message to employees according to The Wall Street Journal.
10.04am: Footsie holds firm, Deutsche downgrades Virgin Money (LON:VMUK)
The Footsie has held firm as we approach mid-morning, up 22 points.
As Russ Mould investment director at AJ Bell noted stocks have been supported by “a good showing from parts of Asia, including a 1.8% rise in Hong Kong’s Hang Seng index as investors bid up energy and internet stocks,”
“The FTSE 100 was lifted by oil producers, miners, banks and utility companies. Investors noted price strength among major commodities which would support earnings for natural resources producers” he noted, adding “Brent Crude oil rose by 1% to $87.02 per barrel while copper this week hit its highest level since June 2022 on hopes for an increase in demand linked to China’s reopening and amid low inventories."
One stock on the wane was Virgin Money PLC which fell 1% as Deutsche Bank (ETR:DBKGn) downgraded to ‘hold’ from ‘buy’ with a 230p price target.
Analyst Robert Noble pointed out Virgin Money's c.60% share price performance from October lows brings the stock trading broadly in line with UK banks.
He felt Virgin “has less ability to offset mortgage spread compression and we expect the c.11% 2024 ROTE target will be hard to reach.”
Noble also said he does not expect any further expansion in Virgin Money's net interest margin 2023/24, in 2023/24e, in contrast to significant increases at other UK banks.
9.17am: Hargreaves Lansdown (LON:HRGV) falls as Jefferies downgrades
Some other movers and shakers in London in early exchanges.
Hargreaves Lansdown PLC is top of the FTSE 100 fallers following the downbeat trading update from Close Brothers PLC and as Jefferies downgraded the stock to underperform.
The broker said two things have changed since its 9 January update on the UK wealth names it covers: “Vanguard has said that it recruited more new customers than Hargreaves Lansdown/ and AJ Bell's D2C platform combined in 2022 “ and AJ Bell has given “a quarterly update showing slower customer growth.”
“With renewed doubt about HL's ability to replace or retain departing customers, and a price target target well below the price, we downgrade to underperform” the broker said.
On the upside and despite the drop in retail sales was ASOS (LON:ASOS) PLC which surged 9.3% as Bank of America (NYSE:BAC) upgraded to buy from underperform.
On the downside was De La Rue (LON:DLAR) PLC which said it has been implicated in an investigation in India into the activities of Arvind Mayaram, the country’s former Finance Secretary.
The banknote printer said it had not served the Government of India or the Central Bank of India in any capacity since 2016, adding that it believes that there is no merit to the allegations and it is seeking legal advice in this regard.
Shares fell 6.22%.
9.03am: FTSE higher but Close Brothers tumbles
FTSE 100 continued its steady path upwards on Friday supported by gains in oil stocks, as the oil price rose, and by an upbeat trading statement from SSE (LON:SSE) PLC.
At 9.00am London’s lead index was up 31 points at 7,778 while the FTSE 250 advanced 60 points to 19,634.
Victoria Scholar, head of investment, interactive investor said: “After yesterday’s sell-off, European markets have opened higher with SSE at the top of the FTSE 100 after an upbeat trading update”
She also noted that after a rally in China overnight, “China-sensitive stocks on the FTSE 100 are outperforming including Prudential (LON:PRU), Glencore (LON:GLEN) and Rio Tinto (LON:RIO) ahead of the Chinese New Year.”
A surprise fall in retail sales was largely shrugged aside while GfK’s consumer confidence index fell in January adding to the mood that 2023 will be a challenging year for the UK’s economy.
One notable faller was Close Brothers PLC as it warned of reduced revenue and increased provisions at Novitas Loans, which it bought in 2017.
Net income related to Novitas will reduce from c.£36mln in the fiscal year 2022 to c.£8mln by 2024, the company said.
Peel Hunt noted that including Novitas, the bad debt ratio increased to 1.7% (from 1.2% in the first quarter of the fiscal year), reflecting a £24.8mln provision, with the anticipation of a further up to £90mln provision in the interim financial statement.
The company also said Winterflood's performance has been adversely impacted by the continued market-wide slowdown in trading activity in higher margin sectors.
Shares fell 11.9% and pulled others in the sector lower with Hargreaves Lansdown PLC down 2.6%.
8.24am: Consumer confidence falls in January - GfK
GfK’s long-running consumer confidence index decreased by 3 points in January to -45 with four measures down, and one up, in comparison to December.
In a statement, Joe Staton, client strategy director, GfK said: “After a short-lived and weak rally in Q4 last year, UK consumer confidence has slipped to -45 in January. Consumers have a New Year hangover – but it’s of the economic kind – with high levels of pessimism over the state of the wider economy.”
Staton suggested this hangover won’t vanish quickly either.
“The only glimmer of hope in the results is a slight uptick in the outlook for our personal financial situation, but this is of little comfort because it is still 25 points lower than this time last year” he noted.
But he added a “six-point decline in the major purchase index does not augur well” because consumer spending is a driving force of the economy and future growth.
He forecast a bumpy ride for the consumer in 2023 with the forecast for consumer confidence this year “not looking good.”
8.15am: FTSE 100 shrugs off weak retail sales figures
FTSE 100 has made a solid start to the last trading day of the week with the lead index up 26 points in early exchanges shrugging aside a surprise fall in retail sales as the cost of living crisis took its toll on the high street.
Richard Hunter, head of markets at interactive investor said: "UK markets continued to fly the flag, dodging the recessionary bullet fears for the time being. The FTSE 100 was buoyed by a return to risk-on behaviour, with the miners and oils especially in demand."
Retail sales fell 1% in December, against City expectations for a rise of 0.5%, while November’s figure was revised downwards to a fall of 0.5% from 0.4%.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, suggested that while heavy snowfall and intensifying strike action in December likely contributed to the further drop in retail sales, “the underlying picture is weak too.”
“Looking ahead, households likely will have to contend with rising energy prices, higher new mortgage rates and falling employment” she pointed out, while “falling employment will reduce households’ spending both directly and indirectly, as people likely will save more for precautionary reasons and borrow less.”
Better than-expected subscriber numbers from Netflix after the US market close gave a lift to sentiment after US markets posted further losses helping to support gains in Asia with the Nikkei and Hang Seng both rising.
On a quieter day for corporate news, SSE PLC (LSE:SSE) jumped 3.14% as it raised its EPS guidance for the year to 150p from 120p boosted by rising gas prices. It also pledged a bumper dividend.
Seraphine Group PLC (LSE:BUMP) soared 196% as Purple Bidco Limited made a 30p per share bid valuing the company at £15.3mln, while 4imprint Group Plc (AQSE:FOUR) rose 4.47% after it said it anticipates revenue and pre-tax profit at the upper end of guidance.
7.43am: SSE generates big jump in EPS guidance
SSE PLC has raised full-year EPS expectations for the full-year 2022/23 as higher gas prices and better gas storage optimisation offset lower-than-expected renewables output and hedge buy-back costs,
The FTSE 100 listed generator said it now expects EPS to be more than 150p against previous guidance of 120p.
SSE also pledged to pay a full-year dividend of 85.7p per share plus RPI for 2022/23 followed by a rebase to 60p in 2023/24 to support the group's significant investment and growth plans.
The dividend is then expected to increase by at least 5% per annum in 2024/25 and 2025/26, it said.
The update “reflects the strength of the group's diverse business mix, which continues to create value, alongside the increased certainty from strong operational performance and supportive market conditions” SSE said.
7.18am: Retail sales in surprise fall in December
UK retail sales volumes unexpectedly fell in December by 1% confounding City expectations for an increase of 0.5% adding to signs that the cost of living crisis has squeezed consumer spending power.
The data from the Office for National Statistics (ONS) showed that November’s figure was revised to a fall of 0.5% from 0.4% and the data now mean sales volumes are 1.7% below their pre-coronavirus (COVID-19) February levels.
Retail sales volumes fell by 1.0% in December 2022, following a fall of 0.5% in November.Retail remains 1.7% below its pre #COVID19 level.
➡️ https://t.co/BItPplBcFX pic.twitter.com/bkH0vVQEnT
— Office for National Statistics (ONS) (@ONS) January 20, 2023
Non-food stores sales volumes fell by 2.1% over the month, with continued feedback from retailers and other wider evidence that consumers are cutting back on spending because of increased prices and affordability concerns, the ONS said.
Food store sales volumes fell by 0.3% in December 2022 from a rise of 1.0% in November, with comments from some retailers suggesting that customers stocked up early for Christmas, the report added.
The proportion of online sales fell to 25.4% in December 2022 from 25.9% in November, with anecdotal evidence that Royal Mail (LON:IDSI) strikes led to consumers shopping in stores more.
7.00am: FTSE set to bounce back
The FTSE 100 is expected to open higher on Friday, recouping some of yesterday’s heavy losses despite further falls in the US overnight, as strong subscriber figures from Netflix after the New York bell lifted the mood.
Spread betting companies are calling the lead index up by around 37 points.
US markets suffered further falls Thursday as disappointing housing market data added to worries that the US economy has tipped into recession.
At the close, the Dow Jones was down 252 points, or 0.76%, to 33,045, the S&P 500 was 22 points lower, or 0.57%, to 3,906 and the Nasdaq Composite fell 105 points, or 0.96%, to 10,852.
But after the market close, streaming service Netflix reported much stronger than expected subscriber numbers alongside slightly better revenue figures.
Back in London, UK retail sales numbers, due shortly, will provide the early focus.
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