10th Jan 2023 07:54
(Alliance News) - Stock prices in London were called to open lower on Tuesday, surrendering some gains made in a decent start to the year so far, with investors fretting once again about US interest rates.
Comments from two US central bankers has led to fears that rates could be higher for longer.
San Francisco Fed boss Mary Daly said interest rates will likely go above 5% before the policy board decides to stop lifting, while Atlanta Fed President Raphael Bostic tipped a similar level but added that they would not be changed for "a long time".
"We are just going to have to hold our resolve," Bostic told the Atlanta Rotary Club. "I am not a pivot guy. I think we should pause and hold there, and let the policy work."
The remarks dealt a blow to investors hoping for a change of tack later in the year, and they come just days before a key US inflation reading for December, due on Thursday.
Eyes stay on the Fed on Tuesday. Chair Jerome Powell speaks at a central banking event in Stockholm at 1400 GMT.
In the UK, retail sales rose in 2022, and several listed retailers on Tuesday - including Games Workshop, AO World, Card Factory and Hornby - reported positive Christmas sales.
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called down 0.5% at 7,684.44
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Hang Seng: down 0.5% at 21,274.41
Nikkei 225: up 0.8% at 26,175.56
S&P/ASX 200: down 0.3% at 7,131.00
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DJIA: closed down 112.96 points, or 0.3%, at 33,517.65
S&P 500: closed down 2.99 points, or 0.1%, at 3,892.09
Nasdaq Composite: closed up 66.36 points, or 0.6%, at 10,635.65
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EUR: lower at USD1.0724 (USD1.0749)
GBP: lower at USD1.2146 (USD1.2203)
USD: higher at JPY132.17 (JPY131.88)
GOLD: down at USD1,871.08 per ounce (USD1,874.24)
(Brent): down at USD79.08 a barrel (USD80.46)
(changes since previous London equities close)
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ECONOMICS
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Tuesday's key economic events still to come:
1400 GMT US Federal Reserve Chair Jerome Powell speaks at Sveriges Riksbank International Symposium on Central Bank Independence
1500 GMT US monthly wholesale trade
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The Bank of England's chief economist warned that a "distinctive context" within the UK creates the potential for inflation to prove "persistent." At a speech in New York on Monday, Huw Pill said that inflation in the UK is "too high" and that returning UK inflation to its 2% target on a "lasting and sustainable basis" was "essential". The chief economist explained that a "distinctive context" within UK of higher natural gas prices, a tight labour market, adverse labour supply developments and goods market bottlenecks creates the potential for inflation to be "more persistent." "It is therefore in this nexus that I focus in coming to my own assessment of the risks surrounding inflation persistence, which – consistent with the [monetary policy committee]'s collective communication – will strongly influence my monetary policy position in the coming months," he added. Pill said that the monetary policy committee will "continue to act as necessary" to ensure the Bank of England's 2% inflation target is met on a "lasting basis over the medium term".
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After a challenging year that saw inflation climb and consumer confidence fall, UK retail sales increased by 3.1% in 2022 from the year prior. Sales increased by 6.9% in December, against an increase of 2.1% in December 2021. This was above both the 3-month average growth of 4.4% and the 12-month average growth of 3.1%. On a like-for-like basis, sales increased by 6.5% from December 2021, when they had increased by 0.6%. Over the three months to December, total food sales increased by 7.9%, while non-food sales increased by 1.5%. "Many consumers braved the cold snap and the strikes to ensure friends and families got the gifts they wanted, with energy-saving products, warm clothing and boots all selling well. Nonetheless, despite the stronger sales, growth remained below inflation, making December the ninth consecutive month of falling volumes," commented Helen Dickinson, chief executive at the British Retail Consortium. Paul Martin, UK head of retail at KPMG, explained that sales were up largely due to goods costing more. Dickinson warned that cost pressures show "little immediate signs of waning" and added that consumer spending will be further constrained by increasing living costs in 2023.
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The UK government has promised to help businesses with their energy bills for another year, but significantly reduced the amount of support they will get. Ministers said that non-domestic customers – which include businesses, charities and schools, among others – would get up to GBP6.97 taken off their energy bills for every megawatt hour of gas they use. Electricity bills will also be discounted by up to GBP19.61 per MWh. It will deliver billions of pounds of support to companies over the 12 months from the start of April, however it is considerably less generous than the support they currently get. The current scheme is set to cost the government about GBP18 billion over just six months, compared with GBP5.5 billion over a whole year for the new plan. The plan was welcomed by the Confederation of British Industry, which said it would "provide respite for many firms".
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BROKER RATING CHANGES
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Exane BNP resumes Centrica with 'outperform'
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UBS cuts Softcat to 'sell' ('neutral') - price target 1,070 (1,220) pence
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RBC cuts Superdry to 'sector perform' ('outperform') price target 160 (155) pence
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COMPANIES - FTSE 100
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RS Group said it expects its annual outturn to be at the top end of consensus, as the industrial and electronic product provider shakes off a "tougher economic backdrop and strong comparatives". In the third quarter ended December 31, like-for-like revenue grew 8% year-on-year. Growth slowed from 15% in the second quarter and 18% in the first. Year-to-date, like-for-like revenue is up 14%. Chief Executive Officer David Egan said: "Our differentiated proposition continues to resonate as we grow market share with our core industrial customer base, prioritising our efforts on where we can add greatest value. We have continued to outperform thanks to the strength of our high-performing people who are focused fully on delivering our strategy. Tight control of our pricing, costs and inventory indicates that our full year adjusted profit will be towards the top end of consensus estimates." Revenue consensus ranges from GBP2.71 billion to GBP3.04 billion. Adjusted pretax profit consensus ranges from GBP350.4 million to GBP374.9 million. RS adds: "We continue to be mindful of a more challenging backdrop but remain confident in the strength of our people and differentiated proposition."
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COMPANIES - FTSE 250
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Plus500 said it performed in line with expectations in 2022, despite seeing lower levels of trading activity across financial markets as the year drew to a close. Trading volumes were hurt by the FIFA World Cup, the platform operator said. Still, annual revenue grew 16% to about USD832 million from USD718.7 million in 2021. Customer income, a key tracker of Plus500's underlying performance, fell 9.1% to USD639 million in 2022, from USD702.8 million in 2021. But punters lost more money last year. Customer trading performance contributed USD193 million in revenue to Plus500, up from just USD15.9 million in 2021. Earnings before interest, tax, depreciation and amortisation rose 17% to USD454 million from USD387.1 million. This was despite active customers falling to 280,000 from 407,374.
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Morgan Advanced Materials said it was victim of a cybersecurity incident. The carbon and ceramic materials manufacturer said action is being taken to "remediate and restore systems". "Upon becoming aware of the incident, the company immediately launched an investigation, engaged its specialist support services and has implemented its incident response plans," it said.
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Miniature wargames maker Games Workshop lifted its payout after a first-half sales hike. Revenue in the half-year ended November 27 rose 7.1% annually to GBP226.6 million from GBP211.6 million. What's more, half-year core revenue, so excluding licensing income, topped GBP200 million for the first time. Core revenue increased 11% year-on-year to GBP212.3 million from GBP191.5 million. However, pretax profit fell 5.2% to GBP83.6 million from GBP88.2 million. Operating expenses increased 6.5% on-year to GBP67.0 million. CEO Kevin Rountree said: "Another rewarding and successful period for the global team with core sales for the six months of over GBP200 million for the first time. We will continue to focus on making the best miniatures in the world, sign new licensing contracts with partners to exploit our IP outside of our core business and support our staff." During the half-year, it declared a 165 pence dividend, up from 100p a year earlier. Adding a 130p payout declared on Tuesday, in line with its policy of "distributing truly surplus cash", its year-to-date dividend stands at 295p, up from 165p. Games Workshop declared a 65p surplus cash payout this time last year.
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OTHER COMPANIES
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Building products firm SIG said profit almost doubled last year, as it prepares for life under a new chief executive. SIG said like-for-like sales rose 17% annually in 2022. Revenue amounted to GBP2.74 billion, up from GBP2.29 billion in 2021. SIG said underlying operating profit jumped to GBP80 million from GBP41 million. "Group revenue growth rates across most geographies moderated in H2 compared to H1 primarily due to the impact of lower rates of input cost inflation, following the annualisation of significant rises in H2 21, and some broadly based softening in market demand. Pass through of input cost inflation added to the top line in all geographies. We estimate the impact on revenue for the full year to be around 17% to 18%," SIG explained. Gavin Slark joins as CEO at the start of next month, replacing Steve Francis.
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AO World upped bottom-line guidance as the online electricals retailer said it has benefited from cost cuts. AO said UK revenue in the three months to December 31, its third-quarter, fell 17% year-on-year, in line with expectations. "However, the actions taken by the business to reduce costs and improve margins, as described in our interim results in November are gaining traction, and profitability is now running ahead of our previous expectations," AO said. It now expects adjusted earnings before interest, tax, depreciation and amortisation in the range of GBP30 million to GBP40 million, ahead of previous guidance of the top end of a GBP20 million to GBP30 million range.
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By Eric Cunha, Alliance News news editor
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