28th Jan 2025 07:50
(Alliance News) - London's FTSE 100 is called to open higher on Tuesday, one the eve of the next Federal Reserve interest rate decision, and after US tech stocks tumbled on fears of artificial intelligence sector competition in China.
The threat of China's DeepSeek stealing a march on US counterparts in the AI space unnerved investors, and saw the Nasdaq Composite slump over 3%. Nvidia plunged 17%.
Pepperstone analyst Michael Brown commented: "The nub of the issue here seems to be that the firm has created a model which seems to be on a par with those created by the likes of OpenAI, for a considerably lower 'training cost'.
"This, in turn, appears to have cast some doubt on whether the elevated multiples at which firms like Nvidia currently trade are valid, given their basis in a continuation of the huge AI-related capex that we have seen over the last couple of years."
Elsewhere, President Donald Trump said Monday that the US will soon place tariffs on foreign-made semiconductor chips, pharmaceuticals and metals such as steel, supporting the dollar.
Speaking at a Republican congressional retreat in Miami, Trump said the levies could take place in the "very near future," so as to "return production of these essential goods to the US of America."
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 0.2% at 8,522.41
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Hang Seng: up 0.1% at 20,225.11
Nikkei 225: down 1.4% at 39,016.87
S&P/ASX 200: down 0.1% at 8,399.10
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DJIA: closed up 289.33 points, 0.7%, at 44,713.58
S&P 500: closed down 1.5% at 6,012.28
Nasdaq Composite: closed down 3.1% at 19,341.83
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EUR: lower at USD1.0435 (USD1.0505)
GBP: lower at USD1.2434 (USD1.2479)
USD: higher at JPY155.82 (JPY154.16)
GOLD: higher at USD2,742.51 per ounce (USD2,740.66)
(Brent): higher at USD77.64 a barrel (USD77.26)
(changes since previous London equities close)
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ECONOMICS
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Tuesday's key economic events still to come:
17:00 GMT eurozone European Central Bank president Christine Lagarde speaks
11:00 GMT Ireland GDP
11:00 GMT Ireland retail sales
13:30 GMT US durable goods orders
14:00 GMT US house price index
15:00 GMT US consumer confidence
15:00 GMT US Richmond Fed manufacturing index
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Keir Starmer and Rachel Reeves will meet top executives from some of Britain's major businesses on Tuesday as they continue their quest for economic growth. The meeting will see the prime minister and chancellor seek to persuade bosses from businesses including Tesco, BT Group, Unilever and Lloyds Banking Group that they are committed to helping the private sector thrive as they attempt to attract more investment to the UK. It will also see the announcement of further changes to pension rules designed to increase the amount of money available for investment in the UK. Ahead of the meeting, Starmer said: "To achieve the change our country needs requires nothing short of rewiring the economy. "It needs creative reform, the removal of hurdles and unrelenting focus. Whether it's how public services are run, regulation or pension rules, my government will not accept the status quo." Reeves said business and government were "united on growth being the top priority", adding that she was "fighting every day to tear down the biggest barriers to growth, taking on regulators, planning processes and opposition to this urgent mission". Tuesday's meeting follows a difficult period for the government, which has seen stuttering growth figures and rising borrowing costs threaten its plans for improving public services. The chancellor has planned a major speech on Wednesday, which is expected to focus on growth, including further reforms to the planning system, deregulation and boosting trade and investment.
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Foreign Secretary David Lammy said the UK and US were "working together" to improve the security of people in the two countries after speaking with new Secretary of State Marco Rubio. Lammy said he spoke to Rubio, the first member of Donald Trump's Cabinet to be confirmed last week, on a range of issues including the Indo-Pacific, Ukraine and the Middle East. "The UK and US are working together to make all our citizens safer and more prosperous," Lammy said on X. "I look forward to meeting soon as we further strengthen UK-US ties." The Foreign Office said in a statement the two men had discussed their shared links to the Caribbean. The foreign secretary has family ties to Guyana and Rubio's family links to Cuba. "They both welcomed the opportunity for the UK and the US to work together in alignment to address shared challenges, including the situation in the Middle East, Russia's illegal war in Ukraine, the challenges posed by China and the need for Indo-Pacific security," the statement said.
US State Department spokeswoman Tammy Bruce said the two men had discussed "a range of pressing global issues". "Both leaders expressed eagerness to begin working together immediately to further our many shared foreign policy objectives," she said.
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Shop prices in the UK continued their downward trajectory in January, albeit at a slower pace than in December, a survey showed. According to the BRC-Nielson Shop Price Index, shop price deflation was 0.7% in January compared to the same month last year, abating from the 1.0% fall in prices seen in December. Non-food followed the trend, remaining in deflation for the first month of the year at 1.8% as price falls abated from 2.4% in the preceding month. Food inflation eased to 1.6% in January from 1.8% in December, with the survey noting "the annual rate has eased considerably since the start of 2024". BRC Chief Executive Helen Dickinson commented: "While overall prices fell in January, the pace of shop price deflation eased. Extensive January sales was good news for bargain hunters, with non-food products showing significant discounts, particularly for furniture and fashion, but less good news for retailers needing to shift excess stock."
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The average advertised rent of properties in the UK coming to market outside of London has fallen for the first time on-quarter since 2019, data published by Rightmove showed Tuesday. The average advertised rent dropped by 0.2% to GBP1,341 per month on-quarter in the final quarter of 2024. On-year however, rents are 4.7% higher, albeit being the slowest rate of growth since 2021. The developments in rent prices are due to improvements in supply, Rightmove highlighted. "The number of available rental properties is now 13% higher than at the same time last year," it said, noting that the number of available properties to rent has improved the most in the North East, up 30%, and the least in Wales, up 3%. Rightmove added that the proposed Renter's Rights bill coming into effect potentially later in 2025 has currently no major signs of an immediate impact on the rental market. In London, average advertised rents continued to grow, reaching a 13th consecutive quarterly record of GBP2,695 per month, with the on-quarter increase standing small at 0.1%. Average advertised rents in London are up 2.4% on-year, the lowest increase since 2021.
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BROKER RATING CHANGES
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Bank of America reinitiates AB Foods with 'underperform' - price target 1,750 pence
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Bank of America reinitiates Next with 'neutral' - price target 9,600 pence
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COMPANIES - FTSE 100
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Rentokil Initial said it traded in line with expectations in 2024 and the pest and control and hygiene firm said its North America boss will step down. In a trading statement, Rentokil said organic revenue growth in the final three months of last year was 3.0%. North America organic revenue growth accelerated to 2.3% on-year in the fourth-quarter from 1.3% in the third. The firm said its group adjusted operating margin, adjusted pretax profit before amortisation and its North America adjusted operating margin were all in line with prior guidance. In September, it forecast a group adjusted operating profit margin is expected to be around 15.5%. Group adjusted profit before tax and amortisation is expected of around GBP700 million, it said at the time. This would be down 8.6% from GBP766 million in 2023. Rentokil said Brad Paulsen will step down as CEO of North America for an opportunity at a New York-listed building materials firm. Rentokil Chief Commercial Officer Alain Moffroid will take on the role of North America CEO. Moffroid had joined Rentokil in 2013 from consumer goods firm Unilever. "He was appointed chief commercial officer in April 2024. He is a highly experienced leader in the company with extensive experience of both residential and commercial pest control and is currently working closely with the North American business on its customer experience and retention, digital and innovation programmes. He will join the North American business in the coming weeks," Rentokil said.
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COMPANIES - FTSE 250
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RS Group cautioned that its annual outturn will be at the lower end of market expectations, after a tricky third-quarter characterised by declining industrial production. The industrial and electronics products distributor said revenue in the three months to December 31 fell 3% on-year, slipping 1% on a like-for-like basis. "This reflects declining industrial production and [purchasing managers' index] data, and weaker trading in the second half of December due to more extended holiday-related plant shutdowns at many customers," RS said. "In EMEA, like-for-like revenue declined 3% with softness in key markets consistent with weaker business sentiment and PMIs across the region. This was particularly true in the UK, where we have seen a material slowdown from the beginning of November. Like-for-like revenue in Americas grew by 3%, mainly due to improvement in the US and strong sales growth in Mexico. Asia Pacific like-for-like revenue increased by 1%." A strategic plan is moving "at pace", RS said. It added that efficiency and integration benefits are tracking "in-line or ahead of plan". It is on track to deliver annualised cost savings above GBP30 million. "We continue to control costs tightly and therefore our prior gross margin and cost guidance remains unchanged. The softer than expected Q3 revenue performance and weak business confidence in EMEA will however likely result in full year profit before tax being around the bottom end of the consensus range," RS warned. It puts consensus for adjusted operating profit in the GBP247 million from GBP274 million range. At worst, this would be a 12% decline from GBP281 million in financial 2024. RS added: "January trading is in line with our revised expectations, and we will continue investing in our key strategic initiatives whilst managing costs effectively in this difficult trading environment which we expect to continue until we see a more sustained improvement in PMIs."
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Computacenter said profit for 2024 will come in at the lower end of analyst forecasts, amid a "more challenging market backdrop". The technology services provider, which serves corporate and public sector firms, said the tricky 2024 market environment contrasted with a "strong comparative in 2023". Total revenue in 2024, on a gross invoiced income basis, fell 2% from 2023, but edged up 0.5% at constant currency. "While we are pleased with overall execution towards the end of the year, with Germany and North America delivering strong performances, parts of our larger current Technology Sourcing projects in the US and the UK have slipped into the early part of 2025. For the second half of 2024 adjusted operating profit is expected to be ahead of the equivalent period in 2023 in both constant currency and on a reported basis. This represents Computacenter's most profitable half year in its history and we ended the year with a record number of customers generating over GBP1 million of gross profit per annum," Computacenter added. However, it now expects pretax profit for 2024 to be at the lower end of analysts forecasts. It puts the analyst range for adjusted pretax profit at GBP253.6 million to GBP266.5 million, at worst an 8.8% decline from GBP278.0 million in 2023. The 2024 forecast takes into account strategic investments, lower interest income receipts following the earlier completion of the share buyback and the GBP7 million hit from a stronger sterling. It had completed a GBP200 million share buyback in October, "earlier than expected". It added: "Order intake during the second half, notably in North America, has been strong and we exited 2024 in a robust position with a committed product order backlog at the end of December which is significantly ahead of our position in December 2023, as well as at the end of June 2024. The size of the projects we are currently delivering gives us good momentum as we enter 2025." It predicts a GBP5 million hit in 2025 from the looming hike in UK national insurance contributions.
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OTHER COMPANIES
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The Irish government trimmed its stake in AIB Group to just under 13%, which the lender described as "another important milestone". The Irish state sold a 5% holding in AIB through a placing to institutional shareholders. It now has a 12.5% interest. The transaction gave the Irish government gross proceeds of EUR652.1 million. AIB Chief Executive Officer Colin Hunt said: "We very much welcome the decision and subsequent transaction undertaken by the Minister for Finance, which has led to a further divestment of the state's shareholding in AIB Group. This well-supported transaction is another important milestone in the process of returning the state's investment in the group and a normalisation of the share register." In a statement on Monday, BNP Paribas London had announced that the government planned the stake sale. BNP Paribas, BofA Securities Europe, Goldman Sachs International and Goodbody Stockbrokers acted as joint bookrunners. The stake sale was confirmed on Tuesday. Dublin took the stake in AIB as part of a taxpayer bailout of the lender during the financial crisis of 2008.
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AI chatbot DeepSeek has made waves in Silicon Valley, stunning investors and industry insiders with its ability to match the skills of its Western competitors at a fraction of the cost. But where it differs is the answers it offers to topics considered politically sensitive in China, from the 1989 crackdown on pro-democracy protests in Beijing's Tiananmen Square to the status of Taiwan and the country's leadership. And it said it is "programmed" to provide answers that toe the government line. Here are some responses DeepSeek provided to AFP. The 1989 crackdown on pro-democracy protesters in and around Tiananmen Square in Beijing is a highly sensitive subject in China and discussion about it is strictly censored. DeepSeek is no exception. Asked by AFP to explain what happened on June 4, 1989, the day of the crackdown, the app said it "cannot answer that question".
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By Eric Cunha, Alliance News news editor
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