8th Jan 2025 07:50
(Alliance News) - London's FTSE 100 is set for a tepid open on Wednesday morning, ahead of US jobs data and Federal Reserve meeting minutes later.
Enthusiasm in global markets has been hurt by red-hot US data, which stoked inflation worries.
Rising UK government borrowing costs grabbed investor focus on Tuesday. The yield on the 30-year gilt stretched as high as 5.24%, its loftiest level since 1998.
"Importantly, the sell-off comes as fiscal headroom remains incredibly limited," Pepperstone analyst Michael Brown commented. "At the time of the October budget, the OBR estimated that a 1.3pp rise in gilt yields, and market expectations for bank rate, across the forecast horizon, would wipe out the entirety of Chancellor Reeves' extremely limited GBP15.7 billion headroom by which the fiscal rules are currently set to be met.
"Clearly, this puts the UK on an even more fragile fiscal footing, with the March 'fiscal event' increasingly likely to be one where Reeves is required to raise further funds, either via even more tax hikes, or greater borrowing."
Strong US economic data on Tuesday meanwhile complicated the picture for the Federal Reserve, as it plots the path for interest rates in 2025.
According to the Institute for Supply Management, the Services PMI registered 54.1 in December, rising from 52.1 in November, and above the 53.3 consensus forecast cited by FXStreet. Of note, the prices index registered 64.4 in December, a sharp rise from November's reading of 58.2, sparking inflation worry.
ISM Chair Steve Miller noted this month's reading is the first time the index has registered over 60 since January. It was the highest reading since February 2023.
In early UK corporate news, Shell forecast a quarter-on-quarter decline in Integrated Gas production, while gambling firm Flutter said its US offering has been hurt by punter-friendly sports results.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called down just 2.8 points at 8,242.48
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Hang Seng: down 0.9% at 19,279.56
Nikkei 225: down 0.3% at 39,981.06
S&P/ASX 200: up 0.8% at 8,349.10
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DJIA: closed down 178.20 points, 0.4% at 42,528.36
S&P 500: closed down 1.1% at 5,909.03
Nasdaq Composite: closed down 1.9% at 19,489.68
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EUR: lower at USD1.0341 (USD1.0377)
GBP: lower at USD1.2471 (USD1.2498)
USD: higher at JPY158.03 (JPY157.77)
GOLD: lower at USD2,652.71 per ounce (USD2,654.67)
(Brent): higher at USD77.20 a barrel (USD76.83)
(changes since previous London equities close)
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ECONOMICS
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Wednesday's key economic events still to come:
10:00 GMT eurozone consumer confidence
10:00 GMT eurozone PPI
11:00 GMT Ireland unemployment
13:15 GMT US ADP unemployment
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The UK's long-term government borrowing costs have lifted to their highest level since 1998, in a potential blow for Chancellor Rachel Reeves. The yield on 30-year gilts – the return on government bonds – spiked above 5.24%. It ramps up the pressure on the Treasury's headroom for increased public spending, amid the prospect of higher interest costs. The rise comes amid a fresh barrage of bond sales and investor concerns over the threat of stagflation. Rates have also remained higher due to predictions that interest rates will come down slower in the UK than previously expected. Globally, there has been a wider sell-off in government bonds in recent months in the face of worries that President Donald Trump could introduce a tariff policy which would be inflationary for many international economies. On Tuesday, the UK's Debt Management Office sold GBP2.25 billion on 30-year notes, with a yield of 5.19%. It is also expected to sell a further GBP4.25 billion of notes on Wednesday, while the Bank of England is also reducing its balance sheet through the sale of some securities as part of its quantitative tightening process next week. Last year, the DMO said it expected to sell about GBP296.9 billion of notes over the 2024-25 fiscal year. Shadow Chancellor Mel Stride said the rise in gilt yields was "yet more evidence Labour have driven our economy into a ditch".
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BROKER RATING CHANGES
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Citigroup reinitiates Tate & Lyle with 'neutral' - price target 725 pence
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Berenberg raises Rio Tinto price target to 6,400 (6,000) pence - 'buy'
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COMPANIES - FTSE 100
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Shell reported that it expects to report a decline in Integrated Gas output for the fourth quarter, weaker trading & optimisation results for the unit, and well write-offs. The oil major expects to report final-quarter Integrated Gas production between 880,000 to 920,000 barrels of oil equivalent per day, a decline from 941,000 in the third quarter of 2024. Trading and optimisation results in the unit are "are expected to be significantly lower" than in the third quarter. This is driven by the non-cash hit from the expiration of hedging contracts. Fourth-quarter well write-offs of around USD300 million are expected in Integrated Gas. Adjusted earnings pretax and depreciation in Integrated Gas between USD1.2 billion and USD1.6 billion are expected, compared to USD1.4 billion in the third quarter. In Upstream, earnings between USD2.4 billion and USD3.1 billion are forecast, compared to USD2.7 billion in the third quarter. Upstream exploration well write-offs of around USD400 million are expected. In the Marketing division, earnings between USD400 million and USD800 million are predicted, after it achieved USD600 million in the third quarter. In Chemicals & Products, Shell forecasts an earnings outcome between USD800 million and USD1.0 billion, compared to USD900 million in the third quarter. In the chemicals sub-segment alone, however, it expects a loss.
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Halma named Independent Non-Executive Director Carole Cran as its next chief financial officer, replacing Steve Gunning. Gunning steps down as CFO on March 31. Cran has been an independent non-executive director of the life-saving equipment manufacturer since 2016. Cran takes over as CFO on April 1. "As a highly experienced CFO, Steve was appointed to enable Marc Ronchetti, Halma's group chief executive, to give his full focus to his transition to CEO as well as to set the finance function up for future growth. With those priorities now complete, and with Halma well-positioned for continued success, Steve has decided that now is the right time to step back from his executive career," Halma said.
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COMPANIES - FTSE 250
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European Smaller Cos Trust called on shareholders to "stand against" Saba Capital Management, accusing it of having "self-serving" motives. Last month, Saba called on investors at seven trusts to oust current management after "underwhelming" shareholder returns. European Smaller Chair James Williams said: "The European Smaller Companies Trust is a well-managed investment company whose strategy has delivered long-term outperformance. Saba is attempting to take control of your company by removing a highly qualified, independent board that acts in all shareholders' interests. It's clear that Saba's motives are self-serving. It would like to install directors who would not be independent of the company's largest shareholder and has indicated that it may appoint itself as investment manager. This could endanger shareholder protections, radically alter the company's investment risk profile and deny investors the opportunity to benefit from the proven European small cap investment strategy." The six other trusts called out by Saba last month were Baillie Gifford US Growth Trust, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment Trust, Henderson Opportunities Trust, Herald Investment Trust, and Keystone Positive Change Investment Trust.
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OTHER COMPANIES
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Paddy Power owner Flutter Entertainment warned US revenue will be weaker than expected, hurt by punter-friendly sports results. The gambling firm said "strong US player momentum" has been offset by "very unfavourable US sports results across the remainder of November and in December". Flutter said the 2025/25 National Football League season in gridiron has been "the most customer friendly since the launch of online sports betting with the highest rate of favourites winning in nearly 20 years". At USD5.78 billion, US revenue for 2024 is now expected to be some USD370 million lower than its previous guidance midpoint. Its previous US revenue guidance range was USD6.05 billion to USD6.25 billion. US adjusted earnings before interest, tax, depreciation and amortisation are expected to be around USD205 million lower than the previous guidance midpoint at around USD505 million. Its previous guidance range was between USD670 million and USD750 million. Away from the US, the picture is more favourable. In the UK & Ireland segment, favourable English Premier League results mean revenue and adjusted Ebitda for 2024 will be around 1% and 2% higher than the mid-points of previous guidance. Flutter is scheduled to release fourth-quarter earnings on March 4.
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Topps Tiles said sales picked up in its first quarter, and said its chief executive will step down later in 2025. In the 13 weeks to December 28, sales rose 4.6% on-year. The figure excludes CTD Tiles. The UK competition watchdog last month started a probe of the Topps Tiles buy of CTD. Tile retailer Topps Tiles said the first-quarter outturn builds on "the return to sales growth in the early weeks of the new financial year". Sales in the final five weeks of the quarter surged 13%, it added. "The sales improvement in the first quarter was driven by the ongoing strengthening of the group's trade offer, with robust growth in trade revenues at both Topps Tiles and Pro Tiler Tools," it added. Rob Parker will step down as chief executive, Topps Tiles said. Parker joined the firm in 2007, serving as finance chief for 12 years, before becoming CEO in 2019. "Rob will remain in post until an appropriate successor has been appointed, to ensure an orderly transfer of responsibilities, which is expected to be towards the end of 2025," the firm added.
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By Eric Cunha, Alliance News news editor
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