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LONDON MARKET CLOSE: Stocks make headway thanks to retailers

5th Jan 2023 16:56

(Alliance News) - Stock prices in London closed higher, buoyed by optimism from strong retail updates, and shaking off hawkishness from the US Federal Reserve.

The FTSE 100 index closed up 48.26 points, 0.6%, at 7,633.45. The FTSE 250 ended up 72.36, 0.4%, at 19,463.43, and the AIM All-Share closed down just 0.19 of a point at 843.74.

The Cboe UK 100 ended up 0.8% at 764.81, the Cboe UK 250 closed up 0.9% at 16,978.11, and the Cboe Small Companies ended up 0.1% at 13,622.94.

US private employment rose by 235,000 jobs in December, according to figures from payroll firm ADP on Thursday.

The rise in private employment came well above market consensus, as cited by FXStreet, which had expected 150,000 jobs to be added.

In November, US private employers added 127,000 jobs.

December's increase was led by consumer-facing service industries, ADP said, with hiring strong across small and medium establishments. Large establishments, defined as companies with more than 500 employees, saw a drop in employment of 151,000 jobs.

Separately, the US Department of Labor reported that initial unemployment claims in the US fell in the week ending December 31.

The advance figure for seasonally adjusted initial claims was 204,000, representing a decrease of 19,000 from the previous week's figures of 223,000. Last week's figure was downwardly revised from 225,000.

The latest figures came below market expectations of 225,000.

The stronger-than-expected jobs print reignited fears over further hawkishness from the US Federal Reserve.

In minutes from its December meeting released on Thursday, the Federal Open Market Committee had said it was looking for further evidence that inflation was cooling. It highlighted its concern that the labour market remains "very tight", which is putting upward pressure on wages and prices.

In the US, the Dow Jones Industrial Average was down 1.1%, the S&P 500 was down 1.1% and Nasdaq Composite was 1.4% lower.

"Today's stronger employment data has therefore reduced fears about a downturn in employment and has raised worries that wage inflation could accelerate further and thus provide a major source of risk in the inflation outlook. Accordingly, traders have pushed up their expectations for the terminal interest rates in the US," explained Fawad Razaqzada, City Index and market analyst.

The dollar firmed after the jobs data.

The pound was quoted at USD1.1890 at the close on Thursday in London, sharply lower compared to USD1.2054 at the close on Wednesday. The euro stood at USD1.0525, lower against USD1.0598. Against the yen, the dollar was trading at JPY133.89, sharply higher compared to JPY131.87.

In European equities on Thursday, the CAC 40 in Paris ended down 0.2%, while the DAX 40 in Frankfurt ended down 0.4%.

In the FTSE 100, Standard Chartered jumped 8.2%.

This follows a release from First Abu Dhabi Bank, which said it is no longer evaluating a takeover offer for FTSE 100-listed Asian-focused bank Standard Chartered PLC.

First Abu Dhabi Bank is a bank in the United Arab Emirates. It said it had previously been at the very early stages of evaluating a possible offer for Standard Chartered, but is no longer doing so.

Fellow Asia-focused lender, HSBC, also performed well, as Jefferies raised the stock to 'buy' from 'hold'. It rose 4.1%.

The investment banking and capital markets firm said HSBC is positively geared to the re-opening of the Chinese market as Covid-19 restrictions ease, along with the re-opening of the Hong Kong and mainland China border on Sunday this week.

It was also a strong day for bluechip retailers, as the first of the post-Christmas updates came in.

Clothing retailer Next rose 7.4%.

For the year ending in January 2023, Next increased its 2022 pretax profit guidance to GBP860 million, from GBP840 million. This would represent growth of 4.5% against the year prior, if achieved.

In the six months to December 30, Next said full price sales were up 2.2% against the previous year. In the three months to December 30, full price sales were up 4.7% against the year prior.

Clothing peers JD Sports, and Frasers were up 3.4% and 3.4%, respectively, in a positive read-across. Smallcap Superdry gained 8.6%.

B&M rose 0.5%.

The budget retailer said revenue in the 13 weeks to December 24 was up 12% to GBP1.57 billion from GBP1.40 billion a year prior, despite a challenging macroeconomic environment.

As a result, full-year adjusted earnings before interest, tax, depreciation and amortisation are now expected between GBP560 million to GBP580 million, coming above current analyst outlook consensus of GBP557 million.

The anticipated adjusted Ebitda would be a drop of at least 6.3% from GBP619 million in financial year 2022, however.

"B&M appeals to people who want to trade down from more expensive retailers, showing that the value proposition from a pricing perspective is a winning model in the current environment," AJ Bell's Russ Mould commented.

In the FTSE 250, Greggs was down 1.0%. The bakery chain reported strong double-digit growth in fourth quarter sales, despite the impact of adverse weather and rail strikes, as 2022 drew to a close.

In 2022, total sales were up 23% to GBP1.51 billion, from GBP1.23 billion the year prior. Like-for-like sales for 2022 were up 18%.

"Next, B&M and Greggs are united by having a presence on retail parks where business has been better than expected in general. Widespread train strikes will have prevented a lot of people from going to city centre shops, which means retail parks with their plentiful parking spaces have been the preferred alternative shopping destination," said Mould.

Wizzair added 13%, and easyJet rose 6.0%, after a positive update from airline peer Ryanair late Wednesday.

The Dublin-based low-cost airline said that it expects a stronger-than-expected third-quarter performance, due to strong pent-up travel demand over the holiday season.

The firm now expects full-year post-tax profit in the range of EUR1.33 billion to EUR1.43 billion, up from an initial forecast of EUR1 billion to EUR1.2 billion.

However, the budget airline noted in a statement that the reassessment was "heavily dependent" on avoiding further fallout from "adverse events" such as Covid or the ongoing war in Ukraine.

Meanwhile on AIM, Angle plunged 37%.

The Surrey, England-based medical diagnostics company said it expects "growth" in 2023, albeit significantly lower than market estimates, as it anticipates its operating loss to widen.

The Surrey, England-based medical diagnostics company noted it is on track to deliver anticipated cost savings of GBP2.6 million in 2023 and GBP4.0 million per year after that.

Describing 2022 as a "breakthrough year" with the first US Food & Drug Administration product clearance, Angle anticipates revenue to be just above GBP1 million, similar to GBP1.0 million posted for 2021. It estimates an operating loss of GBP22 million, in line with expectations and widened by 28% from GBP17.2 million in 2021.

Brent oil was quoted at USD78.48 a barrel at the London equities close Thursday from USD78.07 late Wednesday, while Gold fetched USD1,828.35 an ounce, down sharply from USD1,857.48.

In the global economic calendar, there's a Japan services PMI overnight, and then there will be German retail trade, manufacturing orders and manufacturing turnover at 0700 GMT.

There's the latest UK construction PMI at 0930 GMT, followed shortly after by EU data, including a flash inflation estimate, retail trade figures, and economic sentiment at 1000 GMT. The ISM US services PMI will come later in the day.

On the corporate side, there's a trading update from ten-pin bowling operator Ten Entertainment.

By Elizabeth Winter, Alliance News senior markets reporter

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