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LONDON MARKET MIDDAY: Shares firm; UK chancellor prioritises inflation

27th Jan 2023 12:12

(Alliance News) - London stocks were up slightly at midday on Friday, after a quiet morning of trading, as investor focus turns to a string of central bank decisions next week.

The US Federal Reserve starts things off on Wednesday, followed by the Bank of England and European Central Bank on Thursday.

UK Chancellor Jeremy Hunt on Friday said the main focus for the government right now is inflation rather than tax cuts.

"The chancellor donned his hard hat to deliver a dose of realism about the task ahead, underlining that inflation is still the biggest threat to be cut down. Brandishing a blueprint in hand he gestured to the four pillars he hopes will lift the economy," said Hargreaves Lansdown analyst Susannah Streeter.

The FTSE 100 index was up 10.22 points, 0.1%, at 7,771.33 midday Friday. The FTSE 250 was up 5.00 points at 19,920.51, and the AIM All-Share was up 1.50 points, 0.2%, at 866.91.

The Cboe UK 100 was up 0.2% at 777.19, the Cboe UK 250 was down 0.1% at 17,357.04, and the Cboe Small Companies was down 0.1% at 14,156.09.

In a speech at Bloomberg's London offices on Friday, UK Chancellor Jeremy Hunt said the "best tax cut right now is a cut in inflation" as he outlined how he plans to use Brexit and investment outside of London to drive UK economic growth.

Cutting inflation by half is one of Prime Minister Rishi Sunak's top five priorities in the run-up to the next general election.

Hunt said reducing inflation was the "only sustainable way to restore industrial harmony" in Britain as he suggested tax cuts would have to wait.

Hunt also used his speech to lay out a plan for Brexit to become a "catalyst" for growth, while announcing measures designed to increase prosperity outside of the south east of England and London.

In other economic news, Ireland's retail sales disappointed, as they remained stagnant during December, according to the Central Statistics Office.

On a monthly basis, retail sales were unchanged from November, slowing from a 0.5% monthly rise in November. Excluding motor sales, monthly retail sales fell 1.8% in December, the CSO noted. On an annual basis, sales were up just 0.5% in December, slowing rapidly from an 8.3% rise in November.

In European equities on Friday, the CAC 40 index in Paris was up 0.2%, and the DAX 40 in Frankfurt was up 0.3%.

The pound was quoted at USD1.2367 at midday on Friday in London, flat on USD1.2363 at the equities close on Thursday. The euro stood at USD1.0884, up from USD1.0862. Against the yen, the dollar was trading at JPY129.91, lower compared to JPY130.40.

In the FTSE 100, J Sainsbury was the top performer at midday, gaining 3.8%.

Bestway Group said it has bought or agreed to buy 80.8 million shares in Sainsbury. This represents a 3.45% stake.

Bestway is a London-based conglomerate, with operations across the UK, Pakistan and the Middle East. It was first established as a chain of convenience stores in 1963, but now has interests across the wholesale, pharmacy, real estate, cement and banking sectors.

"Bestway Group intends to hold its shares in Sainsbury's for investment purposes and looks forward to supporting the executive management team," it said.

Bestway said it may look to make further purchases in the future and confirmed that it is not considering a takeover offer for Sainsbury's.

The supermarket chain noted the announcement and said it will "engage" with Bestway "in line with our normal interactions with shareholders".

Also in the FTSE 100, Rolls Royce shed 3.0%, after its new chief executive, Tufan Erginbilgic, warned staff on the future of the engineering group.

According to the Financial Times, Erginbilgic, in a global address broadcast to employees, emphasised the importance to change the way the firm operates, or risk investors losing patience. "Every investment we make, we destroy value. We underperform every key competitor out there."

Erginbilgic also described the company's performance as "unsustainable".

"It is at a level [at which] it cannot continue," he said, according to the newspaper. "Rolls-Royce has not been performing for a long, long time, it has nothing to do with Covid, let's be very clear. Covid created a crisis, but the issue in hand has nothing to do with it. Given everything I know talking to investors, this is our last chance."

Rolls-Royce named Erginbilgic as its new CEO back in July.

The company made revenue of GBP5.60 billion in the six months that ended June 30 last year, up from GBP5.15 billion a year earlier. But it swung to a hefty pretax loss of GBP1.75 billion from a profit of GBP114 million.

In the FTSE 250, Direct Line was down 1.7%, after it said its chief executive will leave following the motor insurer's recent profit warning.

The Bromley, England-based insurance company said Penny James has agreed to step down, and it is now looking for a new CEO.

Until then, Direct Line has appointed Chief Commercial Officer Jon Greenwood as acting CEO.

Chair Danuta Gray said: "During her time as CEO, Penny has overseen significant strategic progress, transforming the technology and capability across the business, accelerating the digitalisation of customer journeys and helping to set the company up for the future."

Earlier this month, Direct Line shares dropped by a quarter in one day after saying it won't pay a final dividend due a big increase in weather related claims, pushing the insurer into a loss on underwriting.

Among London small caps, Superdry plunged 17%.

The Cheltenham, England-based firm reported that it has swung to an interim loss amid an underperformance from its Wholesale segment which has continued to blight the business post-period end.

In the six months ended October 29, the clothing retailer swung to a pretax loss of GBP17.7 million from a profit of GBP4.0 million a year before. Revenue rose by 3.6% to GBP287.2 million from GBP277.2 million, though within this, Wholesale revenue declined by 5.2%, due to a lagged recovery after Covid-19 and shipment timings. Superdry said this underperformance hurt its interim performance.

Superdry said it now expects to be broadly breakeven in financial 2023 at the adjusted pretax level. Previously, the firm had expected adjusted pretax profit between GBP10 million to GBP20 million.

Stocks in New York were expected to extend their rally on Friday, after a US GDP reading marginally beat market expectations on Thursday. The Dow Jones Industrial Average was called up 0.6%, the S&P 500 index up 1.1%, and the Nasdaq Composite up 1.8%. The three indices closed up 0.6%, 1.1% and 1.8%, respectively, on Thursday.

The US economy continued to grow in the final three months of 2022, at a pace slightly above expectations, according to the US Bureau of Economic Analysis on Thursday.

The bureau's first estimate of fourth-quarter gross domestic product showed 2.9% annual growth. Economists had expected an annualised growth rate of 2.8% in the last quarter of 2022, according to market consensus cited by FXStreet.

The data may suggest a soft landing ahead for the world's largest economy.

The figures set the stage for a US Federal Reserve interest rate decision on Wednesday next week.

Markets are expecting the US Federal Reserve to downshift to a 25 basis point hike from the 50 and 75 point hikes it made at meetings last year.

Brent oil was quoted at USD88.28 a barrel at midday in London on Friday, higher compared to USD87.35 late Thursday. Gold was quoted at USD1,929.54 an ounce, up against USD1,925,42.

Still to come on Friday's economic calendar, there is a US University of Michigan survey of consumers.

By Sophie Rose, Alliance News reporter

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