- FTSE 100 up 50 points
- Reckitt leads the way
- Whitbread lifted by staycation trend
2.20pm: Citi trims global growth forecast
Markets may be in buoyant mood but there are clouds on the horizon.
Citigroup economists have just cut their global GDP growth forecast for 2022 from 4.4% to 4.2%, which is still a reasonable figure but suggests some of the optimism about a global recovery from the pandemic may be fading.
Citi says the forecast “is consistent with 5% global EPS growth, below the current bottom-up consensus of +7% and suggesting company analysts may shift to net downgrade mode for the first time since July 2020.
“Forecasts for cyclical sectors and China-related regions look most vulnerable. EPS downgrades are not necessarily fatal for markets but, when combined with monetary tightening and reasonably high valuations, do make us nervous. Citi’s market targets (MSCI AC World +5% to end 2022) are not bearish, but we would prefer to wait for the next sell-off before turning more optimistic.”
And despite the recent rallys Citi says there appears to be a lack of conviction among market participants about taking an outright view.
The prospect of interest rate rises on the horizon is of course one factor causing uncertainty.
There is a school of thought, for example, that says the Bank of England will edge up rates at its meeting next week.
But Berenberg’s strategy team are not so sure.
They say: “Recent communication from the Bank of England (BoE) has led markets to price in a first rate hike in November, followed by four more rate hikes by the end of 2022. We
think this is a clear overshoot. Our economists expect a first rate hike in December, followed by two further rate hikes in 2022.”
When – and it is when not if – the rate rises come, UK banks are likely to benefit.
Berenberg says: “Whilst our economists think the market is pricing in an overly aggressive path for the UK base rate, they acknowledge the BoE is seeking to raise rates soon and continue to think there is upside to short- and long-term UK bond yields.
“Rising yields would have significant implications for leadership within equity markets. Cyclical and value sectors (ie banks and energy) have the best macro skews to rising rates.
“Peter Richardson, our UK banks analyst, regards the UK banking sector as a key beneficiary of rising rates and recovery activity. In particular, he thinks NatWest (Buy), is likely to benefit most, with around twice the interest rate sensitivity of Lloyds (Hold).”
NatWest Group PLC is up 0.43% at 233p while Lloyds Banking Group is ahead 0.13% at 48.84p.
12.35pm: THG underwhelms again
Online retailer THG PLC (LSE:THG), better known as The Hut Group, is not doing well at pleasing the market.
Two weeks ago its shares dropped 35% after a meeting with analysts and investors designed to highlight its technology platform Ingenuity only left everyone more confused than before.
Now it has raised forecasts for Ingenuity by a minimum of 20% for next year, and said it was starting the process of appointing a non-executive chair and splitting the roles of founder Matthew Moulding.
Meanwhile Softbank, the Japanese tech firm that has heavily backed THG and Ingenuity, will also see its managing director take a seat on the board.
But if the company expected all this to have a positive effect on its shares, it was mistaken.
They have been falling over the course of the day and are now down 12.86% today to 267.34p.
This morning was supposed to be about letting the numbers do the talking at the Hut but executives seem to have yet again underestimated the depth of investor concerns – shares now down 10% .. pace of change not fast enough and yet again too little detail in the numbers https://t.co/IdyzCv340m
— Neil Craven (@neilcraven1) October 26, 2021
11.52am: US markets on the front foot
US stocks are expected to open higher, building on record closes for major indices on Monday after Tesla’s market cap crossed $1trn.
Futures for the Dow Jones Industrial Average futures rose 0.32% in Tuesday pre-market trading, while contracts for the broader S&P 500 index gained 0.42% and those for the tech-heavy Nasdaq 100 added 0.65%.
Tesla Inc (NASDAQ:TSLA) became a $1trn company on Monday following reports of a large order and news that its Tesla Model 3 was the most purchased vehicle in Europe for September, the first time that an electric vehicle (EV) has led the continent’s car market. The EV company’s stock soared to an all-time high above $1,000, contributing to broader market gains.
The Dow finished the day 64 points higher at 35,741 points on Monday, while the S&P ended 22 points, or 0.56% higher at 4,566 points and the Nasdaq gained 137 points, or 0.9% to 15,227.
“The US equity market started the week on the front foot yesterday, with a surge in Tesla’s stock helping to propel the S&P 500 to a 0.5% gain and so to a new record high,” commented Daiwa Capital Markets analyst Emily Nicol.
“The positive sentiment in the US stock market has continued since the close. News of a seemingly cordial and constructive meeting between Treasury Secretary Yellen and Chinese Vice Premier Liu didn’t hurt sentiment. Meanwhile, Facebook stocks moved up 2% in extended trading after reporting higher than expected user numbers.,” she added.
Meanwhile the FTSE 100 continues to head higher, up 50.19 points or 0.69% at 7273.01, its best level since February last year.
11.20am: Sales improve but stock shortages worry retailers
UK retail sales for October have come in stronger than expected, but broadly average for the time of year, according to the latest CBI disributive trends survey.
The balance of retailers reporting stronger sales was +30, up from +11 in September and better than the forecast +13.
But stock shortages due to supply disruptions hit a new record low (since the survey began in 1985.)
UK CBI Retailing Reported Sales Oct: 30 (est 13; prev 11)
– CBI Total Distributed Reported Sales Oct: 27 (est 20; prev 21)
— LiveSquawk (@LiveSquawk) October 26, 2021
Ben Jones, CBI principal economist, said: “The UK’s economic recovery has been pretty bumpy lately and the same seems true of the retail sector. Sales performance has jumped around in recent months, while stock shortages continue to bite.
“Disruption to supply chains, combined with staff shortages and uncertain public health conditions mean retailers are finding it difficult to plan for the winter ahead.
“It’s therefore crucial the Government remains agile to support the sector. The Chancellor has the opportunity at his upcoming budget to signal the government’s intent to reform the outdated business rates system, starting with more frequent revaluations and removing any disincentives for investment in energy efficiency and decarbonisation.”
Meanwhile the FTSE 100 is still heading in the right direction, up 47.88 points or 0.66% at 7270.70.
10.34am: Investors shrug off rate rise concerns
Leading shares are holding on to their gains, with the FTSE 100 now up 44.14 points or 0.61% at 7266.96.
AJ Bell investment director Russ Mould said: “The sharp falls seen in September when the index fell below the 7,000 mark are starting to recede into the distance. However, investors will remain wary given the ongoing risks around COVID-19, inflation and a slowing recovery.
“Strong corporate results are helping with sentiment. Tomorrow’s Budget in the UK and Thursday’s European Central Bank meeting may help return the wider economy to the forefront of investors’ minds. Whether this will be supportive or have a negative impact on markets remains to be seen.”
There is also the small matter of next week’s Bank of England meeting, where some believe it may raise interest rates after hints of an increase before Christmas as inflation heads towards 5%.
One member seems to disagree however. Monetary Policy Committee member Silvana Tenreyo said on Monday the spike in prices could be short lived. She added that unless there was a major change to the economic picture, the Bank should stick to its plan to raise rates by 0.5% by the end of next year.
9.40am: Goodbye to Morrison after 54 years as a listed company
Tomorrow sees the end of an era, as Wm Morrison Supermarkets PLC is set to leave the FTSE 100 and the UK market after 54 years as a listed company.
Following the takeover by US private equity firm Clayton, Dubilier & Rice (CD&R) in a GBP7.1bn deal, the retailer will be replaced in the leading index by Darktrace PLC (LSE:DARK).
Analyst Nick Bubb said: “If you’d bought in the 170p-180p area a year ago, you’d be pretty happy with the 287p takeout price, but if you’d bought at the previous peak of around 267p at the end of August 2018, you wouldn’t be feeling quite so chipper…Incidentally, Morrison is being replaced in the FTSE 100 index tomorrow by the recently-floated cybersecurity giant Darktrace (despite the 20% share price slump yesterday..) In the meantime, life goes on and the Store Design expert John Ryan highlighted in his Newstores blog yesterday that Morrison has just opened an attractive 47,000 sq ft store in the centre of the Liverpool overspill town of Kirkby (the first supermarket to open in the area in 40 years, apparently).”
On its last day of dealings, Morrison is currently up 0.37p at 286.77p.
Darktrace meanwhile is down again, 2.33% lower at 732.5p.
9.24am: New 20-month high for leading index
Leading shares continue to be in a positive mood, buoyed by a strong performance on Wall Street and some positive updates.
Ahead of the UK Budget on Wednesday – where analysts still wonder if the chancellor has a rabbit to pull out of the hat despite most of it already being leaked – the FTSE 100 is at a 20-month high, up 41.51 points or 0.57% at 7264.33.
The 0.9% rise on the Nasdaq Composite in New York and news that Tesla joined the US$1trn club has given a lift to UK tech investor Scottish Mortgage Investment Trust PLC (LSE:SMT), up 1.68% to 1484p.
8.36am: Positive start for UK market
After closing at an 18-month high, the FTSE 100 made a positive start to proceedings as traders seemed to overcome their recent bouts of vertigo.
Support was provided by Wall Street, where both the tech-inspired and real-world indexes ended firmly higher.
On the market, the City applauded the latest update by Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB), which revealed the Anglo-Dutch maker of Cillit Bang was planning to pass along raw material cost increases to consumers. The share topped the blue-chip index with a 4.5% advance.
Whitbread PLC (LSE:WTB) wasn’t that much behind Reckitt, though there was little in the interims to inspire the 3.2% jump in the share price, other than a sense of relief. The headlines from the release from the budget hotelier included a warning on higher costs and staff shortages.
That said, its Premier Inn chain seems to be proving popular with those who can’t or won’t travel abroad for a break, as Richard Hunter, head of markets at Interactive Investor, pointed out.
“The expected staycation rise in the UK due to restrictions on overseas travel has played into Whitbread’s hands, although a full return to pre-pandemic levels has yet to be achieved,” he noted.
6.50 am: Positive start predicted
The FTSE 100 is set to extend its gains on Tuesday, following another barnstorming performance for US tech stocks overnight.
London’s blue-chip index is predicted to open 10 points higher by spread-betters, a day after hitting a new 18-month high and closing just over 18 points or 0.25% higher at 7,222.82.
But hours later, Wall Street toasted even larger gains, with the tech-powered Nasdaq rising 0.9% to 15,226.7 and the S&P 500 and Dow Jones adding 0.5% and 0.2%.
Leading the way was Tesla Inc (NASDAQ:TSLA), which reached a US$1trn valuation for the first time, on the back of an order for 100,000 of its electric vehicles from car rental company Hertz.
Facebook Inc (NASDAQ:FB) could set the tone for the US today, after it announced a mixed set of numbers after the closing bell, with revenues below forecasts but profits better. Boss Mark Zuckerberg also cut revenue guidance for the fourth quarter to between U$31.5bn to U$34.5bn, from $34.8bn.
“The continued resilience in stock markets is happening despite a backdrop of rising concern about increasing Covid cases in Asia, and the prospect of action by some central banks to rein back on stimulus,” said market analyst Michael Hewson at CMC Markets.
“The move higher is being helped by rising oil prices driving gains in the oil and gas sector. US crude prices hit a seven-year high after US rig counts fell for the first time in seven weeks, amidst concern over low inventory levels.
“This rise in oil prices is already a significant concern for the Biden administration who for the past few months have been trying to divert attention away from their own culpability in helping to push fuel prices higher with their green agenda, and the refusal to invest in new shale capacity, as well as the cancellation of the Keystone pipeline.”
Looking to today’s European open, Hewson said last night’s strong finish in the US looks set to translate into a similarly positive start here.
London-listed companies providing trading updates or results today include Strepsils, Nurofen and Dettol maker Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB), Premier Inn owner Whitbread PLC (LSE:WTB), distribution giant Bunzl PLC (LSE:BNZL), gold miner Polymetal International PLC (LSE:POLY) and drug discovery company e-Therapeutics PLC.
Around the markets
Pound flat at US$1.3758
Oil – Brent flat at US$85.97
Gold down 0.2% at US$1,804.73
Bitcoin up 0.9% (24hr change) to US$$62,407.5
6.50am: Early Markets – Asia / Australia
Asia-Pacific markets were mixed on Tuesday’s trade as property stocks in Hong Kong declined amid fears that Beijing could tax property owners.
China’s Shanghai Composite slipped 0.29% while Hong Kong’s Hang Seng index dipped 0.41%
In Japan, the Nikkei 225 jumped 1.94% and South Korea’s Kospi surged 0.86%.
Australia’s S&P/ASX200 finished marginally ahead, up 0.03% to 7,443.40, as heavyweight stocks struggled for direction.
