Jumat, 11 November 2022

FTSE 100 seen higher after strong US gains, UK GDP falls 0.2% in quarter three - Proactive Investors UK

  • FTSE 100 falls back after bright start, down 21 points
  • UK GDP falls 0.2% in quarter three
  • US markets expected to open higher

12.00pm: US markets expected to rise further

The FTSE 100 might be struggling but other European bourses are pushing ahead and the US is also set for further gains today..

US stocks are expected to rise on Friday, still enjoying the effects of the softer-than-expected inflation data for October, which propelled the S&P500 to its biggest daily gain since 2020 in Thursday’s trading. 

Futures for the Dow Jones Industrial Average were 0.3% higher in pre-market trading, while those for the S&P 500 were up 0.3%, and contracts for the Nasdaq-100 rose 0.5%. 

In data out yesterday, US headline inflation fell to 7.7% in October, versus 8.0% expected by analysts and from 8.2% printed a month earlier, stoking expectations that US rate-setters will scale back on further interest rate hikes, having delivered four straight 75 basis point increases so far this year. 

“And more importantly, core inflation fell more than expected as well. Plus, there are hints that both headline and core figures could further cool down in the coming months, including falling housing prices, used car, and apparel prices,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

As inflation is the only thing that matters to the Fed, there was a jaw-dropping repositioning in the markets after the data release, she said, noting that the S&P500 soared 5.50%, Nasdaq surged by 7.50% and the Dow Jones rallied 3.70% on Thursday.

“Equities skyrocketed, the US yields and the US dollar tanked on the expectation that the Fed may be content with a lower end rate to call victory in its fight against inflation.”

“Investors reacted to the latest US inflation data as if a miracle happened. But in reality, US inflation remains very high compared to what the Fed is willing to achieve: the 2% target,” said Ozkardeskaya, adding that the Federal Reserve is still likely to raise interest rates by 50 basis points in December and by two 25 basis points in 2023.

“So, yes, yesterday was a fantastic day, really, but the markets went clearly well ahead of themselves and we will certainly see some correction and consolidation moving forward,” she warned.

Given the outsize reaction to the inflation figures, the University of Michigan’s consumer sentiment index, due for release at 10am ET today, is likely to pass by quietly even if it weakens as expected.

11.30am: Oil prices soar 3%

Oil prices soared over 3% on Friday on hopes that a relaxation of some Covid rules in China would support the economic superpower and lead to increased demand for commodities.

Chinese authorities said  that quarantine times would be reduced for inbound passengers and close contacts of Covid-infected people while close contacts of close contacts would no longer be traced.

The new guidelines of China’s National Health Commission mark the first significant easing of the Chinese ‘zero-Covid’ policy, which has weighed on economic activity and fuel demand in the world’s top oil importer this year and has depressed the oil market.

The market warmed to the news with oil prices advancing extending yesterday’s gains.

Brent Crude rose 3% to US$95.79 per barrel while US West Texas Intermediate gained 3.3%, to US$88.65 a barrel.

10.51am: GSK tumbles as UBS cuts rating to sell

Shares in GSK fell 4.77% to 1,341p as broker UBS downgraded the stock to sell and cut its price target to 1,300p from 1,820p.

The broker pointed to two factors posing risks to the earnings base longer term - blockbuster vaccine Shingrix will exhaust its catch-up patient pool in the US around '27 and HIV product dolutegravir faces patent expiry at the same time which it forecast could erode  around 20% of revenues.

READ: GSK slapped with 'sell' rating over long-term risks

GSK has received a couple of set-backs already this week with the failure of a key clinical trial for a new bone marrow cancer drug and news today that the second-line applications of its cancer drug will be limited in scope following a request by the US FDA.

10.30am: Chancellor warns of tough road ahead

Commenting after the latest UK GDP figures the chancellor Jeremy Hunt warned of a “tough road ahead” as he blamed the invasion of Ukraine, and Russia’s ‘weaponisation’ of gas suppliers, for hitting growth and pushing up inflation.

Hunt said: “We are not immune from the global challenge of high inflation and slow growth largely driven by Putin’s illegal war in Ukraine and his weaponisation of gas supplies.”

“I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability.”

“But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.”

“While the world economy faces extreme turbulence, the fundamental resilience of the British economy is cause for optimism in the long run.”

10.10am:  Heathrow rules out flight caps at Christmas

Heathrow Airport has ruled out flight caps in the run-up to Christmas following a fierce backlash from airlines.

The airport said it now has a "good plan in place" for the peak festive period that will not require a limit on flights.

Heathrow removed a blanket flight cap at the end of last month but warned curbs might be needed during holiday peaks amid continued staff shortages.

That sparked an angry response from airlines, with Virgin Atlantic vowing to resist any further interruption of its services.

A spokesman for the airport said additional recruitment and a clarification of airline schedules meant capacity would now be adequate to meet demand.

Passenger numbers totalled 5.9mln in October, a rise of 93.6% on the same month last year, with traffic now at 84% of pre-pandemic 2019 levels. So far this year, 50mln passengers have passed through the airport, 279.4% more than in the January-October period last year.

9.35am: Burberry rises after strong results from Richemont

Burberry PLC outperformed the market on Friday, rising 3.4%, given a double boost with strong results from Swiss luxury brand Richemont and news that one of its biggest markets China was relaxing some of its Covid rules.

Victoria Scholar, head of Investment, interactive investor pointed out shares rose after Richemont first half adjusted EBIT and sales beat analysts’ estimates.

“Investors are enjoying a more than 20% boost to its share price this morning thanks to the recovery in Asia and strong sales and earnings in its jewellery business” she said.

“Looking ahead, the company is likely to enjoy a strong tailwind from the removal of some of China’s covid lockdown measures, particularly if Beijing continues to ease its restrictions.”

“Plus, the luxury group is relatively well placed to navigate the macroeconomic challenges by passing on additional cost pressures to customers through higher prices with a minimal downside impact on demand” Scholar felt.

9.05am: Prudential tops FTSE risers as China relaxes some Covid rules

FTSE 100 remained in good spirits and has extended its opening gains with Asian focused stocks getting a boost from news that China has relaxed some its strict Covid rules.

This gave equities a further lift after the mammoth gains in the US yesterday after the weaker-than-expected CPI numbers.

Victoria Scholar, head of investment, interactive investor said: “European markets are trading higher thanks to cooler US inflation figures and China easing some of its covid restrictions.”

Stocks to benefit included Prudential PLC (LSE:PRU) which topped the FTSE 100 risers, up 7.2%, while mining companies also advanced, Anglo American up 5.1% and Rio Tinto PLC (LSE:RIO) up 3.7%.

The Hang Seng surged overnight by more than 7.7% after China reduced its quarantine time for international travel by two days, confirming last week’s speculation that Beijing was considering easing some of its strict covid measures. 

Burberry Group PLC (LSE:BRBY) was another early riser, up 3.5%, as Richemont’s strong half year update lifted other luxury stocks in its slipstream.

On the downside GSK slipped 2.2% after it said the second-line applications of its cancer drug will be limited in scope.

The front-line use of Zejula, which has been developed to treat epithelial ovarian, fallopian tube, or primary peritoneal cancers, remains unchanged.

The US Food and Drug Administration requested the alteration to the second-line deployment of the product.

8.17am: FTSE opens higher after strong showing in the US

 FTSE 100 opened higher on Friday supported by strong gains in US and Asian markets, and despite the latest UK GDP data which suggested the UK economy was on course to head into recession by the end of the year.

At 8.15am the FSE 100 was up 17 points at 7,392 and the FTSE 250 advanced 119 points to 19,496.

US markets leapt following weaker than expected inflation figures which gave hope that the Fed was winning its battle in taming inflation.

The tech laden Nasdaq surged 7.35% with a number of index heavyweights posting double digit gains.

Back in London quarter three GDP fell 0.2%, with a 0.6% decline in September, hit by a fall in manufacturing but this number was better than City forecasts of a fall of 0.5%.

Samuel Tombs, chief UK economist, at Pantheon Macroeconomics said: “The UK economy has slipped to the back of the G7 pack again, beset by more intense headwinds from fiscal and monetary policy, and substantial long-term supply-side damage from Covid and Brexit.”

He noted “The UK also is the only G7 country to have not seen GDP recover fully to its pre-Covid, quarter four 2019 level.” 

Looking ahead he forecast a further decline in quarter four.

“GDP in October likely will reverse some of September’s 0.6% month-to-month drop, which was partly the consequence of the lost working day for the Queen’s funeral.”

“But the very low level of demand indicators—the orders index of the composite PMI survey fell to just 46.8 in October, from 48.6 in September—and the extremely low level of consumers’ confidence suggests that GDP likely will fall again in quarter four” he said.

7.52am: GDP numbers point to UK heading into recession

Some reaction to the GDP numbers:

Tom Stevenson, investment director for Personal Investing at Fidelity International commented: “The small decline in economic activity in the July to September quarter means we are almost certainly already in recession and creates a gloomy backdrop to next week’s Autumn statement.”

“The Chancellor will be cutting spending and raising taxes at the start of a prolonged downturn and the measures he will announce will only deepen the slump.”

"The first cut of data for the third quarter show how rising energy and labour market costs, falling consumer confidence and the national mourning period have all weighed on output.”

“A further fall in the last three months of the year will meet the definition of a technical recession - two consecutive quarters of falling output - and kick off what the Bank of England has forecast will be a two-year downturn.”

“On the face of it, this is bad news for investors in the UK stock market. But the news comes as a surprise to no-one and it has already been priced into shares.”

“The UK trades on just nine times expected earnings, compared with 17 times for the US market and investors are rewarded with a dividend yield of more than 4%, twice as high as on the other side of the Atlantic.”

“The economic outlook is poor, but for investors, the turning point will come sooner. Markets don’t wait for the dawn to break; they start to rise at the first hint that better times are on their way. And this could come as early as next year.”

7.15am: Manufacturing leads GDP decline

A bit more on the GDP numbers.

The ONS said in output terms, there was a slowing on the quarter for the services, production and construction industries; the services sector slowed to flat output on the quarter driven by a fall in consumer-facing services, while the production sector fell by 1.5% in quarter three, including falls in all 13 sub-sectors of the manufacturing sector.

In expenditure terms, real household expenditure fell by 0.5% in quarter three 2022, while there were also large positive movements in international trade flows in the third quarter.

Compared with the same quarter a year ago, the implied GDP deflator rose by 5.8%, primarily reflecting higher cost pressures faced by households.

7.05am: UK GDP falls 0.2% in quarter three

UK GDP fell 0.2% between July and September according to the first quarterly estimate from the Office for National Statistics (ONS), better than City forecasts for a decline of 0.5%.

The ONS said GDP fell by 0.6% in September 2022 which was affected by the bank holiday for the state funeral of Her Majesty Queen Elizabeth II, where some businesses closed or operated differently on this day.

ONS director of economic statistics Darren Morgan said: “With September showing a notable fall partly due to the effects of the additional bank holiday for the Queen’s funeral, overall the economy shrank slightly in the third quarter.

“The quarterly fall was driven by manufacturing, which saw widespread declines across most industries. Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail.”

The ONS said the level of quarterly GDP in quarter three is now 0.4% below its pre-coronavirus (COVID-19) level.

GDP data for August was revised to show a marginal 0.1% contraction compared with an original reading of a 0.3%  fall, and GDP in July was now seen as having grown by 0.3%, up from a previous estimate of 0.1%.

7.00am: FTSE 100 seen higher

FTSE 100 is expected to open higher on Friday, extending Thursday's rally after a US inflation reading undershot market expectations sending US markets sharply higher. Asian markets also made strong gains.

Spread betting companies are calling London’s blue-chip index up by around 25 points.

The Dow Jones gained over 1,100 points and the S&P 500 over 5.5% as US markets advanced in spectacular fashion as weaker than expected inflation data sent stocks soaring higher.

The data boosted hope that the Federal Reserve may finally tone down the pace of its rate hikes.

At the close the Dow Jones Industrial Average was up 1,198 points, or 3.69%, to 33,712.21, the S&P 500 surged 207.38 points, or 5.53%, to 3,955.95 and the Nasdaq Composite roared 761 points higher, or 7.35%, to 11,114.15.

Tech stocks that have been hardest hit by the rise in inflation and surging interest rates led the gains. Shares of Amazon surged 12%, Meta leapt 10% and Tesla jumped 7%.

Back in London, al eyes are on the GDP numbers for quarter three which are expected to show the UK economy shrank during July to September.

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2022-11-11 11:30:00Z
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