ADVFN Morning London Market Report: Wednesday 14 July 2021

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London open: Stocks fall as sterling rallies on inflation data


London stocks fell in early trade on Wednesday as sterling rallied after UK inflation hit its highest level in nearly three years, increasing pressure on the Bank of England to tighten monetary policy.

At 0835 BST, the FTSE 100 was down 0.4% at 7,094.76, while the pound was up 0.3% against the dollar at 1.3848 as data from the Office for National Statistics showed consumer price inflation rose to 2.5% in June from 2.1% in May, coming in above the BoE’s 2% target for the second month in a row. It was also above consensus expectations of 2.2%.

The ONS said prices for food, second-hand cars, clothing and footwear, eating and drinking out, and motor fuel rose in 2021 but mostly fell in 2020, resulting in the largest upward contributions to the change in the 12-month inflation rate between May and June 2021.

Core inflation – which strips out food, energy, alcohol and tobacco – came in at 2.3% in June compared to 2.0% the month before.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The creeping UK headline inflation rate is likely add to the sense of unease pervading the financial markets about the impact higher prices will have on economies around the world, as concerns about new Covid variants also rise. The FTSE 100 opened lower amid expectations central bank mass stimulus programmes may start to be eased more quickly, even though the recovery remains fragile.

“Although, for the moment, central banks are largely keeping their cool, appearing confident the spectre of lingering inflation will disappear, there are increasing signs of nervousness among investors, especially as readings in other countries also show price spikes.

“Also playing on minds are surging Covid infection rates due to the spread of the delta variant and how these could slow the economic recovery. This raises the unpalatable possibility that stagflation could take hold, where there is a drag on economic growth and knock on higher unemployment, amid the headache of rising prices.”

In equity markets, homewares retailer Dunelm fell even as it said annual profits would be ahead of forecasts as fourth-quarter sales more than doubled driven by pent-up demand after stores reopened from Covid lockdown.

Budget airline easyJet was knocked lower by a downgrade to ‘neutral’ at Davy, while British Airways and Iberia parent IAG was weaker after a downgrade to ‘market perform’ at Raymond James.

Travel-related stocks more generally were under the cosh, however, amid ongoing concerns about Covid, with engine maker Rolls-Royce and travel company Tui both in the red. Leisure and hospitality shares were also down, with Cineworld and Restaurant Group lower.

On the upside, banks were the top performers, with NatWestLloydsBarclays and Standard Chartered all up.

Industrial thread maker Coats Group rallied as it upgraded its full-year expectations following a “strong” first half.

Barratt Developments ticked higher after the housebuilder lifted annual profit forecasts on the back of strong demand.


Top 10 FTSE 100 Risers

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# Name Change Pct Change Cur Price
1 Barclays Plc +1.62% +2.76 172.76
2 Lloyds Banking Group Plc +1.42% +0.66 47.42
3 Barratt Developments Plc +1.29% +9.00 705.80
4 Evraz Plc +1.16% +7.00 611.40
5 Glencore Plc +1.10% +3.45 317.20
6 Anglo American Plc +0.95% +28.00 2,973.50
7 Standard Chartered Plc +0.89% +4.00 452.70
8 Royal Dutch Shell Plc +0.82% +11.60 1,429.00
9 Bp Plc +0.75% +2.30 308.20
10 Royal Dutch Shell Plc +0.75% +10.80 1,457.80


Top 10 FTSE 100 Fallers

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# Name Change Pct Change Cur Price
1 Tui Ag -2.89% -10.00 336.20
2 Experian Plc -2.18% -66.00 2,957.00
3 Sage Group Plc -1.83% -13.00 696.80
4 Hargreaves Lansdown Plc -1.79% -30.00 1,647.00
5 Ocado Group Plc -1.63% -31.00 1,874.00
6 Halma Plc -1.61% -46.00 2,804.00
7 Intertek Group Plc -1.59% -90.00 5,578.00
8 Rolls-royce Holdings Plc -1.55% -1.45 92.16
9 Sse Plc -1.51% -23.50 1,532.00
10 Kingfisher Plc -1.41% -5.20 362.30


Europe open: Shares lower on Covid, inflation worries

European stocks opened lower on Wednesday as travel shares fell on worries about increasing cases of the Covid-19 Delta variant while a rise in UK inflation also dampened sentiment.

The pan-European Stoxx 600 index fell 0.38% in earl deals. The UK’s export-heavy FTSE 100 was 0.63% lower as the pound gained after June inflation jumped further above the Bank of England’s 2% target.

US and Asia markets fell after data on Tuesday showed US inflation in June was higher than expected, stoking fears of an increase in interest rates.

“Inflation is getting hotter and hotter. UK inflation rose to 2.5% in June from 2.1% the previous month, smashing expectations and in the process likely to increase the pressure on the Bank of England to tighten monetary policy. It’s even hotter in the US, with headline CPI print hitting 5.4%, whilst the month-on-month registered its highest jump since June 2008,” said analyst Neil Wilson.

In equity news, travel stocks all suffered as investors fretted about the rising Delta variant cases, threatening the economic recovery. TUIeasyJet and British Airways owner IAG were all lower.

EasyJet was also knocked lower by a downgrade to ‘neutral’ at Davy, while IAG was downgraded to ‘market perform’ at Raymond James.

Shares in travel food outlet operator SSP Group fell almost 3% as chief executive Simon Smith said he was leaving.

Avanza Bank slumped to the bottom of the Stoxx, down 8.59% as the Swedish bank reported a fall in second quarter profits.

Swedish telecoms operator Tele2 gained 5.5% after it reported a rise of 8% in quarterly core earnings, helped by cost savings and less headwinds related to the pandemic.

German fashion house Hugo Boss rose after it forecast its revenue to grow by 30% to 35% this year.


US close: Stocks end session lower as Q2 earnings begin to roll in

Wall Street stocks closed lower on Tuesday as a key inflation report from the Department of Labor revealed that the cost of living in the US had jumped ahead of forecasts in June.

At the close, the Dow Jones Industrial Average was down 0.31% at 34,888.79, while the S&P 500 was 0.35% stronger at 4,369.21 and the Nasdaq Composite saw out the session 0.38% higher at 14,677.65.

The Dow closed 107.39 points lower on Tuesday, with the session’s principal focus being on news that the cost of living in the US had jumped past forecasts in June, driven higher by big increases in the cost of energy, food and vehicles. According to the Department of Labor, in seasonally adjusted terms, the country’s consumer price index bounded ahead at a month-on-month pace of 0.9%, which pushed the annual rate of change up to 5.4%. Economists had anticipated that the latter would remain at May’s level of 4.5%.

Core CPI also exceeded forecasts by a wide margin, increasing by 0.9% versus May which pushed the year-on-year rate of increase to 4.5%, ahead of consensus estimates for a print of 4.1%.

Tuesday’s other primary focus point was earnings from JPMorgan Chase and Goldman Sachs, unofficially kicking off the second-quarter earnings season.

JPMorgan beat quarterly estimates on Tuesday as a result of a big-time benefit from better-than-expected loan losses throughout the period, with second-quarter earnings coming to $11.9bn, or $3.78 on a per share basis, exceeding estimates for a print of $3.21, while companywide revenues of $31.4bn also beat the $29.9bn predicted by analysts on the Street but was down from the $33.8bn reported in the same quarter a year earlier.

Moving on to Goldman Sachs, the lender reported net profits of $5.35bn or $15.02 per share for the three months ended 30 June, as strength in its asset management, investment banking and wealth management arms offset weakness in the firm’s global markets division.

Also in the corporate space, PepsiCo posted a 20.5% increase in quarterly revenues to $19.22bn, pushing earnings per share to $1.72 each, ahead of expectations for a print of $1.53 per share, driven by returning demand for its products from restaurants and food-service clients.

In other company headlines, Boeing revealed that it had halted production of its 787 Dreamliners as a result of a Federal Aviation Administration evaluation of how the company inspects its planes leading to the detection of a new flaw in the craft.

Elsewhere on the macro front, US small business confidence strengthened in July on the back of improved expectations for the economy. The National Federation of Independent Business‘ confidence index increased from 99.6 to 102.5, ahead of economists’ expectations for a reading of 99.5.

The sub-index for economic expectations saw the biggest rise, jumping by 14 points, reversing the drop seen in June, with expectations for sales and earnings, inventories, hiring plans and employee compensation all rising alongside.

Lastly, the Federal government’s budget statement for June came in at -$174.0bn, above forecasts for a reading of $194.0bn.


Wednesday newspaper round-up: Hospitality firms, Vectura takeover, Opec

More pubs, bars, hotels and restaurants could be facing collapse, despite restrictions easing from 19 July, having built up almost £10bn in debt during the pandemic. Hospitality, retail and property business leaders told MPs on Tuesday there was an urgent need to revamp business rates, kick off arbitration on rent debts and extend payment terms for government-backed loans, as the government hands over responsibility on Covid protection measures to individual businesses. – Guardian

The number of women in senior roles at FTSE 350 companies will lag behind men until 2036, after the Covid pandemic pushed the prospect of gender parity in the boardroom back by four years, according to a new report. The Women Count 2021 report, an annual study of the number of roles held by women at executive committee level or higher, found that just 15 companies of the 350 had female chief executives. These include Emma Walmsley at GSK, Alison Rose at NatWest and Carolyn McCall at ITV. – Guardian

Ministers will unveil a new blueprint for “decarbonising” Britain’s transport system on Wednesday amid Whitehall wrangling over how to replace petrol tax after traditional cars and lorries are banned from the country’s roads. Grant Shapps, the Transport Secretary, will pledge to ban diesel and petrol lorries from 2035 and the sale of new petrol cars from 2030 – while promising billions to encourage cycling. – Telegraph

Ministers must intervene in a planned takeover of Britain’s biggest microchip factory to a Chinese-owned technology company over national security concerns, MPs have demanded. Members of the Foreign Affairs Committee warned the takeover of Newport Wafer Fab by Nexperia, a Dutch firm owned by Chinese investors Wingtech, risked “prioritising short-term commercial interests over the long-term security of our country”. – Telegraph

The business secretary has asked officials to monitor the proposed £927 million takeover of a listed British respiratory drugs company by tobacco giant Philip Morris International after concerns were raised with government about the deal. Kwasi Kwarteng is understood to be working with officials to better understand the plans Philip Morris, the maker of Marlboro cigarettes, has for Vectura, the FTSE 250 company developing inhaled treatments for respiratory diseases, including Covid-19. – The Times

Oil markets face a growing supply deficit if major producers in the Opec+ alliance cannot resolve an impasse over boosting output, the International Energy Agency has said. High oil and fuel prices could accelerate the shift to electric vehicles and the energy transition but also threaten “to stoke inflation and damage a fragile economic recovery”, especially in emerging and developing countries, the agency said. – The Times


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