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FTSE 100 climbs as Royal Mail a takeover target; Thames Water to increase debt

  • Blue chips 35 points higher at 7,856
  • Inflation slightly lower
  • Royal Mail rejects takeover

4.00pm: FTSE 100 set for daily gains

The FTSE 100 held onto gains in late trading, having climbed 35 points to 7,856.

Buoyed by mining companies, London’s blue-chip index joined markets across Europe in scoring gains as fears over mounting tensions in the Middle East looked to dissipate.

“The world has spent four days waiting for an Israeli response to Iran’s weekend attacks, and none has yet materialised,” IG analyst Chris Beauchamp said.

“The wave of selling across global markets has subsided for now, though we suspect it could easily return should Tel Aviv opt for a major retaliatory action.” 

Israel had warned earlier this week that it would respond to an attack by Iran, carried out last weekend.

3.52pm: Bank of England official warns interest could always be higher

Base interest rates may permanently remain higher as geopolitical tensions mount, external Bank of England monetary policy committee member Megan Greene has warned.

Though cuts are likely over the coming years as inflation subsides, getting prices under control fully may take some time, she told an IIF event in Washington on Wednesday.

“It feels like we’re in really unprecedented times with incredible uncertainty,” the MPC voter said.

“Maybe we’re returning to the volatility and uncertainty that we’ve actually had for decades.”

Warning of future supply shocks such as from energy prices, she added that interest rates may not return to historic lows.

“It could mean […] when the dust settles […] actually rates will need to be a bit higher than we thought before.”

Inflation subsided to 3.2% in March, ONS data showed on Wednesday, though this was slightly higher than expectations, potentially pushing BoE rate cuts back to later in the year.

3.48pm: Some economists still see three BoE cuts this year

Some thoughts on the Bank of England’s rate path from Wells Fargo and Deutsche Bank economists, who both predict three rate cuts this year.

The Wells Fargo team note that the UK economy has continued along a bumpy disinflation path in early 2024, with this week’s wages and inflation data showing it is at a more gradual pace than previously, though sentiment surveys have been on an improving trend and January and February GDP outcomes pointed to a return to positive growth.

“A slower pace of disinflation could make BoE policymakers cautious about lowering interest rates prematurely, while signs of economic recovery arguably reduce the urgency for monetary easing,” said 

“Against this backdrop, we now forecast later easing than previously from the BoE,” they wrote, while forecasting an initial policy rate cut to 5.00% at the August monetary policy meeting, followed by 25 basis point cuts in November and December, which would see the policy interest rate end 2024 at 4.50%.

The Wells Fargo team predicts a further cumulative 125 basis points ps of BoE policy rate cuts next year, which would see the central bank’s policy rate end 2025 at 3.25%.

Based on that prediction they see more easing than the wider market, which is forecasting at least one and maybe two 25bps cuts in 2024.

The Wells Fargo economists note that their forecasts “could contribute to downward pressure on shorter-term UK bond yields, and see the pound underperform relative to many other G10 currencies over time.”

Meanwhile, Deutsche Bank’s economists have retreated from their long-held May rate cut.

“We now shift the starting date for rate cuts to June,” they said, adding that they “still see the MPC delivering three quarter point rate cuts this year (June, Sep, Dec).

“But we now expect the MPC to deliver only four rate cuts next year (Feb, May, Aug, Nov), sticking to a quarterly pace through 2025 (previously, we saw six rate cuts in 2025). We expect two further rate cuts in H1-26 taking the terminal rate to 3%.”

They acknowledged that the risks are skewed to a slower start (ie later than June) and higher terminal rate, “but asymmetric risks will likely build in a higher for longer world”. 

3.26pm: Burberry unfazed by weak LVMH update

Burberry Group PLC (LSE:BRBY) crept into the list of the FTSE 100’s top risers on Wednesday, seemingly unfazed by rival LVMH’s weak first quarter trading update.

Though LVMH missed sales estimates for the quarter, Deutsche Bank analysts noted the update showed more resilience than feared in the US and Chinese luxury markets, with Burberry climbing 2% on the news.

Miners continued to top gains on London’s blue-chip index, as upbeat updates came from Rio Tinto PLC and Anglo American PLC (LSE:AAL) earlier in the day.

Flutter Entertainment PLC (LSE:FLTR) emerged as one of the day’s big fallers, down 1.5%, after rival Entain reported a hit to UK revenue from tougher regulation in the morning.

Overall, the FTSE 100 gained 43 points to reach 7,863.

2.57pm: US Markets jump at open

The Nasdaq added 76 points to climb to 15,942 as the markets opened in positive territory on Wednesday.

The Dow Jones jumped 137 points to 37,936.40, and the S&P 500 by 20 to 5,072, in the meantime.

Though analysts had warned trading may be muted following Tuesday’s hawkish comments on interest rates coming from the Fed, US markets looked to follow European markets higher after a string of solid company updates.

“Company earnings, as good as they are, may only provide a temporary lift as the macro outlook has dimmed for stocks in recent weeks,” City Index analyst Fawad Razaqzada warned, however.

That said, United Airlines Holdings Inc (NASDAQ:UAL, ETR:UAL1) was leading the charge in the US, with gains of 11.8% after reporting a slimmer-than-expected US$164 million loss in the first quarter.

Groundings of its 737 MAX 9 jets in January cost US$200 million, United also said, following issues at Boeing Co, which has seen the manufacturer compensate Alaska Air.

American Airlines Group Inc (NASDAQ:AAL, ETR:A1G) was among rival carriers to be buoyed by the news, climbing 4.7%.

Elsewhere, UnitedHealth Group Inc rose 3%, adding to gains recorded on Tuesday after it said costs of a cyberattack would not be as bad as expected in a first-quarter report.

2.27pm: Hunt at risk of missing debt target – IMF

Chancellor Jeremy Hunt is at risk of missing five-year debt targets for the UK economy after cutting national insurance during the Spring Budget, the International Monetary Fund has warned.

Under self-imposed rules, each UK chancellor aims to get debt falling as a percentage of gross domestic product (GDP) by the final year of a five-year forecast.

However, the IMF forecasts UK debt to increase in every year until 2029, when it is expected to equate to 98% of GDP.

According to the IMF, such forecasts, which were higher than previously, were in part driven by Hunt’s move to cut national insurance in last month’s Spring Budget, as well as the Autumn Statement beforehand.

“Recent policy changes, such as a significant cut to NI in the UK, although part-funded by well-conceived revenue raising measures, could worsen the debt trajectory in the medium term,” the IMF warned

“Population ageing and labour market mismatches are further expected to exert pressure on fiscal positions.”

3.53pm: Royal Mail rejects West Ham owner’s takeover offer but further bids expected

Royal Mail parent International Distributions Services PLC (LSE:IDS) has rejected a bid by West Ham co-owner Daniel Křetínský, who is said to be readying further offers.

Křetínský made a cash offer to buy the entirety of IDS, but this was rejected, his EP Group confirmed.

“As a committed long-term investor in the UK, EP Group recognises the importance of the Royal Mail business to its various stakeholders,” the firm said in a statement.

“[This includes] employees, trade unions, customers and government, as the UK’s sole designated universal service provider.

“EP Group has submitted its non-binding indicative proposal to IDS with the interests of these important stakeholders in mind.”

Křetínský already owns 27.5% of IDS, alongside holding around 27% of West Ham United, as well as a significant stake in J Sainsbury PLC (LSE:SBRY).

EP Group also referenced Royal Mail’s struggles in recent years, including with efforts to meet its six-day letter delivery obligations.

“Weak financial performance, poor service delivery and a slow transformation, in the face of a market going through structural change, have put the business under unsustainable pressure,” it said.

“With the increasing competition from multinational companies in the UK postal market, private investment in Royal Mail becomes crucial.”

Shares jumped 17.6% to 251.80p.

1.35pm: Thames Water mulling debt raise under survival plan

Thames Water is said to be mulling a debt raise under its survival plans, adding to the billions already owed by London’s supplier.

Board members are due to meet on Thursday to discuss a new five-year spending plan, which will then be published on Friday.

According to the Guardian, this could include adding to the company’s £15.6 billion debt pile, which stretches to £18 billion when including others across its complicated structure.

Such high debt has already landed the company, which supplies around 15 million people, on the verge of collapse, as servicing costs have increased in recent years.

Parent Kemble Water has already defaulted on a £400 million loan as a result, with bondholders having already been told it will miss a deadline to pay £190 million this month.

12.47pm: Savings rates streak ahead of inflation

Subsiding price rises have left well over 1,000 savings accounts offering consumers inflation-beating interest rates, experts have pointed out.

Inflation eased to 3.2% in March, data from the ONS showed on Wednesday, prompting Moneyfacts to highlight 1,364 savings accounts where rates were higher than this.

Some 162 of these were easy access, Moneyfacts said, with the best such rate offered by NatWest Group PLC (LSE:NWG)’s Ulster Bank at 5.2%.

Hundreds of notice accounts and variable rate individual savings accounts (ISAs) also offered the above inflation rates, alongside 615 fixed-rate bonds.

“Savers should be filling their boots at this news,” Hargreaves Lansdown’s Sarah Coles commented… Read more

12.15pm: Wall Street set for positive start

A 181-point gain by the Dow Jones should set a positive tone for the S&P 500 and Nasdaq when markets open, as all rose in futures trading on Tuesday morning.

Alongside the Dow Jones’ rise to 38,227, pre-market trading had the S&P 500 up 22 points at 5,115 and the Nasdaq at 17,936, 55 points higher.

The gains come after a mixed day of trading on Tuesday, as IMF data showed the US economy growing fastest out of the G7 this year but Fed chair Jerome Powell reiterated a hawkish approach to tackling inflation.

“While many see this as grounds for optimism for US equities, it does little to help those waiting patiently for a rate cut from the Federal Open Markets Committee,” Scope Markets analyst Joshua Mahony commented. 

Among companies, CXAPP Inc soared in pre-market trading after reporting record annual recurring revenue growth during 2023.

Vanda Pharmaceuticals Inc also jumped after news broke of a new takeover offer by Future Pak for up to US$7.75 a share – a 91.4% premium on Monday’s closing price.

11.57am: Rental prices rise at record pace in March

Rental prices increased at a record pace across the UK in March, ONS data showed on Wednesday.

Average rents jumped by 9.2% year on year during the month, against 9% in February, in the highest annual change since the data started being collected in 2015.

Typical monthly rent in the UK has climbed to £1,285 as a result.

Trade body National Residential Landlords Association argued buy-to-let owners were leaving the market due to the government’s ending of so-called no-fault evictions.

One in ten are expected to sell properties as a result of the move, according to a survey by the trade union.

11.42am: Royal Mail parent jumps on takeover reports

Royal Mail parent International Distributions Services PLC (LSE:IDS) jumped over 16% on Wednesday, after reports emerged of a potential takeover bid.

Czech billionaire Daniel Křetínský is readying a takeover bid, according to the Financial Times, having built a 27.5% stake in IDS through his Vesa Equity Investment vehicle.

The Royal Mail parent was privatised in 2013, but has struggled in recent years, including with efforts to meet its six-day letter delivery obligations.

Previously a lawyer, Křetínský has become an energy tycoon and holds other stakes in the likes of Sainsbury’s, French newspaper Le Monde and West Ham United.

IDS climbed 16.6% to 249.77p on the news.

11.16am: Gatwick owner agrees to buy Edinburgh Airport

French firm Vinci has agreed to buy a majority 50.01% stake in Edinburgh Airport for £1.27 billion from Global Infrastructure Partners (GIP).

GIP will retain a 49.99% stake, having owned the UK’s sixth-busiest airport since 2012, to form a strategic partnership with Vinci.

Vinci took over Gatwick through a similar deal in 2019, with GIP among investors retaining the remaining stake in the airport.

Chairman John Elvidge and chief executive Gordon Dewar will remain in their roles at Edinburgh, which expects to see almost 15 million passengers pass through this year.

“The leadership team […] is wholly committed to working with our investors to improve customer service, accelerate our decarbonisation plans and strengthen Scotland’s connectivity with the world,” Dewar said.

“This acquisition of a third freehold airport in the UK, in addition to London Gatwick and Belfast International, demonstrates Vinci Airports’ long-term strategic ambition and continued commitment to the country,” Vinci Airports boss Nicolas Notebaert said.

10.45am: Eurozone set for June rate cut as inflation slows

Eurozone inflation slowed to 2.4% in March, compared to 2.6% a month earlier, fuelling optimism that the European Central Bank could cut interest rates in June.

Excluding food and energy, prices rose by 2.9% over the month, against 3.1% in February.

Service inflation remained higher at 4% however, with Pantheon Macroeconomics forecasting a dip in April, making June cut more likely.

“We still see the central bank cutting its policy rates four times this year, in June, July, September and October, with no cuts next year as inflation stays above 2%,” Pantheon said.

“Risks are now balanced around this baseline. If oil prices roar higher through May and June, the ECB won’t be able to cut as much as we currently think.”

10.07am: Markets now pricing in one interest rate cut

Markets are now fully pricing in one interest rate cut by the Bank of England this year, after inflation data showed prices rose quicker than expected last month.

According to XTB analyst Kathleen Brooks, chances for a second rate cut this year are still high, though this is now far from being set in stone.

“The interest rate futures market has pushed out its expected timing of Bank of England rate cuts,” she commented, with reductions in August or September now uncertain.

“Currently the market is pricing in one full rate cut, and a high chance of a second, although a second-rate cut is not guaranteed,” she added.

ONS data on Wednesday showed the consumer price index rose by 3.2% in March, the slowest annual pace in over two years, but slightly ahead of market expectations for 3.1%.

Slowing food price rises offered the largest downward contribution, as motor fuels dealt the most upward pressure.

EY ITEM Club reassured that a June rate could still be on the cards though, arguing price rises were set to slow drastically this month.

“The 12% cut to Ofgem’s price cap will mean the downside effect from energy prices will grow,” analysts said.

“Services inflation is also likely to fall back as lower headline inflation should mean April’s annual indexation of inflation-linked contracts and regulated prices results in much smaller price rises than last year.”

9.47am: Miners lead FTSE 100 higher 

Miners led the FTSE 100’s risers on Wednesday, buoying the index to sit 38 points higher at 7,859.

Rio Tinto PLC was among them, rising 3.2% on a more upbeat outlook about China.

Iron ore accounts for more than 80% of Rio’s underlying operating earnings and the miner expects prices to rise as demand from China, its main customer, start to recover.

In line with that, Rio reiterated earlier guidance of iron ore shipments of 323 million to 338 million tons in 2024, or close to its record annual output… Read more

Anglo American PLC (LSE:AAL) climbed 3.5% in the meantime after reporting rough-diamond sales from majority-owned De Beers rose in the third cycle of the year.

Fresnillo PLC (LSE:FRES) topped the day’s risers with gains of 4.2%.

9.17am: Oil lower despite IMF warning over Middle East conflict

Oil prices edged lower on Wednesday, seemingly unfazed by warnings from the International Monetary Fund (IMF) that conflict in the Middle East could send costs soaring.

Benchmark Brent Crude fell 0.4% to US$89.74 a barrel on Wednesday, having spiked late last week as traders braced for Iran’s attack against Israel.

Though prices have indeed since receded, the IMF warned on Tuesday evening that escalations in the MIddle East could reverse this and fuel inflation globally.

“We are very concerned about developments in the Middle East,” IMF financial counsellor Tobias Adrian added.

“In such a scenario that leads to upward pressure on inflation […] higher interest rates could come back into play.”

8.59am: Just Eat sees fewer orders in first quarter

Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB) has reported a fall in orders over the first three months of the year.

Total orders came in 6% lower at €214.2 million (£182.6 million), Just Eat reported on Wednesday.

This came on the back of a fall in all regions except for the UK and Ireland, where orders grew 1% to €60.3 million.

Gross transaction value increased in the UK and Ireland too, by 7% to €1.7 billion.

However, including a 10% drop in Just Eat’s North American business, gross transaction values fell by 2% to €6.5 billion… Read more

Shares fell 5.7% to 1,128p.

8.47am: The morning so far

March’s inflation print was front and centre this morning. It came in slightly hotter than expected at 3.2% against market forecasts of 3.1%, though this still makes for the lowest year-on-year rate since August 2021.

Annual core inflation (which is a better indicator of consumer income pressures) slowed to 4.2% in March, the lowest since December 2021 and down from 4.5% in February.

Stocks appeared to shrug the data off completely, with the FTSE 100 index opening slightly lower (albeit at a bruisingly low bar from yesterday’s 145-point fall) before inching into the green as opening trades progressed.

On the company news front, ASOS PLC (LSE:ASC) saw group sales fall 18% year on year in the 26 weeks to 3 March, with top-line revenues coming in slightly above £1.5 billion.

The group’s £4.6 million of adjusted earnings (EBITDA) in the first half of 2023 flipped to adjusted losses to the tune of £16.3 million this year.

It could have been worse, seemed to be the market response; ASOS stock jumped 11%, though it still remains 50% lower year on year.

Ladbrokes owner Entain reported a fall in UK and Irish revenues over the first quarter due to tougher gambling restrictions.

UK online net gaming revenue slipped 9% while retail revenue fell 6% over the three months to March, Entain reported on Wednesday.

“We continue to experience the effects of our regulatory implementation,” the firm said. Shares added 1.9% to 821p in opening exchanges.

As of 8.47am, the FTSE 100 blue-chip index was trading 12 points higher at 7,832.

8.39am: Ladbrokes owner Entain’s revenues hit by betting regulations

Entain PLC (LSE:ENT) has reported a fall in UK and Irish revenues over the first quarter due to tougher gambling restrictions.

UK online net gaming revenue slipped 9% while retail revenue fell 6% over the three months to March, Entain reported on Wednesday.

“We continue to experience the effects of our regulatory implementation,” the firm said.

This includes the likes of stake limits on bets, introduced under the government’s gambling white paper last year.

Group revenue increased by 6% over the quarter, with growth being recorded in Entain’s central and eastern European wing, as well as international business.

BetMGM, Entertain’s North American business, generated a 2% increase in revenue, as the likes of the Super Bowl and March Madness helped boost customer numbers.

“Our first quarter performance was in line with our expectations, with growth reflecting both strong performances in many of our markets as well as known challenges in others,” interim boss Stella David said.

Shares added 1.6% to 819p.

8.28am: FTSE 100 dips and recovers

 The FTSE 100 opened six points lower at 7,814 this Wednesday, a small dip compared to the bruising 145 points worth of losses chalked up in yesterday’s trading session.

Stocks have since edged into positive territory as investors digest the mixed inflation news, which, despite coming in a touch higher than expected in March, still fell to the lowest point in 31 months on a year-on-year basis.

US Federal Reserve chair Jerome Powell’s hawkish speech, where he cautioned against getting hopes up for a rate cut in the near term, have also weighed on stocks.

At the time of writing, the FTSE 100 was three points higher at 7,823

8.12am: Fed chair Powell delivers hawkish speech

Another factor could weigh on stocks on top of a slightly hot inflation print today.

Overnight, US Federal Reserve chair Jerome Powell cautioned against getting your hopes up for a near-term interest rate cut.

“Recent data have clearly not given us greater confidence,” said Powell. Instead, they “indicate that it’s likely to take longer than expected to achieve that confidence”.

He stated that the Fed is willing to maintain the current level of interest rates “for as long as needed” if inflation does persist in the world’s largest economy.

“More recent data shows solid growth and continued strength in the labour market, but also a lack of further progress so far this year on returning to our 2% inflation goal,” Powell said.

Despite his hawkish comments, the S&P 500 and Nasdaq 100 closed in the green.

In London, the FTSE 100 opened effectively flat at 7,820.

7.59am: ASOS’s revenues for 18% in first half

 ASOS PLC (LSE:ASC) saw group sales fall 18% year on year in the 26 weeks to 3 March, with top-line revenues coming in slightly above £1.5 billion.

Adjusted losses before tax (LBT) increased from £87.4 million in the first half of 2023 to £120 million, though on a statutory basis, LBT improved from £290.0 million to £270 million.

ASOS cited progress under its ‘Back to Fashion strategy’, focusing on improving speed, agility, and profitability, as a highlight in the period.

However, ASOS’s £4.6 million of adjusted earnings (EBITDA) in the first half of 2023 flipped to adjusted losses to the tune of £16.3 million this year.

ASOS reiterated its full-year guidance of a sales decline between 5% to 15%, and a positive adjusted EBITDA.

ASOS also announced the appointment of Dave Murray as chief financial officer and executive director, replacing interim CFO Sean Glithero.

7.25am: Mixed news on the inflation front

The March inflation print came in hotter than expected at 3.2% against market forecasts of 3.1%, though this still makes for the lowest year-on-year rate since August 2021.

Annual core inflation (which is a better indicator of consumer income pressures) slowed to 4.2% in March, the lowest since December 2021 and down from 4.5% in February.

Retail prices, which also came out this morning, decreased to 4.3% year on year in March from 4.5% in February, marking the lowest rate of retail price inflation since July 2021.

It paints a picture of dogged determination for the economy to cool, though at a slightly slower rate than policymakers might hope.

Office of National Statistics chief economist Grant Fitzner noted that “food prices were the main reason for the fall, with prices rising by less than we saw a year ago”.

“Similarly to last month, we saw a partial offset from rising fuel prices,” he added.

7.10am: Stocks face tough macro conditions

The FTSE 100 could fall even further when markets open today after taking a major battering on Tuesday.

Blue chips plummeted 145 points to finish the day 1.8% lower at 7,820. It was one of the sharpest falls in a year.

As well as concerns about the Middle East, investors are also becoming more worried about the rising Treasury yields, as the odds of a US summer rate cut diminish. 

There was mixed news on the macroeconomic calendar this morning, with the March inflation print coming in hotter than expected. Though at 3.2% year on year, it was still the lowest level since August 2021.

A swathe of producer and retail prices will soon be announced.

On the company news front, large-cap betting firm Entain will soon have a trading update out, while ASOS PLC (LSE:ASC) will provide an interim earnings report.

Futures contracts have the FTSE 100 index opening eight points lower at 7,807.

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