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(Alliance News) - Stocks in London are set to open flat on Thursday, following a sharp decline on Wednesday as investors pared back their bets on interest rate cuts.
A combination of cautious words from the Federal Reserve on Tuesday, Wednesday's robust US retail sales data, and the recent uptick in inflation served to damp the market's expectations of interest rate cuts from the Fed.
According to CME's FedWatch tool, the probability of a 25 basis point rate cut in March has dropped to 60% from 70% a week ago.
"Despite data and Fed communication seemingly aligning against a rate cut in March, the market still has a lingering belief that history may repeat itself. Historically, the Fed tends to cut rates about six to nine months after the last rate hike," SPI Asset Management's Stephen Innes commented.
Hopes for rate cuts from other major central banks have also been tempered in recent days. European Central Bank President Christine Lagarde suggested monetary policy in the eurozone would not be eased until the summer. Meanwhile, the latest rebound in UK headline inflation has cast doubt over the timing of when the Bank of England will bring down bank rate.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 3.1 points at 7,449.39
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Hang Seng: up 0.7% at 15,386.97
Nikkei 225: closed marginally lower at 35,466.17
S&P/ASX 200: closed down 0.6% at 7,346.50
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DJIA: closed down 94.45 points, 0.3%, at 37,266.67
S&P 500: closed down 26.77 points, 0.6%, at 4,739.21
Nasdaq Composite: closed down 88.72 points, 0.6%, at 14,855.62
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EUR: up at USD1.0903 (USD1.0853)
GBP: up at USD1.2697 (USD1.2668)
USD: down at JPY147.89 (JPY148.43)
Gold: up at USD2,011.80 per ounce (USD2,009.77)
Oil (Brent): up at USD78.29 a barrel (USD77.55)
(changes since previous London equities close)
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ECONOMICS
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Thursday's key economic events still to come:
World Economic Forum annual meeting in Davos continues
10:00 CET eurozone current account
11:00 CET eurozone construction production
08:30 EST US initial jobless claims
08:30 EST US housing starts
08:30 EST US Philadelphia Fed manufacturing survey
10:30 EST US EIA natural gas storage
11:00 EST US EIA Crude oil stocks
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UK Prime Minister Rishi Sunak survived a key test of his leadership, fending off right-wing rebels to win a crunch parliamentary vote on his contentious plan to send migrants to Rwanda. Sunak, in power since October 2022, has staked his political future on the scheme, as Britain gears up for its next general election later this year. Right-wing Conservatives had threatened to kill the Safety of Rwanda (Asylum & Immigration) Bill, but they ultimately backed down and the government won comfortably by 320 votes to 276. The result means Sunak avoids a serious weakening of his authority, as his faction-ridden party desperately needs to claw back support from the main opposition Labour party before the nationwide vote.
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UK Chancellor Jeremy Hunt will tell political and business leaders at the World Economic Forum that the UK is "on the up and open for business". Hunt's trip to the exclusive Swiss ski resort of Davos to join the annual gathering of international movers and shakers will be the first time a UK chancellor has attended the forum in five years. The Treasury said the chancellor will use his visit to champion the UK's ambition to be a science and technology superpower and pitch that the country is ripe for investment from the international business community. Ahead of his trip on Thursday, Hunt said: "I'll be in Davos to tell the world that Britain, a nation of great innovation, is on the up and open for business.
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BROKER RATING CHANGES
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Exane BNP cuts BAE Systems to 'underperform' (neutral) - price target 1,125 (1,060) pence
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Morgan Stanley starts Moneysupermarket.com with 'overweight' - price target 325 pence
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COMPANIES - FTSE 100
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Flutter Entertainment, which owns Paddy Power, Sky Bet and Betfair, said it traded well over the fourth quarter, reporting double digit revenue growth at the end of 2023, and for the year as a whole. In the fourth quarter, the gaming firm said total revenue rose 11% year-on-year to GBP2.67 billion, while average monthly players rose 12% to 13.6 million. In 2023 overall, revenue jumped 24% year-on-year to GBP9.51 billion from GBP7.69 billion, as average monthly players rose 20% to 12.3 million. In the US, net revenue was GBP1.14 billion, about GBP147 million below its guidance, amid "customer friendly" sports results. However, Flutter noted its performance excluding the US was in line with its annual guidance provided in the third quarter. The firm said it was on track for a New York listing by January 29. It will remain in the FTSE 100 as its premium listing in London is unaffected. "In the US, FanDuel consolidated its sports leadership position during the peak quarter for sporting activity, while FanDuel Casino went from strength to strength. While sports results were very customer friendly, particularly on the NFL in November, the underlying momentum in the business remains very strong heading into 2024," said Chief Executive Peter Jackson.
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Sainsbury's said it completed a strategic review of its Financial Services division, ahead of its Strategy update next month. "In order to improve the financial services offered to our customers and consistent with the clear focus on our retail businesses, we are exploring a number of options," the supermarket chain said. It said that financial services product it will continue to offer will be provided by "dedicated financial services providers" via a distributed model. This will result in a phase withdrawal from its core Banking business, Sainsbury's said. It said Jim Brown will retire as CEO of Sainsbury's Bank, with former AIB UK CEO Robert Mulhall to succeed him at the end of March.
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COMPANIES - FTSE 250
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Watches of Switzerland reported a "volatile" trading performance over the Christmas period, as consumer spending in the luxury retail sector suffered amid challenging macroeconomic conditions. The luxury watch seller said it expects these challenges to persist for the remainder of its financial year. It cut its annual guidance for the year, now expecting revenue between GBP1.53 to GBP1.55 billion compared to prior guidance of GBP1.65 to GBP1.70 billion, which would constitute constant currency growth year-on-year of just 2-3%, versus 8-11% previously guided. It now expects its earnings before interest and tax margin to be 8.7% to 8.9%, compared to prior guidance that it would be in line with financial 2023. "The festive period was particularly volatile this year for the luxury sector, with consumers allocating spend to other categories such as fashion, beauty, hospitality and travel. Whilst we are disappointed with this trend, we are encouraged by our market share gains in both the US and UK," said CEO Brian Duffy.
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Travis Perkins said trading in the fourth quarter of 2023 was in line with management expectations. Pricing stabilised from the prior quarter, but volume performance remained "challenging". It expects to deliver adjusted operating profit of around GBP180 million, which is in line with its previous guidance. With market conditions forecast to remain "subdued" into 2023, it began reducing central and regional headcount in the fourth quarter, as well as instituting supply chain efficiencies. Travis Perkins expects the measures to deliver annualised savings of around GBP35 million, and will recognise a restructuring charge of around GBP15 million for 2023.
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OTHER COMPANIES
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Australian mining and metals firm BHP Group reported production results for its second quarter ended December 31. From the previous quarter, copper production fell 4%, iron ore production rose 4%, metallurgical coal production rose 2%, energy coal was up 7%, while nickel production fell 3%. It left production guidance for the financial year unchanged, except for BMA, which is BHP's coal joint venture with Mitsubishi Development in Queensland. It now expects a 23 to 25 million tonne range over the year, compared to previous guidance of 46 to 50 million. BHP also said it was exploring ways to mitigate the impacts of the sharp drop in nickel prices at its Nickel West site, where it is assessing the carrying value of its assets.
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By Elizabeth Winter, Alliance News deputy news editor
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