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(Alliance News) - Stock prices in London were called higher on Friday in the wake of US Federal Reserve and Bank of England rate hikes, as markets now await a key US jobs report, expected to show a softening in the labour market.
The BoE lifted the bank rate by 75 basis points, matching the Federal Reserve's hike of US rates on Wednesday. However, Governor Andrew Bailey's dovish remarks in the subsequent press conference lay in stark contrast with the hawkishness of US counterpart Jerome Powell, putting pressure on sterling.
Bailey said UK interest rates will have to go up by "less than currently priced into financial markets". The benchmark rate currently stands at a 14-year high of 3.00%.
"Investors got the policy pivot they were looking for this week; unfortunately, not from the Federal Reserve, but from the Bank of England instead," said Swissquote Bank's Ipek Ozkardeskaya.
The BoE warned of a "very challenging outlook" for the UK economy. It expects UK gross domestic product to have contracted by 0.5% in the third quarter, before falling by 0.3% in the fourth.
The bank expects the UK economy to remain in recession throughout next year and into the first half of 2024. It only predicts a "gradual recovery" in GDP thereafter.
Focus now shifts to US nonfarm payrolls report coming out Friday afternoon London time. The US labour market is expected to have added 200,000 jobs last month, according to consensus cited by FXStreet. That outcome would be a slowdown from 263,000 in September.
The Federal Reserve will be looking for signs of a softening in the US jobs market before easing off from monetary tightening.
"A stronger than expected jobs, or wages data could only further boost the Fed hawks, whereas today's jobs figures should be particularly soft to throw cold water on very hot hawkish Fed expectations before the weekly closing bell," Swissquote Bank's Ozkardeskaya said.
"As long as the US economy remains resilient, the Fed will continue exporting its pain and inflation to the rest of the world through a too-strong US dollar. So, Americans would excuse the rest of the world for praying to see ugly jobs figures from the US, today."
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called up 46.8 points, 0.7%, at 7,235.43
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Hang Seng: up 5.9% at 16,237.09
Nikkei 225: closed down 1.7% at 27,199.74
S&P/ASX 200: closed up 0.5% at 6,892.50
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DJIA: closed down 146.51 points, or 0.5%, at 32,001.25
S&P 500: closed down 1.1% at 3,719.89
Nasdaq Composite: closed down 1.7% at 10,342.94
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EUR: higher at USD0.9781 (USD0.9754)
GBP: higher at USD1.1222 (USD1.1184)
USD: lower at JPY147.97 (JPY148.24)
GOLD: higher at USD1,647.31 per ounce (USD1,625.97)
OIL (Brent): higher at USD96.77 a barrel (USD95.21)
(changes since previous London equities close)
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ECONOMICS
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Friday's key economic events still to come:
1000 CET EU services PMI
1100 CET EU producer price index
1130 EET EU ECB President Christine Lagarde lecture at Eesti Pank
0800 CET Germany manufacturing orders and turnover
0955 CET Germany services PMI
0930 GMT UK construction PMI
0830 EDT US nonfarm payrolls
1100 EDT US services PMI
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Activity and jobs within Japan's service sector grew at a faster pace in October than the month before, after the Tokyo government removed all remaining Covid-related travel restrictions, according to survey results. The au Jibun Bank services purchasing managers' index rose to 53.2 points in October from 52.2 in September. The final October reading was above the neutral 50-point mark and slightly above the flash score of 53.0. The reading signals the second month in a row of expansion in Japan's service sector. S&P Global, which compiles the index, said service providers cited the recent easing in international border restrictions and the launching of the Nationwide Travel Discount Programme for the improvement in activity. Less positively, they reported a near-record pace of input cost inflation, which they passed onto their own customers. The composite PMI improved to 51.8 points in October from 51.0 in September.
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UK Chancellor Jeremy Hunt is looking at raising taxes on the sale of assets such as shares and property as he weighs up "difficult decisions" to address a GBP50 billion black hole in the public finances. He is also considering an increase in dividend tax, in a move that would come as a blow to entrepreneurs. A source close to Hunt confirmed the tax hikes were under consideration, but said no decisions had yet been taken – stressing "we are two weeks away" from the highly-anticipated autumn budget. It comes as the country has been struck by more bleak economic news, with the Bank of England hiking interest rates for the eighth time in a row and the UK heading into what could prove the longest recession in at least a century.
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Grain shipments from Ukraine resumed after Russia quickly returned to a deal allowing their safe passage following international pressure as the G7 club of rich nations vowed not to let Russia inflict "starvation" on Ukrainians. But Moscow said it had yet to decide whether to extend the grain deal beyond November 19 – the renewal date written into the original agreement brokered by the UN and Turkey to stave off a global food emergency. Moscow also accused Britain of training Ukrainian forces in "sabotage operations" and helping them carry out a weekend attack on Russia's Black Sea fleet that prompted its withdrawal from the grain agreement.
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BROKER RATING CHANGES
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Liberum cuts British Land to 'hold' ('buy') - target 355 (510) pence
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Morgan Stanley raises United Utilities to 'equal-weight' (underweight)
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Numis cuts Polar Capital to 'hold'
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COMPANIES - FTSE 100
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AstraZeneca, alongside France's Sanofi, said its respiratory syncytial virus antibody, Beyfortus, or nirsevimab, has received EU approval for use in newborns and infants. This makes the European Commission the first regulatory body to grant approval to Beyfortus. The approval was based on results from the antibody's clinical development programme, including the Melody phase III trial. It follows a recommendation from the European Medicines Agency's Committee for Medicinal Products for Human Use in September.
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COMPANIES - FTSE 250
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Apax Global Alpha said its portfolio proved "resilient" in the three months to September 30, with a total net asset value return of 3.1%, or 1.2% in constant currency. The closed-ended investment fund which focuses on private equity investments said its adjusted NAV was EUR1.4 billion at the period end, or EUR2.86 per share. This is up from EUR2.83 at the end of June. "The underlying portfolio companies continue to demonstrate their resilience in a challenging macroeconomic environment. Private equity deal activity has reduced when compared to 2021, however, the Apax Funds continue to identify attractive investment opportunities together with exits at strong uplifts to prior carrying values," said Apax COO Ralf Gruss.
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Morgan Advanced Materials upgraded annual guidance after a strong year-to-date. It said sales in the nine months to September were up 11% year-on-year, on an organic constant currency basis. The advanced carbon and ceramic materials manufacturer said revenue remains "robust", but notes a "slight moderation" in growth rates in the third quarter, in light of the wider economic challenges. However, it now expects full-year organic constant currency growth to be between 7% to 9% higher than previous guidance, and expects adjusted operating profit to be "marginally above" the top end of market consensus.
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4imprint said trading in the year so far has gone well, and it expects annual revenue to be around USD1.1 billion. Noting "consistent productivity from [its] marketing activities, relative stability in gross margins and operational leverage over the fixed and semi-fixed elements of the cost base!, it now expects pretax profit for 2022 to be at the top end of current market consensus, and "not less than USD90 million". "Looking forward, the board remains confident in and committed to the group's strategy, positioning and prospects," the promotional merchandise firm said.
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OTHER COMPANIES
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National World late Thursday said it considering mounting a takeover bid for Daily Mirror owner Reach. National World, a newspaper industry investor and owner of JPIMedia Publishing, said it is in the "early stages of exploring a possible offer" for Reach. National World says it has not yet approached Reach's board. In response, Reach said: "The board of Reach confirms that it has not received an approach from National World. The board will issue a further statement if and when appropriate. In the meantime, Reach shareholders are strongly advised to take no action."
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Thor Mining said drilling returned "high grade" gold from the silicified altered contact along Kelly's Ridge, at the Ragged Range in Eastern Pilbara, Western Australia. It reports the best intercept to date of 4 metres at 12.2 grammes per tonne gold from 194 metres. "This confirms the potential of the site as indicated by historical drilling. Furthermore, with more drilling results to come, we are looking forward to gaining further understanding of the project. We anticipate more positive news to be shared with the market in due course," said Managing Director Nicole Galloway Warland.
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By Elizabeth Winter; elizabethwinter@alliancenews.com
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