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(Alliance News) - Stocks in London were called lower on Thursday as investors look ahead to an afternoon which may deliver the final nail in the coffin for hopes of a dovish tilt by the US Federal Reserve.
A hotter-than-expected inflation reading for September will all but guarantee another hefty interest rate hike next month.
US consumer price inflation is expected to have slowed to 8.1% annually in September from 8.3% in August. August's figure had come in ahead of consensus of 8.1%, however. Another reading like that would mean more pain for stocks.
The consumer price index on Thursday follows the release of the latest Federal Reserve meeting minutes on Wednesday.
Fed policymakers are likely to press on with rate hikes in the short term, but the pace of hikes might slow after December, according to the central bank's meeting minutes from September.
The pound, meanwhile, was largely unmoved as the end of the Bank of England emergency bond buying programme nears.
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 down 0.2% at 6,816.15
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Hang Seng: down 1.2% at 16,495.55
Nikkei 225: closed down 0.6% at 26,237.42
S&P/ASX 200: closed down 0.1% at 6,642.60
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DJIA: closed down 28.34 points, 0.1%, at 29,210.85.
S&P 500: closed down 11.81 points, 0.3%, at 3,577.03
Nasdaq Composite: closed down 9.09 points, 0.1%, at 10,417.10.
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EUR: soft at USD0.9699 (USD0.9702)
GBP: flat at USD1.1067 (USD1.1066)
USD: lower at JPY146.83 (JPY146.90)
GOLD: down at USD1,667.86 per ounce (USD1,670.16)
OIL (Brent): down at USD92.17 a barrel (USD92.55)
(changes since previous London equities close)
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ECONOMICS
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Thursday's key economic events still to come:
1100 BST Ireland CPI
1330 BST US CPI
1330 BST US initial jobless claims
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"Storm clouds are visible" in the UK housing market, according to surveyors, with surging mortgage rates expected to push house prices downwards in the year ahead. The market lost momentum in September, with new buyer inquiries falling for the fifth month in a row, the Royal Institution of Chartered Surveyors said. A limited supply of properties for sale is still supporting modest price rises, but this looks set to end as the pace of growth slows markedly, the latest report from Rics indicated. The outlook for interest rates and uncertainty over the wider economy are taking their toll, with the impact of rising mortgage rates expected to outweigh the boost that buyers could get from stamp duty cuts in the recent mini-budget. The average two-year fixed mortgage rate on the market on Wednesday this week was 6.46%, according to Moneyfacts.co.uk, while the average five-year fixed deal was 6.32%. Both of these average rates are the highest since 2008. New instructions to sell have continued to fall, Rics said, with stock levels remaining at historic lows.
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UK Prime Minister Liz Truss was under fire from her own MPs as they demanded more U-turns on her tax-slashing agenda after she ruled out spending cuts to balance the books. The PM's leadership was in renewed peril as she was accused of "trashing the last 10 years" of the Tories' record at a bruising meeting with backbenchers. MPs piled pressure on her to restore market confidence in her government, with reports suggesting she is facing mounting calls to reverse or delay her plan to cancel a rise in corporation tax from 19% to 25%, due in April. Truss has insisted this and other tax cuts will boost growth, but the so-far unfunded measures in Chancellor Kwasi Kwarteng's mini-budget have sparked chaos in the financial markets. Mel Stride, the Tory chair of the Commons Treasury Committee, said that given Truss's commitments to protect public spending, there was a question over whether any plan that did not include "at least some element of further row back" on the GBP43 billion tax-slashing package can reassure investors.
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BROKER RATING CHANGES
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Goldman reinitiates Informa with 'buy' - price target 775 pence
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RBC starts Unite Group with 'outperform' - price target 1,025 pence
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Numis raises Playtech to 'buy' ('add')
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JPMorgan places Quilter on 'negative catalyst watch' - price target 85 (110) pence - 'neutral'
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Jefferies reinitiates PureTech Health with 'buy' - price target 500 pence
COMPANIES - FTSE 100
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Entain backed annual guidance as it looks to a final quarter which will be boosted by the upcoming football World Cup. In the third quarter of 2022, net gaming revenue rose 2%, but was flat at constant currency. Online net gaming revenue was up 1%, or down 2% at constant currency, an outturn "broadly in line with expectations and demonstrating positive underlying momentum". The gambling operator had a record level of active customers during the quarter, rising 6% year-on-year. Its US fortunes are improving. The BetMGM joint-venture, which Entain owns alongside MGM Resorts, has a 25% market share in the areas in which it operates. That excludes New York. Third-quarter net gaming revenue in the US surged 90% to USD400 million, helped by the start of the US National Football League season. Same-state revenue was up 50%. Looking ahead, Entain's fourth quarter will benefit from the World Cup, as well as easier comparatives due to Covid-19 and the temporary closure of its Dutch arm. Annual earnings before interest, tax, depreciation and amortisation are expected to be in line with previous GBP925 million to GBP975 million guidance, growth of as much as 10% from 2021.
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COMPANIES - FTSE 250
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easyJet reported a much improved fourth quarter. Disruption from cancellations, which plagued airlines for much of the summer, has since abated. The budget carrier flew 26.3 million seats in the quarter that ended September 30, 88% of the capacity from three year earlier, before the onset of the pandemic. Earnings before interest, tax, depreciation, amortisation and rent are expected to land between GBP665 million and GBP685 million, so in line with three years prior. "Operations have significantly improved as a result of management actions to mitigate the disruption that the whole airline ecosystem experienced through Q3. Since the start of July, easyJet's operations normalised, with Q4 on the day cancellations being below 2019 levels. Some specific areas of the wider European airline industry continue to have some ongoing challenges outside of easyJet's control, for example air traffic control," it said. Fourth-quarter revenue surged to GBP2.52 billion from GBP1.01 billion a year earlier. easyJet expects to report an annual revenue jump to GBP5.77 billion from GBP1.46 billion.
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Oxford Instruments still expects annual results in line with expectations, though it warned growth has been "tempered" by price increases not yet offsetting inflation. The manufacturing and research company said it made "good progress" in the half-year ended September 30. It expects to post "strong revenue and adjusted operating profit" growth. However, Oxford Instruments cautioned: "Constant currency growth has been tempered in the first half by global supply chain challenges, as well as price rises not yet offsetting inflationary pressures due to phasing of the order book." It expects a better second half, however. "We anticipate higher production in the second half, combined with the positive impact of recent price increases as we convert our record order book. This provides good visibility for an expected improvement in trading in the second half, with full year trading at constant currency remaining in line with expectations."
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Recruiter Hays reported a record first-quarter, and said sterling weakness is a "tailwind". Net fees surged 19% in the three months to September 30, or 15% on a like-for-like basis. "We have made a good start to our financial year; fees were stable at high levels over the summer and September delivered a record month, and ended a record quarter," Chief Executive Alistair Cox commented. "Our forward-looking client and candidate activity levels remain good overall, particularly in Germany and EMEA, but have reduced modestly in a number of other markets as macroeconomic uncertainties increase. This said, our key markets continue to be characterised by acute skill shortages and wage inflation." Hays said net fees have been helped by sterling weakness versus the Australian and US dollars. At current foreign exchange rates, its operating profit from last year would have increased by some GBP9 million.
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Picket lines will be mounted outside Royal Mail offices on what will be the sixth day of action in recent months. Postal workers will stage a fresh strike on Thursday in a long-running dispute over pay and conditions, with a series of walkouts planned for the coming weeks. The Communication Workers Union said its 115,000 members across the UK will be taking action, describing it as the largest strike in a year that has seen industrial unrest across several industries, including rail. The union has accused Royal Mail of planning structural change, which it said would effectively see employees in secure, well-paid jobs turned into a "casualised, financially precarious workforce overnight". The CWU said plans include delaying the arrival of post to members of the public by three hours, cuts in workers' sick pay, and inferior terms for new employees. The union has announced 19 further days of strike action in the build up to the busy Christmas period.
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OTHER COMPANIES
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Grosvenor casinos owner Rank Group kicked off its financial year with a revenue hike, though it faces weakening consumer confidence and rising inflationary pressures. In the three months to September 30, group net gaming revenue rose 2% year-on-year on a like-for-like basis to GBP165.7 million. At Grosvenor alone, it was a 5% decline. "Grosvenor venues saw visits grow in the quarter, however, with lower spend per visit," Rank explained. It expects consumer spending to remain under "significant pressure". "Other inflationary pressures continue to present an increasing challenge to the group, particularly in our venues businesses, with wage inflation, food input price increases and supply chain pressures all pushing up costs. FY23 costs will also be higher due to the non-recurring government support of rates relief and furlough payments received in the first quarter of the prior financial year. We continue to focus on initiatives that mitigate these cost pressures as much as possible," Rank said.
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Motor insurer Sabre Insurance backed annual guidance, benefiting from its "above market" pricing. Sabre said it has increased prices in the face of rampant claims inflation, which it says is running at roughly 12%. "In response to this inflationary environment - and in contrast to the broader market - Sabre has continued to increase prices to reflect claims inflation fully, increasing Motor policy prices by 24% to the end of September 2022, and by 31% over the past twelve months," Sabre said. Promisingly, volumes are still in line with expectations despite price hikes, it said. In the nine months to September 30, gross written premiums rose to GBP135.7 million from GBP126.7 million a year earlier. Sabre continues to expect a combined ratio in the "mid-90%s" range, which it expects to improve on next year. A combined ratio below 100% suggests a profit from underwriting activities, so the lower the better.
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Property listing portal OnTheMarket hailed several major contract wins, including with estate agents such as Savills, Chestertons and Knight Frank. It has also struck a deal with Lomond Group. "The fast-growing network of sales and lettings businesses encompasses over 60 branches across many well-known agency brands located across England and Scotland," OnTheMarket said.
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By Eric Cunha; ericcunha@alliancenews.com
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