LONDON BRIEFING: Burberry shines in China; ITV-All3Media deal unlikely

(Alliance News) - Stocks in London are expected to slip into the red at Friday's open, in a tepid conclusion to what has been a largely positive week for global equities, as the market prices in a lower peak for US interest rates.

The pound consolidated recent gains, trading above the USD1.31 mark early Friday. This is largely the result of tamer US inflation readings and the market not buying recent hawkish rhetoric from the Federal Reserve.

Federal Open Market Committee member Christopher Waller on Thursday said he saw two more 25 basis point interest rate hikes "as necessary to keep inflation moving toward our target", speaking to an audience in New York. The market is largely unconvinced this will materialise, however.

According to CME Fedwatch tool, the market is pricing in a 92% chance of a 25bp hike later this month, and then an 81% likelihood that rate hikes are paused in September. The federal funds rate range currently stands at 5.00% to 5.25%.

Both the consumer price inflation data and producer price inflation data came in cooler than the market had been expecting. These have stoked hope that the Fed's rate hiking cycle is close to an end and the US economy could see the much-desired "soft landing".

Later Friday, there will be half-year earnings from asset manager BlackRock and banking firms Citigroup, JPMorgan Chase & Co and Wells Fargo.

"The big banks benefited from ample deposit inflows following the Silicon Valley Bank collapse in March, but their net interest income is expected to have declined, credit costs are normalizing, and they have increased expenses due to inflation," Swissquote Bank analyst Ipek Ozkardeskaya commented.

"So, the numbers could be soft, but what matters for investors is the comparison between the numbers and expectations."

In early UK company news, Burberry reported strong sales growth in its first quarter, thanks to the lifting of Covid restrictions in Mainland China. ITV said it was no longer actively exploring a possible buy of production company All3Media.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: called down 9.3 points, 0.1%, at 7,430.91

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Hang Seng: up 0.3% at 19,407.25

Nikkei 225: closed down 0.1% at 32,391.26

S&P/ASX 200: closed up 0.8% at 7,303.10

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DJIA: closed up 47.71 points, 0.1%, at 34,395.14

S&P 500: closed up 0.9% at 4,510.04

Nasdaq Composite: closed up 1.6% at 14,138.57

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EUR: up at USD1.1218 (USD1.1192)

GBP: up at USD1.3110 (USD1.3102)

USD: down at JPY137.95 (JPY138.12)

Gold: up at USD1,958.71 per ounce (USD1,956.63)

Oil (Brent): up at USD81.44 a barrel (USD80.65)

(changes since previous London equities close)

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ECONOMICS

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Friday's key economic events still to come:

11:00 CEST EU foreign trade

08:30 EDT US import and export price indexes

10:00 EDT US University of Michigan survey of consumers

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Conservative ministers in the UK are unlikely to deliver 300,000 new homes per year after making the target advisory rather than mandatory, MPs have warned. Prime Minister Rishi Sunak decided in December to make the target advisory rather than mandatory as he looked to see off a potential Conservative backbench rebellion. The Levelling Up, Housing & Communities Committee, in a report published on Friday, said its inquiry into the policy change had seen it told that the six-figure target would be "impossible to achieve".

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BROKER RATING CHANGES

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HSBC starts AstraZeneca with 'buy' - price target 13,250 pence

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HSBC starts GSK with 'reduce' - price target 1,190 pence

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JPMorgan places International Consolidated Airlines on 'positive catalyst watch'

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COMPANIES - FTSE 100

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Luxury fashion brand Burberry reported double-digit revenue growth in its first-quarter, thanks to the ongoing recovery in Mainland China. In the 13 weeks ended July 1 comparable store sales increased 18% year-on-year. Excluding Mainland China, sales were up 11%, and in Mainland China itself, they surged 46%. "[Europe, the Middle East, India & Africa], Japan and South Asia Pacific showed good double-digit growth more than offsetting declines in the Americas," it noted. Retail revenue in the quarter rose 17% to GBP589 million, from GBP505 million a year prior. At constant currency, the increase was 19%. Burberry reiterated its annual guidance for high single-digit revenue compound annual growth from the financial 2020 base, which equates to low double-digit growth in financial 2024. It expects a GBP150 million currency headwind to revenue, and a GBP70 million hit to adjusted operating profit. Looking ahead, it maintained its medium-term GBP4 billion revenue target.

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COMPANIES - FTSE 250

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ITV said "continues to monitor but is no longer actively exploring" a possible acquisition of All3Media. The London-based television broadcaster and content producer had said in mid-June it was actively exploring a possible acquisition of the production company, which produces shows including Fleabag and Midsomer Murders. "ITV assesses all potential value-creating M&A opportunities against its strict financial criteria and disciplined capital allocation framework," the company said.

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Liontrust Asset Management updated on the three months to June 30, reporting net outflows of GBP1.6 billion during the period, compared to GBP541 million a year prior. At the end of June, its assets under management and advice totalled GBP29.51 billion, falling 6.1% from GBP31.43 billion at the beginning of April. AuMA have since fallen a further 1.8% to GBP28.98 billion at July 12. "In a risk-off environment, our strong focus on equities has proved to be challenging, especially when the UK market has been out of favour," the London-based asset manager said.

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OTHER COMPANIES

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Zoo Digital said trading in its first quarter has been affected by cost-savings measures at its major streaming company clients, as well as the ongoing strike at the Writers Guild of America. The AIM-listed firm provides cloud software-based subtitling, dubbing, and media localization services. This has caused revenue to be lower than management's previous expectations. "Despite the short term industry-wide uncertainly alluded to above, Zoo expects to be in an even stronger position with several customers following a rationalisation of their supplier bases with Zoo selected as one of a smaller number of vendors," the company said. It expects revenue growth to return in the second half of its year.

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By Elizabeth Winter, Alliance News senior markets reporter

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