LONDON BRIEFING: Stocks called higher; Truss doubles down on growth

(Alliance News) - Stocks were called higher on Thursday, and the pound held on to recent gains, despite continuing scepticism surrounding the UK government's focus on tax cuts.

Sterling remained steady, despite a downgraded outlook for the credit rating of UK government debt.

Fitch lowered the outlook for the debt to negative from stable after new Prime Minister Liz Truss announced a crash program of debt-fuelled tax cuts. The rating for the debt itself remains at "AA-".

"The large and unfunded fiscal package announced as part of the new government's growth plan could lead to a significant increase in fiscal deficits over the medium term," Fitch said in a statement.

"We consider that statements by the chancellor hinting at the possibility of additional tax cuts and the likely modification of fiscal rules legislated in January reduce the predictability of fiscal policy."

The Institute for Fiscal Studies also gave its verdict on the tax-cutting budget. Its analysis predicts that by 2025-26, the cuts will not only put a "considerable strain" on public finances but the freezes to thresholds for income tax and benefits will take away GBP2 for every GBP1 given to households through the cuts.

"On the political front, Liz Truss said her government remains 'on course' for the huge spending that they are about to throw out, and it is highly unlikely that the GBP2 billion concession on high earners' tax cuts would do anything to improve the investor mood," said Swissquote Bank's Ipek Ozkardeskaya.

"But the good news is, she will certainly abandon the idea of going after the BoE for now, as she well understood that shooting the BoE down would cost her big; if the BoE wasn't there to save the day last week, she would be in a bigger trouble today," he added.

Meanwhile, Truss will call for unity from European leaders to "address the fundamental causes" of energy and migration challenges as she attempts to move beyond splits within her party.

The prime minister will attend a summit of European leaders in Prague on Thursday, with French President Emmanuel Macron among those she is expected to meet.

Truss travels to the Czech Republic for the meeting of the European Political Community after a difficult Conservative Party conference dominated by internal division and backbench opposition to some of her key policies.

In local corporate news, RS Group said it's trading ahead of market expectations, and Imperial Brands launched a GBP1 billion buyback programme, as it trades in line with previous guidance.

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 30.8 points, or 0.4%, at 7,083.42

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Hang Seng: down 0.4% at 18,009.59

Nikkei 225: closed up 0.7% at 27,311.30

S&P/ASX 200: closed up just 1.80 points at 6,817.50

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DJIA: closed down 42.45 points, or 0.1%, at 30,273.87

S&P 500: closed down 7.65 points, or 0.2%, at 3,783.28

Nasdaq Composite: closed down 27.77 points, or 0.3%, at 11,148.64

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EUR: higher at USD0.9907 (USD0.9859)

GBP: higher at USD1.1320 (USD1.1252)

USD: down at JP144.56 (JPY144.78)

GOLD: sharply higher at USD1,722.34 per ounce (USD1,709.08)

OIL (Brent): slightly higher at USD93.38 a barrel (USD93.34)

(changes since previous London equities close)

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ECONOMICS

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Thursday's key economic events still to come:

0930 BST UK construction PMI

1330 BST US jobless claims

1430 BST US IMF Managing Director Kristalina Georgieva delivers speech

1700 BST US Fed Chicago President Charles Evans speaks

2330 BST US Fed Cleveland President Loretta Mester speaks

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Opposition leader Keir Starmer has renewed calls for Liz Truss to reverse her "kamikaze" budget as he warned families face "eye-watering" mortgage increases. Analysis by the Labour Party suggests an average UK buyer coming off a two-year fixed mortgage could experience a GBP498 monthly hike if interest rates hit 6%. Labour has developed estimates based on the assumption that a homeowner has a 20-year mortgage term and they pay a 5% or 6% interest rate once their two-year fix ends in the third quarter of 2022.

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The recovery in UK shopper numbers since the pandemic has slowed for the third consecutive month in a reflection of the severe economic situation facing households, figures show. Footfall was up by just 6.8% on last September, dropping away from the 8.6% and 15.5% uplifts seen in August and July respectively, according to retail analysts Springboard. High street footfall was 9.5% higher than last year but down from the 13.9% increase seen last month, while retail park visits were just 0.3% higher than last September. In starker findings, weekday footfall on UK high streets was down 17.4% on 2019 as around half of all employees continued to work from home for at least part of the working week.Springboard said shoppers would spend even more cautiously from October in the face of inflation and the rise in interest rates.

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More than a quarter of UK households who are worried about their own bills have also been supporting family and friends financially, according to an index. Comparethemarket's new money action index found that 27% have given money to help friends or family cope with the rising cost of living. When looking at ways to save money, households believed that reviewing outgoings and making cutbacks (47%), searching for better deals and switching providers (30%), and cancelling subscriptions (30%) were the actions that would lead to the biggest improvements in their financial situation.

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BROKER RATING CHANGES

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Numis cuts Synthomer to 'hold' ('add') - target 120 (230) pence

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RBC raises Segro to 'outperform' (sector perform) - price target 900 (1,075) pence

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Berenberg cuts Gem Diamonds to 'hold' (buy) - price target 40 (60) pence

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Goldman cuts Next price target to 5,750 (7,600) pence - 'neutral'

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COMPANIES - FTSE 100

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RS Group said revenue in the six months to September - its first half - was 16% higher year-on-year. The industrial and electronic products distributor now expects full year revenue and adjusted profit to be "slightly ahead" of market consensus. Revenue consensus stands at GBP2.86 billion, with adjusted operating profit expected at GBP364.9 million, and adjusted pretax profit estimated at GBP357.7 million.

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Imperial Brands announced a GBP1 billion share buyback programme, and said including dividends, annual capital returns are expected to exceed GBP2.3 billion. This is 13% ahead of current market capitalisation, it noted. It also said trading in its financial year ended September 30 was in line with expectations. It expects net revenue and adjusted operating profit to grow by around 1% in constant currency, in line with previous guidance.

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Diageo said financial 2023 has started well, with organic net sales growth across all regions, but noted headwinds. "We expect the operating environment to remain challenging with ongoing volatility due to geopolitical uncertainty, a weakening of consumer spending power, inflationary pressures and disruption related to Covid-19," said CEO Ivan Menezes. He said the alcoholic beverage company is "well-positioned" to deliver on medium-term guidance for financial 2023 to financial 2025.

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Safety equipment group Halma said it has acquired Weetech Holding for EUR57.5 million in cash, to be funded from existing facilities. "Weetech designs and manufactures safety-critical electrical testing technology, to test the integrity of both high and low voltage electrical systems," Halma explained.

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COMPANIES - FTSE 250

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Volution said revenue in the year ended July 31 rose 13% year-on-year to GBP307.7 million from GBP272.6 million, as pretax profit increased to GBP47.2 million, up 57% from GBP30.0 million a year before. It declared a total dividend of 7.3 pence, up from 6.3p. "The new financial year has started well, delivering revenue and profit ahead of the same period last year," the ventilation products supplier said.

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OTHER COMPANIES

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Origin Enterprises said it has acquired UK-based independent ecology solutions provider Keystone Environmental. "Keystone is an excellent fit for Origin to develop our ecology services for our existing customers as well as their strong client base. Investment in this sector is a key priority for the Group, as we broaden our offering in sustainable land use," said CEO Sean Coyle.

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By Elizabeth Winter; elizabethwinter@alliancenews.com

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