LONDON MARKET MIDDAY: Stocks on front foot heading into US inflation

(Alliance News) - The market mood was upbeat on Tuesday, heading into a key US inflation release, with investors hopeful the reading will show a further easing of price pressures.

Miner Fresnillo and software firm Aveva were contributing towards the FTSE 100 index's move higher, helping to offset a difficult session for grocers.

The FTSE 100 was up 25.90 points, or 0.4%, at 7,498.93 midday Tuesday. The mid-cap FTSE 250 index was up 77.05 points, or 0.4%, at 19,590.92. The AIM All-Share index was up 2.31 points, or 0.3%, at 888.94.

The Cboe UK 100 index was up 0.3% at 749.42. The Cboe 250 was up 0.4% at 16,900.59, and the Cboe Small Companies down 0.2% at 13,798.97.

In mainland Europe, the CAC 40 in Paris and the DAX 40 in Frankfurt were both up 0.4%.

"Share markets continued to trade higher on Tuesday, registering modest gains as traders start bracing for today's highly awaited US CPI figures," said Pierre Veyret, analyst at ActivTrades.

Investors are hoping to see US inflation slow further. The consumer price index reading is expected to show the annual inflation rate softening to 8.1% in August from 8.5% in July, according to FXStreet. In June, inflation had topped 9%.

Veyret explained: "A higher-than-estimated number would be seen as bad news for riskier assets, as it could trigger an even more aggressive monetary policy from the Fed. On the other hand, a lower figure than initially expected would be likely to have a positive impact on market sentiment, but in the short-term only."

Ahead of the US data, futures were pointing to an upbeat start for Wall Street. The Dow Jones was set to open 0.4% higher, as was the S&P 500, while the tech-heavy Nasdaq Composite was called to rise 0.3%.

The dollar was on the back foot. Sterling was quoted at USD1.1709 in midday trade, rising from USD1.1698 at the London equities close on Monday.

The pound was boosted after data showed the UK unemployment rate unexpectedly declined in July, while wage growth accelerated.

The jobless rate edged down to 3.6% in the three months to July from 3.8% in the previous three-month period. Market consensus, according to FXStreet, had expected the rate to remain stable at 3.8%. The latest jobless rate was the lowest since May to July 1974.

Total pay, which includes bonuses, grew 5.5% year-on-year over the three-month period, ticking up from 5.2% the prior period. Regular pay, which strips out bonuses, grew 5.2%, picking up from 4.7%. Both figures beat consensus, which had forecast growth of 5.2% and 5.0% respectively.

"Very low unemployment, higher wage growth, still low labour force participation, and a sharp drop-off in vacancies make for inflation persistence, but slower growth ahead. That in turn, makes sure the BoE's MPC remains in a bad place," said Societe Generale's Kit Juckes.

The Bank of England's Monetary Policy Committee was due to meet this Thursday, but the meeting has been pushed back by one week due to the death of Queen Elizabeth II.

The euro traded at USD1.0166, higher than USD1.0128 late Monday, as data confirmed Germany's annual inflation rate at 7.9% for August.

The reading was up from 7.5% in July, and Destatis noted the inflation rate has remained clearly above 7% for half a year now.

Meanwhile, survey data showed German economic sentiment deteriorated in September. The ZEW economic indicator fell to minus 61.9 points in September from minus 55.3 a month before. The reading was expected to fall more moderately, to minus 60.0. At the start of 2022, the indicator was in positive territory, standing at 51.7 points in January.

Against the yen, the dollar eased to JPY142.20 from JPY142.35.

Gold was quoted at USD1,727.50 an ounce, lower than USD1,731.11 on Monday. Brent oil was trading at USD94.99 a barrel, up from USD94.63 late Monday.

In London, Fresnillo was helping the FTSE 100 to push higher, shares up 3.6% at midday.

The precious metals miner said it is currently conducting "extensive" tests at its Juanicipio mine in Mexico, due to requirements from a local regulator, but does not expect this to hurt its annual guidance.

Fresnillo stated that it does not see "any impediment" to the successful conclusion of the tie-in, based on the testing work already undertaken. The company expects the power for final commissioning and the start of operations to be available by the end of October.

Aveva shares rose 2.9% to 3,045.00 pence. Sky News on Monday reported that Aveva is edging closer towards a deal that will see the company taken over by French industrial group, and major shareholder, Schneider Electric.

Sky News reported that the boards of both companies are in discussions over a price of at least GBP30 per share for Schenider to acquire the remaining 40% stake in Cambridge-based industrial software firm Aveva that it does not own.

The price values the 40% interest up for grabs at around GBP3.5 billion. It also values Aveva in its entirety at around GBP9 billion.

At the bottom of the blue-chips were grocers, led by online-only operator Ocado, shares down 9.5%.

Ocado reported sales growth for Ocado Retail in its third quarter, but warned that online shoppers are checking out with smaller baskets and seeking value-for-money items due to the cost-of-living crisis in the UK.

The average basket value was down by 6% in the period to GBP116 as customers sought to cut back due to inflation. A greater decline was experienced later in the quarter, it noted.

"Notwithstanding positive customer growth, the accelerating trading down and smaller baskets, particularly over the last few weeks, mean that we now expect to see a small sales decline in FY22 and close to break-even Ebitda," said Ocado. In Ocado's half-year results, it had guided to low single-digit growth at Ocado Retail for the full-year.

Ocado Retail is a joint venture between online grocer Ocado and food, clothing and homewares retailer Marks & Spencer Group, with both companies holding a 50% interest.

Shares in FTSE 250-listed Marks & Spencer were down 1.3%.

Worries over cost-of-living pressures were further amplified by the latest Kantar grocery market survey.

Grocery price inflation reached over 12% over the past four weeks ending September 4, with the average household's annual grocery bill now set to soar to GBP5,181 if consumers were to buy the same products as they did last year, Kantar said.

As prices climb, consumers have turned to German discounts Aldi and Lidl. Sales at Aldi rose 19% in the 12 period to September 5, while Lidl's sales jumped 21%.

Shares in London-listed supermarket chains Tesco and J Sainsbury, which lost further UK market share, were down 2.5% and 1.6% respectively at midday.

JTC shares rallied 9.5% after saying it expects to deliver full-year results ahead of market forecasts. It also expects 2022 net organic growth to be above its guidance range.

Trustpilot shares surged 19%. The online review platform reporting a narrowed interim loss and backing its annual revenue outlook. Pretax loss narrowed to USD9.2 million from USD17.3 million, as general and administrative expenses fell 30% to USD21.2 million from USD30.1 million a year ago.

Fevertree shares jumped 12% after the premium mixers maker said revenue rose 14% to GBP160.9 million in the six months that ended June 30 from GBP141.8 million a year prior.

Fevertree reiterated its revised full-year revenue guidance of GBP355 million to GBP365 million, with an earnings before interest, tax, depreciation and amortisation range of GBP37.5 million to GBP45 million.

By Lucy Heming; lucyheming@alliancenews.com

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