LONDON MARKET MIDDAY: US recession fear keeps lid on FTSE 100

(Alliance News) - Stock prices in London were largely higher at midday on Thursday, though the FTSE 100 was slightly on the back foot, with a stalling UK economy and the possibility of a recession across the Atlantic hurting sentiment.

The FTSE 100 index was down just 1.24 points at 7,823.60, while the FTSE 250 was up 33.42 points, or 0.2%, at 19,036.15, and the AIM All-Share was up 2.27 points, or 0.3%, at 821.98.

The Cboe UK 100 was flat at 782.55, the Cboe UK 250 was up 0.3% at 16,587.31, and the Cboe Small Companies was marginally higher at 13,652.38.

The UK's economy registered no growth in February, as a contraction in services and production offset progress in the construction sector, according to the Office for National Statistics.

ONS estimated that in February, real gross domestic product registered no growth from the previous month. This compared with the upwardly revised 0.4% growth seen in January. January was initially estimated at 0.3% growth.

February's reading was below the 0.1% market consensus, as cited by FXStreet.

AJ Bell analyst Laith Khalaf said: "The economy is by no means hitting it out of the park, but it has so far defied expectations and avoided recession. There are still plenty of threatening storm clouds on the global economic horizon, not least the effects of the ongoing conflict in Ukraine and the potential fall-out from turmoil in the banking sector."

Despite the underwhelming data, sterling strengthened as the outlook for the US economy looked more dismal, hurting the dollar.

The pound was quoted at USD1.2507 at midday on Thursday in London, higher compared to USD1.2460 at the close on Wednesday.

According to minutes of the Federal Open Market Committee's March 21 to 22 meeting, released on Wednesday, the fall-out from the banking crisis is likely to tip the US economy into recession later this year.

"Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years," the minutes said.

Analysts at Oxford Economics noted that the March minutes also pointed toward another rate hike from the US Federal Reserve in May, though they added it would be a "close call".

"We don't find anything in the minutes to warrant an immediate change to the baseline forecast for the Fed to raise the target range for the Fed funds rate by 25 [basis points] at the May meeting, but our subjective odds of another hike in June are declining," the analysts said.

Stocks in New York are called to open mostly higher. The Dow Jones Industrial Average is called flat, the S&P 500 index is called up 0.1%, and the Nasdaq Composite up 0.2%.

In London, Tesco was one of the best blue-chip performers at midday, rising 2.1%. The grocer reported consensus-topping annual revenue growth, though inflationary pressure took a chunk out of its profit.

The company also maintained its yearly dividend and once again announced a GBP750 million share buyback.

For the year ended February 25, Tesco said revenue, excluding VAT but including fuel, rose 7.2% to GBP65.76 billion from GBP61.34 billion. The figure topped company-compiled consensus of GBP65.72 billion. Pretax profit, meanwhile, dropped 51% to GBP1.00 billion from GBP2.03 billion the year prior.

AJ Bell analyst Russ Mould suggested that Tesco seemed to be making the calculation that it can absorb some pain now to maintain "and even improve" its market share, hoping to emerge in a stronger position once the economic outlook starts to pick up.

"What Tesco doesn't want to be drawn into is a race to the bottom on prices, which cuts margins right to the bone for a prolonged period. For now, this is the tricky tightrope the supermarket must walk, while rewarding investors for their patience with steady dividends," Mould cautioned.

Housebuilders in the FTSE 100 shined after rating lifts from HSBC.

HSBC lifted Barratt Developments, Taylor Wimpey, Crest Nicholson, Redrow and Bellway to 'buy' from 'hold'. It upped Berkeley to 'hold' from 'reduce' and maintained its 'buy' rating for Vistry, one of its preferred housebuilding plays.

The bank said it now has greater visibility about the shape of the current housing market downturn for the housebuilders' profits, cash flows and their recovery from it, with this now "more than priced-in to share prices."

HSBC said its preferred picks are Vistry, Redrow and Taylor Wimpey. The stocks were up 1.9%, 3.6%, and 1.9%, respectively.

Barratt was up 2.0%, Crest 3.6%, Bellway 3.5%, and Berkeley 1.9%.

In the FTSE 250, Oxford Instruments was the top performer, rising 4.5%.

The company noted growth in orders and revenue across the US, European and Japanese markets thanks to customer demand. As a result, Oxford Instruments now expects revenue growth for the year ended March 31 to be around 22%. Revenue was GBP367.3 million for financial 2022.

It also expects adjusted operating profit to be ahead of previous expectations. For financial 2022, adjusted operating profit was GBP66.3 million.

PZ Cussons climbed 4.1% as it gave an upbeat trading update for its third financial quarter, boosted by revenue growth in Europe and the Americas.

The consumer products firm, which produces the Carex handwash product, said in the third quarter ended March 4, like-for-like revenue grew 6.2%. It brought quarterly revenue to GBP166.0 million.

Looking ahead, it expects adjusted pretax profit in financial 2023 to be "at least in line" with current market estimates, citing Bloomberg consensus of GBP68.1 million. This would be 2.3% higher than the GBP66.6 million achieved in the financial year that ended May 31, 2022.

Elsewhere in London, Foresight Group jumped 8.3% as it boasted an "exceptional" increase in assets and funds under management in its financial year.

On March 31, AuM were up 37% year-on-year to GBP12.2 billion, while FuM were up 34% to GBP9.0 billion. The firm now expects annual revenue to be up "significantly" and exceed market consensus, which it cites as GBP116.6 million as of January 16.

In European equities on Thursday, the CAC 40 in Paris was up 0.9%, while the DAX 40 in Frankfurt was down 0.1%.

The euro stood at USD1.1017, against USD1.0978. Against the yen, the dollar was trading at JPY133.27, higher compared to JPY133.14.

Brent oil was quoted at USD86.76 a barrel at midday in London on Thursday, down from USD86.99 late Wednesday. Gold was quoted at USD2,026.10 an ounce, sharply higher against USD2,008.47.

Still to come on Thursday's economic calendar, there is the weekly US jobless claims report and a producer price index reading at 1330 BST.

By Heather Rydings, Alliance News senior economics reporter

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