LONDON MARKET OPEN: Pound's momentum refreshed after UK inflation

Wed, 17th Nov 2021 08:53

(Alliance News) -Â The FTSE 100 struggled in opening trade in London on Wednesday after the pound rallied following a bigger-than-expected uptick in the UK inflation rate last month.

Also weighing on the blue-chip index were share price losses for SSE, Informa and Spirax-Sarco, offsetting a well-received set of results from Sage.

The FTSE 100 index was down 15.78 points, or 0.2%, at 7,311.19 early Wednesday. The mid-cap FTSE 250 index was down 23.67 points, or 0.1%, at 23,516.04. The AIM All-Share index was up 2.79 points, or 0.2%, at 1,248.00.

The Cboe UK 100 index was down 0.3% at 724.30. The Cboe 250 was down 0.1% at 20980.18, and the Cboe Small Companies up 0.1% at 15611.49.

In mainland Europe, the CAC 40 in Paris was flat, while the DAX 40 in Frankfurt was up 0.1% early Wednesday.

"Stock markets have been struggling to build on a strong earnings season recently as inflation and interest rates have topped the list of investors concerns over the coming months," said Craig Erlam, senior market analyst at Oanda.

Heightening worries about runaway inflation were figures on Wednesday showing consumer price growth in the UK hit a near decade high last month on soaring energy bills and second hand cars.

The annual UK inflation rate surged to 4.2% in October from just 3.1% in September. Consensus, according to FXStreet, had been anticipating a figure of 3.9%.

This was the highest 12-month inflation rate since November 2011, when it was 4.8%.

"This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cares and fuel as well as higher prices in restaurants and hotels," said Grant Fitzner, chief economist at the ONS.

Sterling was quoted at USD1.3454 in morning trade following the data, up on USD1.3430 at the London equities close on Tuesday.

"With the furlough scheme having seemingly come to a successful end without any significant jump in unemployment, as per the data yesterday and comments earlier this week, and inflation running hotter than expected, the [Bank of England's Monetary Policy Committee] may have run out of excuses," said Oanda's Erlam.

To come on Wednesday is a eurozone inflation print at 1000 GMT. The euro traded at USD1.1319 into the release, slipping from USD1.1347 late Tuesday.

Against the yen, the dollar climbed to JPY114.85 versus JPY114.50.

The Nikkei 225 index in Tokyo ended down 0.4%. In China, the Shanghai Composite ended up 0.4%, while the Hang Seng index in Hong Kong ended down 0.3%. The S&P/ASX 200 in Sydney ended down 0.7%.

Gold was quoted at USD1,857.79 an ounce early Wednesday, soft on USD1,858.07 on Tuesday. Brent oil was trading at USD82.12 a barrel, firm on USD82.00 late Tuesday.

In London, SSE fell 6.7% after setting out plans to rebase its dividend to 60 pence per share in financial 2024 with an "attractive" yearly rise of at least 5% to March 2026. This compares to the 81p paid out for its last financial year.

The energy utility also confirmed a Bloomberg report that it plans to sell electricity network interests to fund investment in its renewables arm. Setting out its 'net zero acceleration programme' alongside its interim results, SSE said it plans an additional GBP1 billion per year in capital expenditure on renewables, fully funded from the sale of minority interests in its Transmission and Distribution arms.

Informa was down 4.6% despite retaining full-year revenue guidance of GBP1.8 billion and adjusted operating profit at GBP375 million.

Spirax-Sarco fell 4.5% after warning on global supply chain struggles. Order books across all three of its businesses expanded in the four months to the end of October, above its expectations.

However, the industrial engineering firm cautioned: "Although we have a diversified and resilient supply chain, we are not immune to current disruptions being experienced globally and across all sectors. While all three businesses were somewhat impacted by shipment delays, the effects have been greater within Watson-Marlow and Electric Thermal Solutions."

Rising material and freight costs are being broadly offset by "internal efficiencies and price management practices".

Spirax-Sarco added that it has seen foreign exchange headwinds, and if current exchange rates were to persist for the remainder of the year, it expects close to a 4% hit to full-year sales and profit compared with 2020.

Tyman was 2.4% lower in the FTSE 250 after also warning on supply chain strife. Tyman said that while positive trading momentum has continued into the second half, full-year profit is now expected below consensus due to supply-chain challenges for the supplier of door and window components.

Revenue was up 12% to GBP529 million in the ten months to October 31 on a reported annual basis and by 19% on a like-for-like one. Compared with 2019, like-for-like revenue was up 8%.

However, Tyman warned: "As indicated at the time of the interim results in July, strong market demand and market share gains have continued despite global supply chain challenges, notably material and labour availability, as well as global freight disruption. The group now expects that full year adjusted operating profit will be marginally below consensus."

Tyman placed consensus at GBP91.5 million.

Sage was the best performer in the FTSE 100 index, rising 1.6%, despite a slip in full-year profit as it forecast organic recurring sales growth to accelerate in the year ahead.

Full-year revenue fell 3% to GBP1.85 billion. However, organic recurring revenue grew 5% to GBP1.64 billion, which Sage said was underpinned by Sage Business Cloud growth of 19%.

Pretax profit for the financial year, which ended September 30, dipped to GBP347 million from GBP373 million.

Looking ahead, Sage expects organic recurring revenue growth to accelerate in its new financial year, seen in the region of 8% to 9%. Organic operating margin is "expected to trend upwards in FY22 and beyond", after dipping 2.7 percentage points to 19.3% in the recently ended financial year.

By Lucy Heming;Â lucyheming@alliancenews.com