The FTSE 100 on Wednesday posted marginal gains thanks to a weaker pound and the index’s heavyweight mining contingent following a faster-than-forecast uptick in UK consumer prices.
Meanwhile, stocks in New York were called for a higher start as big-hitting financials kicked off earnings season.
BlackRock’s assets under management rose 6.2% year-on-year, standing at $9.570 trillion at March 31 against $9.007 trillion the same time the previous year. However, this marked a dip from the $10.010 trillion registered at the end of 2021.
Meanwhile, JPMorgan’s first quarter diluted earnings per share fell to $2.63 from $4.50 year-on-year. The bank blamed the sharp drop in profit on a net credit reserve build of $902 million in the quarter compared to a net credit reserve release of $5.2 billion in the prior year. Chief Executive Jamie Dimon noted the $902 million was set aside ‘largely due to higher probabilities of downside risks.’
‘We remain optimistic on the economy, at least for the short term - consumer and business balance sheets as well as consumer spending remain at healthy levels - but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine,’ Dimon added.
The FTSE 100 index was up just 6.11 points, or 0.1%, at 7,582.77 midday Wednesday. The mid-cap FTSE 250 index was down 126.61 points, or 0.6%, at 20,883.00, while the AIM All-Share index was down 2.80 points, or 0.3%, at 1,052.86.
The Cboe UK 100 index was flat at 755.13. The Cboe 250 was down 0.7% at 18,356.90, and the Cboe Small Companies down 0.1% at 15,396.27.
The UK consumer prices index rose by 7.0% in the 12 months to March 2022, advancing from February’s 6.2% rise, data from the Office for National Statistics showed.
Wednesday’s print is the highest 12-month inflation rate in the National Statistics series, which began in January 1997. It is also the highest rate in the historic modelled series since March 1992.
The UK inflation data followed two equally hot figures in Germany and the US on Tuesday.
US consumer prices were 8.5% higher in March on an annual basis, stepping up from the 7.9% increase seen in February. In Germany, inflation raced to 7.3% in March, ahead of the 5.1% figure seen in February.
The pound was quoted at $1.3004 midday Wednesday, down from $1.3037 at the London equities close on Tuesday - but has rebounded from trading around $1.2974 just after the inflation print.
‘The latest UK inflation figure makes for ugly reading, but it shouldn’t really be a shock to the markets. If anything, inflation could get even worse from here,’ said Danni Hewson, financial analyst at AJ Bell.
‘When investors see high inflation figures, they typically look to put money into companies that thrive in an inflationary environment. That includes miners, which might explain why the likes of Antofagasta, Glencore and Anglo American were among the top risers on the FTSE 100.’
Both Glencore and Anto were up 1.3%, while Anglo was up 0.9%.
Miners were enjoying a green session despite disappointing data out of China. Imports shrank annually in March for the first time in nearly two years, official data showed Wednesday, hit by coronavirus lockdowns and weakening consumer demand.
The world’s second-largest economy has stuck to a strict zero-Covid strategy as it tries to contain outbreaks fuelled by the Omicron variant in recent months.
Imports dropped 0.1% from a year ago, according to data from China’s Customs Administration - the first such decline since August 2020, in the early phase of the pandemic. The figure was much lower than the forecast from a Bloomberg poll of economists, and a far cry from the 15.5% growth for the first two months this year.
Capital Economics said: ‘The latest trade data out of China suggest that recent restrictions imposed to contain the surge in new cases of Covid-19 are hitting commodity demand hard. And we think it will remain weak in the months ahead as activity in the commodity-intensive construction sector softens further.’
China’s export growth slowed as well in March to 14.7%, down from 16.3% in the first two months.
But positively, some residents of Shanghai were allowed out of their homes as the city of 25 million eased a two-week-old shutdown after a video posted online showed what was said to be people who ran out of food breaking into a supermarket.
About 6.6 million people can go outdoors, but some must stay in their own neighbourhoods, the online news outlet The Paper reported, citing city officials.
AJ Bell’s Hewson added: ‘Equally, investors also look to avoid companies that could lose out from high inflation which includes consumer-facing businesses. Tesco’s warning that profits could dip cast a chill across the supermarket sector. JD Sports and Next also saw their shares fall no doubt as investors speculated their sales could be weaker near-term if people have a lot less money to buy new trainers and clothes once they’ve paid their ever-increasing bills.’
JD Sports was down 2.8%, while Next was 2.2% lower.
Tesco gave back 4.1%.
Shore Capital has cut its Tesco recommendation to ‘hold’ from ‘buy’, after the blue chip grocer guided for slowing growth in financial 2023.
Tesco warned of a hit to profit in the year ahead amid inflationary pressures and normalising consumer behaviour post-pandemic.
‘Clearly, the external environment has become more challenging in recent months. Against a tough backdrop for our customers and with household budgets under pressure, we are laser-focused on keeping the cost of the weekly shop in check - working in close partnership with our suppliers, as well as doing everything we can to reduce our own costs,’ said Chief Executive Ken Murphy.
For financial 2023, Tesco is guiding for retail adjusted operating profit between £2.4 billion and £2.6 billion - which would be below the £2.65 billion registered in financial 2022. It gave the guidance ‘in the form of a wider than usual range’ to reflect the uncertainties facing the business, such as inflation and normalising customer behaviour.
Tesco said it saw annual profit rise following a ‘strong performance’ during the year to February 26, leading to the launch of a new £750 million share buyback.
Pretax profit ballooned to £2.03 billion from £636 million the year prior. Revenue rose 6% to £61.34 billion from £57.89 billion, as group sales increased 2.5% to £54.77 billion from £53.45 billion.
Peer Sainsbury was down 3.4% in a negative read-across.
Housebuilders in London were also struggling on Wednesday, grappling with cost-of-living concerns amid sky-high inflation as well as a UK government warning over housebuilders yet to sign a voluntary pledge to help fix unsafe cladding.
‘The government is introducing new powers that allow enforcement on any remaining companies who fail to sign up, as well as those that breach the agreement they have signed up to. These new powers would allow the Secretary of State to block those who refuse to make and deliver on their commitments from building and selling new homes,’ the Department for Levelling Up, Housing and Communities said.
Taylor Wimpey gave back 2.5%, Barratt 2.4%, Persimmon 2.1% and Berkeley 1.5%.
Brent oil was quoted at $106.47 a barrel on Wednesday morning, up against $104.70 at the time of the equity market close in London on Tuesday.
London’s oil majors followed the price of oil higher, with Shell up 1.5% and BP up 0.9%.
GlaxoSmithKline advanced 1.0% after it reached an agreement to acquire late-stage biopharmaceutical company Sierra Oncology Inc for $1.9 billion.
California-based Sierra focuses on targeted therapies for the treatment of rare forms of cancer. GlaxoSmithKline said that the acquisition will complement its commercial and medical expertise in haematology - diseases related to blood. Further, it will support the development of its portfolio of new speciality medicines and vaccines.
GSK expects the deal to be accretive to adjusted earnings per share in 2024.
Stocks in New York were pointed to a positive open on Wednesday. The Dow Jones Industrial Average and S&P 500 were both called up 0.3%, and the Nasdaq Composite was seen opening 0.4% higher.
In mainland Europe, the CAC 40 in Paris was down 0.5%, while the DAX 40 in Frankfurt was down 0.9%.
The euro was priced at $1.0825, down from $1.0863.
Against the yen, the dollar was trading at JP¥126.05 midday Wednesday, up from JP¥125.14 on Tuesday. The Japanese yen was trading around a two-decade low, the currency in recent weeks hit by a perfect storm of US Federal Reserve tightening, a dovish Bank of Japan, and the Ukraine war’s impact on oil prices.
Gold stood at $1,979.30 an ounce, up against $1,973.44 late Tuesday.
Still to come in Wednesday’s economic calendar are US producer price figures at 1330 BST.
Copyright 2022 Alliance News Limited. All Rights Reserved.
