FTSE 100 higher as focus turns to US inflation
A stronger session for US markets means the FTSE 100 index is forecast to resume its upward momentum after closing lower for the first time in 2023 yesterday.
The S&P 500 index added 0.7% and the Nasdaq Composite lifted 1% amid hopes that tomorrow’s US inflation print will fuel hopes that interest rate rises are nearly over.
The FTSE 100 index closed 0.4% lower yesterday but CMC Markets has forecast that London’s top flight will open 26 points higher at 7720.
Its chief market analyst Michael Hewson said: “The market fixation that the Federal Reserve might pivot is understandable in some respects when you consider the dire predictions of the IMF last week, and yesterday by the World Bank, which said the global economy was on a razor’s edge, and at risk of sliding into a prolonged recession.
“While these are valid concerns, they don’t form part of the Fed’s mandate, which is low unemployment and inflation.
“It is meeting one of those criteria and not the other, which means further rate hikes are inevitable given that core inflation is three times higher than the Fed’s 2% target.”
Barratt reveals big drop in order book
Barratt Developments, the UK’s largest housebuilder, today warned it has seen a “marked slowdown” in the market and its order book value has fallen, as the cost of living crisis and higher mortgage costs bite.
The firm’s total forward order book, which includes properties in its joint venture projects, dropped to 10,511 homes valued at £2.5 billion as at the end of December. A year earlier it was 14,818 homes at £3.8 billion.
The FTSE 100 company added that total home sales it completed on in the first half to December 31 was up, at 8626 from 8067, but weekly reservation levels had declined since Barratt’s last update to the City in October.
Chief executive David Thomas said there was a marked slowdown in the UK housing market in the group’s first half.
He added: “Political and economic uncertainty impacted the first quarter; this was then compounded by rapid and significant changes in mortgage rates which reduced affordability, homebuyer confidence and reservation activity through the second quarter.”
Direct Line axes dividend after surge in weather claims
Direct Line Insurance no longer expects to pay a dividend for 2022 as it counts the cost of a significant increase in claims due to severe cold weather in December.
The Churchill and Green Flag owner helped 3,000 customers deal with burst pipes, water tanks and other related damage, with an expected total bill of around £90 million.
This means Direct Line’s total weather claims for 2022 will be around £140 million, well above its original expectation of £73 million.
Chief executive Penny James added that further increases in motor inflation have had a significant impact on the insurer’s underwriting result, alongside reductions in the valuations of the commercial property holdings in its investment portfolio.
James said: “The board recognises the importance of the dividend to our shareholders, and continues to take actions to restore balance sheet resilience and dividend capacity as a priority, consistent with our track record of delivering returns for shareholders.”
Bumper Xmas for Sainsbury
J Sainsbury and sister company Argos had a strong Christmas it emerged today as customers made the best of the first festive season free of Covid restrictions for several years.
Sales of Champagne and prosecco hit record highs. Overall sales in the third quarter, the 16 weeks to Jan 7, rose 5.9%.
The grocer immediately said profits could now hit £690 million for the year, around £50 million ahead of City forecasts. The shares should get a lift this morning.
Sainsbury is first of the supermarkets to report Christmas trading. These figures bode well for the others.
CEO Simon Roberts said: “We delivered the best possible Christmas for customers as millions of households managed their budgets differently, hosting larger gatherings again and treating themselves at home. Customers shopped early, buying Christmas treats and fizz more than once and looked for deals, taking advantage of Black Friday and other seasonal offers. Argos offered great value and quality and, as train and postal strikes disrupted the country, customers appreciated its reliability and convenience.”
Argos sales rose 4.5%.
The company said it will have free retail cash flow of £600 million, £100 million better than previously indicated. That is likely to please the City.
Charlie Huggins, Head of Equities at Wealth Club, said:
“This is a solid performance from Sainsbury’s with the group raising its profits and cash guidance for the year, against an intensely competitive market backdrop. It seems that UK shoppers indulged in one final sales splurge in the run up to Christmas, benefitting Sainsbury’s and its peers. However, with the slowdown in consumer spending yet to really bite, it’s likely the environment will get tougher.”
Clive Black at Shore Capital called the update “very good and encouraging”
Darktrace cuts guidance amid slowdown in new customers
Darktrace warned its revenues were set to fall below expectations for its full financial year amid a slowdown in acquiring new customers.
The Camrbidge-based business cut its revenue outlook to 29.5%-31%, down from as much as 33% in an earlier estimate.
However, the firm was more upbeat about its earnings, predicting its adjusted EBITDA margin to be at the top end of expectations or higher.
Darktrace CFO Cathy Graham said: “The current macro-economic environment is creating challenges to winning new customers, with prospects more reluctant to run product trials and, in regions with historically higher conversion rates, those rates starting to decline.
“Despite expecting growth to remain slower for the rest of this financial year, it is a testament to our resilient business model that we can drive increases in our profitability forecasts over the same period.“