(Alliance News) - London's FTSE 100 is called to open higher on Thursday, shaking off an "uncertain" US interest rate path, softer Chinese data and wild moves in the UK bond market.
The pound's slump continued, as hit its lowest level in more than a year.
"The 10-year gilt yield advanced to the highest level since 2008 yesterday (after the 30-year yield hit the highest since 1998 earlier this week) during an aggressive selloff and broke above the peak levels that were reached during Liz Truss' historic mini budget crisis and again during the summer/autumn period of 2023 on tighter Bank of England monetary policy and growing fiscal concerns," Swissquote analyst Ipek Ozkardeskaya commented.
"Today, the UK's demons are back, driven by heightened fiscal concerns – evoking memories of Liz Truss's chaotic 'mini-budget days.' Back then, markets lost confidence in the government's spending plans, triggering an aggressive selloff that forced the BoE to intervene. The fallout toppled Truss's government, setting the stage for Labour's strong electoral win. But now, the newly elected Labour government, which promised to rescue the country, improve finances, and boost growth, faces its own reckoning. To deliver on its ambitions, it needs market support – a resource proving elusive. Without it, borrowing costs will spiral higher, forcing tougher choices: more taxes, less spending, and weaker growth. And none of that bodes well for the pound."
Over in the US, minutes from the Federal Reserve's most recent meeting showed policymakers agreed that "upside risks to the inflation outlook had increased".
Federal Reserve officials said the path for interest rates was uncertain in the year ahead, reflecting concerns about inflation and changes to trade policy.
Numbers from China earlier on Thursday showed consumer price inflation there cooled, reigniting growth worries. Consumer prices rose 0.1% on-year last month, in line with consensus, but cooling from a 0.2% expansion in November.
In early UK corporate news, Christmas trading updates from high street names rolled in. Tesco maintained annual guidance, B&M narrowed its profit outlook and M&S reported decent growth in its Food arm. Greggs said annual sales grew, despite tepid UK high street footfall towards the end of last year.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called up 0.3% at 8,274.03
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Hang Seng: down marginally at 19,272.26
Nikkei 225: down 0.1% at 19,251.97
S&P/ASX 200: down 0.2% at 8,329.20
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DJIA: closed up 106.84 points, 0.3%, at 42,635.20
S&P 500: closed up 0.2% at 5,918.25
Nasdaq Composite: closed down 0.1% at 19,475.85
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EUR: lower at USD1.0297 (USD1.0303)
GBP: lower at USD1.2279 USD1.2351)
USD: lower at JPY158.08 (JPY158.37)
GOLD: lower at USD2,664.14 per ounce (USD2.665.55)
(Brent): lower at USD75.89 a barrel (USD76.25)
(changes since previous London equities close)
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ECONOMICS
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Thursday's key economic events still to come:
10:00 GMT eurozone retail sales
11:00 GMT Ireland industrial production
11:00 GMT Ireland retail sales
Financial markets in New York closed for day of mourning
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The UK chancellor could be forced into further tax hikes or cuts to spending plans to meet UK fiscal rules after a jump in government borrowing costs, economists have warned. State borrowing costs struck their highest level for almost 17 years on Wednesday amid a continued sell-off in the bond market and investor concerns over the threat of stagflation. The rise in the cost of servicing government debts could cut into Labour's expected financial headroom in a potentially worrying sign of how investors see fiscal sustainability in the UK. This also contributed to a slump in the value of the pound, which dropped to its lowest level since November 2023, falling as low as USD1.2276 on Thursday morning. The yield on the benchmark 10-year UK gilt, which reflects the cost of government borrowing, climbed by roughly 12 basis points to a peak of 4.81%. It was the highest reading since the 2008 financial crisis. Globally, there has been a wider sell-off in government bonds in recent months in the face of worries that US President-elect Donald Trump could introduce a tariff policy which would be inflationary for many international economies. US Treasury yields also moved firmly higher on Wednesday, with the 10-year yield rising to 4.69% – its highest since April last year.
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Large discounts and Black Friday sales accelerated price drops in December, but 2025 will likely see higher prices, warned the British Retail Consortium. The BRC-NielsenIQ shop price index, which covers December 1 to December 7, was down 1.0% from a year before, with price drops accelerating from November's 0.6% fall. December's figure compared to a three-month average decline of 0.8%. Non-food price deflation sped up to 2.4% in December from 1.8% in November. Non-food prices fell at the loftiest pace since April 2021. The three-month average non-food price fall was 2.1%. However, the BRC noted that Black Friday's later timing this year compared with 2023 meant that prices appear more deflationary than the underlying trend. Food inflation was steady in December at 1.8%, in line with November and the 3-month average, with the BRC noting it remained at its lowest rate since December 2021. Fresh food inflation was also unchanged for December at 1.2% and ambient food inflation picked up to 2.8% from 2.7% in November. NielsenIQ Head of Retailer & Business Insight Mike Watkins said: "Shoppers benefited from both lower inflation than last year and bigger discounts as both food and non-food retailers were keen to drive sales after a slow start to the quarter".
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Optimism among financial services firms has declined at the sharpest pace in more than two years, amid concerns that UK budget tax measures could weigh on investment plans, according to a survey.
Banks and building societies were nevertheless buoyed by stronger business activity in recent months, according to research by the Confederation of British Industry. Levels of optimism across the financial services sector fell in December at the fastest pace since September 2022, the survey found. This was despite firms reporting that growth in the volume of business – which can refer to the number of transactions – picked up over the past three months compared with the previous quarter. This was primarily driven by banks and building societies who enjoyed a sharp uptick in business volumes in the final months of 2024. The CBI surveyed 154 financial services companies, including banks, insurers investment and private equity firms, as part of its quarterly survey. About two-thirds said there were factors likely to limit their investment over the next year. Respondents highlighted concerns about the potential impact of measures in the autumn budget driving up costs
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The end of 2024 saw the fastest decline in candidates being placed into permanent jobs in more than a year, new research in the UK suggests. Recruiters reported growing cost consciousness by firms in the wake of the rise in employee national insurance contributions. There was also a decline in temporary jobs last month, according to a survey of 400 agencies by the Recruitment & Employment Confederation. Chief Executive Neil Carberry said: "This report emphasises a weak mood in some businesses as they built their budgets for this year, and made changes designed to save on costs after a tough budget. "December is always a hiring low point, and a new year brings new hope – with inflation under control, low unemployment, and economic growth expected, the fundamentals are better than many appreciate. It is what happens now, as firms return to the market in January, that will decide the path ahead." The end of 2024 saw the fastest decline in permanent placements since August 2023, said the report.
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The EU needs to be "firm" with the US, Irish deputy premier Micheal Martin has said. It comes after US President-elect Donald Trump suggested the US could annex the Panama Canal and Greenland, which he claimed were at risk from the influence of Russia and China. The comments have been met with widespread condemnation, including France's foreign minister who suggested Trump was attempting to interference with the sovereignty of an EU member state, Denmark, of which Greenland is an autonomous territory. Trump's election victory has brought heightened concern around what his proposals for corporation tax and tariffs could mean for Ireland. Asked if he was concerned about the rhetoric from the incoming Trump administration, Martin said he was more focused on seeing the substance of policy initiatives and any "departures" in the US approach. The tanaiste said: "We've been here before, in some respects. Not just in terms of President Trump, previous American presidents have had protectionist approaches – even President Biden." He added: "Europe had to navigate that and Ireland as a member of the EU will navigate these new challenges with the EU. "We have to be skilful, we have to hold our nerve, and we have to be firm but clear in terms of the new challenges that will undoubtedly arise." Martin said Ireland would use "all international fora to promote common sense and realism" in the progression of policies. However, he struck a tone of caution over commenting on matters without concrete proposals being put forward: "There's a lot being said at the moment, my own view is we have to wait and see."
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BROKER RATING CHANGES
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UBS raises SSE to 'buy' (neutral) - price target 1,970 (1,935) pence
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HSBC raises Dunelm Group to 'buy' (hold) - price target 1,275 pence
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HSBC cuts Wise to 'hold' (buy) - price target 1,150 (1,000) pence
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COMPANIES - FTSE 100
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Tesco hailed its "biggest ever Christmas" and the grocer maintained its yearly guidance. In the six weeks to January 4, which included the key festive period, it achieved retail like-for-like sales growth of 3.8% on-year. Sales growth picked up from the 2.8% achieved in the 13 weeks to November 22, the supermarket chain's third-quarter. For the combined 19 week period, like-for-like sales rose 3.1%. Total sales amounted to GBP23.94 billion over the 19 weeks, a rise of 3.3% on-year at actual rates, or 4.0% at constant currency. "We invested to bring the best value, quality and service to everyone, no matter how or where they shopped with us. As a result, we delivered our biggest ever Christmas, with continued market share growth and switching gains," Chief Executive Ken Murphy said. Tesco expects retail adjusted operating profit for the financial year of GBP2.9 billion, its guidance affirmed. It would represent a rise from GBP2.76 billion in financial 2024.
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Marks & Spencer hailed "another good Christmas", as the retailer's Food arm led the way. M&S said total sales in the 13 weeks to December 28 rose 5.6% on-year to GBP4.06 billion. The loftiest growth came in its Food unit, where sales rose 8.7% to GBP2.58 billion. Clothing, Home & Beauty sales were up 1.0% to GBP1.31 billion. "This was another good Christmas for M&S, building on a strong performance in the prior year. We sustained trading momentum with like-for-like sales up 8.9% for Food and 1.9% for Clothing, Home & Beauty. Sales records were broken across the business, with Food recording its biggest day and Clothing, Home & Beauty online its biggest week, but we're not complacent - as a growth business it's our job to break records," CEO Stuart Machin said. "In Food, our focus on quality, innovation and trusted value translated into strong sales and market share growth, with M&S the top performing store-based grocery retailer over the period. 500 new lines were launched, and sales of new Christmas products grew 14%. Core category sales grew strongly as more customers ticked off their whole shopping list at M&S. There were a few growing pains as we delivered our biggest ever volumes, particularly in smaller stores, reaffirming the opportunity to accelerate transformation of the Food supply chain and go even faster on store renewal and rotation." International sales during the period fell 2.8%, "largely driven by continued challenging market conditions in India", M&S said. The firm added: "As we enter the new year, the outlook for economic growth, inflation and interest rates is uncertain and the business faces higher costs from well-documented increases in taxation. However there remain substantial opportunities and we are focused on what is within our control, as we reshape M&S for growth. Therefore, as indicated at the half year results in November, we are confident of making further progress in the remainder of the year."
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COMPANIES - FTSE 250
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B&M European Value Retail reported third-quarter growth, hailing "disciplined operational execution" during the key Christmas period. The retailer declared a special dividend, and narrowed profit guidance. Revenue in the third-quarter to December 28 rose 2.6% on-year, or 2.8% at constant currency. "Our performance across the Golden Quarter reflects disciplined operational execution across our businesses, driving volume and in turn profit growth. The business remains undistracted by the current economic headlines. Our operating model is well set up to give customers exceptional value when they need it most. Pricing, availability, store standards and a disciplined opening programme will underpin positive volume growth across our ranges. Our DC logistics network capacity upgrades are on-track in both the UK and France to support long-term growth," CEO Alex Russo said. Looking ahead, the firm now expects annual adjusted earnings before interest, tax, depreciation and amortisation in the range of GBP620 million and GBP650 million, the top end of its outlook trimmed from GBP660 million. B&M declared a special dividend of 15.0 pence per share, equivalent to GBP151 million in total. In addition, it added: "Our work to relocate the parent company's domicile continues, with two possible destinations under review: Jersey and Ireland. We are commencing enquiries with regulators and relevant authorities to progress our consideration of location and timing. The company intends to retain its London listing in the event that any change is ultimately implemented."
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Baker Greggs said it achieved double-digit annual sales growth, shaking off "subdued high street footfall" in the final stretch of the year. For the 52 weeks to December 28, total sales rose 11% to GBP2.01 billion, from GBP1.81 billion a year prior. Like-for-like sales in company-managed shops rose 5.5%. In the fourth-quarter alone, sales rose 7.7% on-year but like-for-like growth in company-managed shops was at a softer 2.5%, "reflecting the more subdued high street footfall". CEO Roisin Currie said: "2024 was another year of good progress by Greggs, with a record number of new shops opened and the GBP2 billion sales milestone surpassed. We enter 2025 with a strong pipeline of new shop opportunities, and we continue to broaden our menu and enhance our digital capabilities, whilst also developing our supply chain capacity to deliver our growth strategy. Whilst lower consumer confidence continues to impact High Street footfall and expenditure, our value-for-money offer and the quality of our freshly-prepared food and drink position us well to meet the headwinds we expect to see in the year ahead, and we remain confident in the significant long-term opportunity for growth." Looking to 2025, it expects "further cost inflation" from rising employment expenses but wage hikes "should provide support to consumers". "Greggs has demonstrated its ability to mitigate cost inflation in recent years whilst retaining its value leadership, and we are confident we can continue to do so," the firm added.
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OTHER COMPANIES
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Building products company SIG expects profit in line with market expectations, but reported weaker sales amid a "challenging" backdrop. Like-for-like sales in 2024 fell 4%, but it noted the pace of decline eased to 2% in the second half, from 6% in the first. "The group continued to perform well relative to its markets during the second half of 2024, as well as delivering further significant benefits from its cost reduction and efficiency programmes. Whilst these initiatives are helping support near-term performance, they are also strengthening the group's commercial and operational capability, which will help drive higher profitability as markets recover," SIG said. It expects to report reevnue of GBP2.61 billion for 2024, down around 5.5% from GBP2.76 billion in 2023. Underlying operating profit of GBP25 million is expected, in line with market expectations, but down more than half from GBP53.1 million in 2023.
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Avon Technologies said it has signed a "multi-million-pound" UK contract renewal with aerospace and defence firm Thales. The pact is for the "support of a critical UK defence programme". "Avon has supplied this capability to Thales for over 10 years. Under this new multi-year contract renewal valued at up to GBP10 million Avon Protection will continue to supply vital capability for the defence of the UK over the next 6 years," Avon Technologies said.
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By Eric Cunha, Alliance News news editor
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