(Alliance News) - Stocks were called to open higher in London on Friday morning, although UK consumer confidence has reportedly suffered a steep fall in recent weeks.
Meanwhile in Asia, the Bank of Japan has hiked interest rates by 25 basis points, "marking its first rate hike in six months and the largest increase since February 2007, in line with market expectations," as Pepperstone's Dilin Wu commented.
Wu noted that "Japan's core CPI rose 3% year-on-year in December, the first time in 16 months, signalling persistent inflationary pressures. Additionally, factors such as labor shortages, restrictive immigration policies, and market expectations of a 5% wage increase in 2025 further paved the way for the rate hike...The BoJ has raised its median forecast for core CPI in the current fiscal year and the next two years, indicating a stronger conviction in the persistence of inflation than previously anticipated.
"The overall tone of the meeting was hawkish, with the central bank noting that real interest rates remain negative and signalling that further rate hikes may be necessary."
In corporate news, Rolls-Royce struck its largest UK Ministry of Defence contract in its history worth around GBP9 billion, while Burberry reported decreased retail sales but maintained confidence in its ongoing strategic plan.
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 7.2 points, 0.1%, at 8,572.40
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Hang Seng: up 1.7% at 20,096.05
Nikkei 225: down 0.1% at 39,980.18
S&P/ASX 200: up 0.4% at 8,408.90
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DJIA: closed up 408.34 points, 0.9%, at 44,565.07
S&P 500: closed up 0.5% at 6,118.71
Nasdaq Composite: closed up 0.2% at 20,053.68
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EUR: higher at USD1.0454 (USD1.0409)
GBP: higher at USD1.2386(USD1.2343)
USD: lower at JPY155.38 (JPY156.02)
GOLD: higher at USD2,772.70 per ounce (USD2,756.70)
OIL (Brent): lower at USD77.53 a barrel (USD78.14)
(changes since previous London equities close)
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ECONOMICS
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Friday's key economic events still to come:
08:30 EST Canada manufacturer sales
10:00 CET eurozone flash composite PMI
09:15 CET France flash composite PMI
09:30 CET Germany flash composite PMI
09:00 CET Spain PPI
09:30 GMT UK flash composite PMI
09:45 EST US flash composite PMI
10:00 EST US existing home sales
10:00 EST US Michigan consumer sentiment index
11:00 EST US Kansas City Fed manufacturing activity
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US President Donald Trump used an address on Thursday to the World Economic Forum to promise global elites lower taxes if they bring manufacturing to the US and threatened to impose tariffs if they do not. Speaking by video from the White House to the annual summit in Davos, Switzerland, on his third full day in office, Trump ran through his flurry of executive actions since his swearing-in and claimed that he had a "massive mandate" from the American people to bring change. He laid out a carrot-and-stick approach for private investment in the US. "Come make your product in America and we will give you among the lowest taxes as any nation on earth," Trump said. "But if you don't make your product in America, which is your prerogative, then very simply, you will have to pay a tariff — differing amounts — but a tariff, which will direct hundreds of billions of dollars and even trillions of dollars into our treasury to strengthen our economy and pay down debt under the Trump administration." Trump, who spoke on Wednesday to Saudi Arabia's crown prince, also said Thursday that the kingdom wants to invest USD600 billion in the US but that he would ask Crown Prince Mohammed bin Salman to increase it to USD1 trillion. The remark drew some laughter from the crowd in the hall in Davos.
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Consumer confidence in the UK has suffered a steep drop amid signs that households see "dark days ahead" for the economy, according to a long-running survey. GfK's Consumer Confidence Index fell by five points to minus 22 in January, with all measures that make up the overall score down on last month. The index shows particularly steep falls in consumer views on the wider UK economy, both looking back a year – down seven points to minus 46, and five points lower than last January – and for what is in store for the next 12 months – dropping eight points to minus 34 and 13 points down on a year ago. The forecast for personal finances over the next 12 months fell three points to minus two – two points lower than this time last year. The major purchase index – a measure of confidence in buying big-ticket items – was down four points to minus 20. The savings index leapt nine points in January to positive 30 in a sign that increasing numbers of people were considering putting money aside for "safety", GfK said. The data came a day after BRC-Opinium data showed that consumer expectations in the UK over the next three months of their personal financial situation dropped to minus 4 in January, down from minus 3 in December.
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The UK business secretary has left the door open to joining a tariff-free trading scheme with Europe following a meeting with the EU trade commissioner in Davos. Jonathan Reynolds's meeting with Maros Sefcovic on Thursday came after the trade commissioner suggested Britain could join the Pan-Euro-Mediterranean Convention, PEM, which allows for tariff-free trade of goods across Europe, as well as some North African and Levantine nations. Speaking to the BBC, Reynolds described Sefcovic's comments as "incredibly positive" and "helpful", and suggested joining the PEM could be acceptable as it "is not a customs union". He added: "We can improve the terms of trade with the EU in a way which doesn't revisit customs unions or single markets or the arguments of Brexit, and we can do that whilst pursuing closer trade links around the world." Reynolds also declined to rule out a deal on food and farm products that would involve mirroring EU rules, known as "dynamic alignment", saying it too did not cross any of the government's "red lines" on rejoining the customs union or single market. Labour's 2024 manifesto committed it to seeking a deal on such products with the EU, while some business groups have backed joining the PEM as it would help maintain complex supply chains.
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The Bank of Japan hiked interest rates on Friday to their highest level in 17 years despite fears of economic turmoil under US President Donald Trump. The BoJ said it was increasing its benchmark borrowing rate by 25 points to 0.5%, its highest level since 2008 in the global financial crisis. The move followed data showing that core inflation in the world's fourth-biggest economy accelerated to three percent in December, supporting the case to further tighten monetary policy. "Japan's economic activity and prices have been developing generally in line with the bank's outlook, and the likelihood of realising the outlook has been rising," the bank said in a statement. Even as other central banks have raised borrowing costs in recent years, the BoJ has remained an outlier, maintaining an ultra-loose stance in an attempt to spark growth and inflation. But it concluded last March that Japan's "lost decades" of economic stagnation and static or falling prices were over, finally lifting rates above zero.
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Japan's annual rate of consumer price inflation accelerated to 3.0% in December from 2.7% the month before, government data showed. The core consumer price index, which excludes fresh food prices, met market expectations. The reading remained above the Bank of Japan's 2% inflation target, set more than a decade ago as part of efforts to boost the stagnant economy. The 2% target has been surpassed every month since April 2022, although central bank policymakers have sometimes questioned the role of temporary factors such as the war in Ukraine.
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Japan's manufacturing sector has weakened in contrast to the service sector, purchasing managers' index flash estimates showed. The au Jibun Bank flash composite PMI edged up to 51.1 in January from 50.5 in December. "Japan's private sector expansion continued into a third consecutive month at the start of 2025, with the rate of growth strengthening slightly on the month. That said...the expansion in private sector business activity remained service-led, where the rate of increase strengthened to a four-month high. At the same time, manufacturing output fell at the strongest rate since last April," explained Usamah Bhatti, economist at S&P Global Market Intelligence. The flash manufacturing PMI fell to 48.0 in January from 49.4 the previous month. The flash services PMI increased to 52.7 from 50.9.
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The UK government has approached consultancies about taking the role of special administrator in a sign that ministers are bracing themselves for the imminent renationalisation of Thames Water, the Financial Times reported. Consultancies including Teneo, Interpath and EY are among the potential candidates to run a so-called special administration regime, according to FT sources. A SAR is a temporary measure designed to keep services running, and suppliers and staff paid, in the event of a corporate collapse. "We are ready now, we could do one [SAR] today, if we had to," said one official. "Incidentally, being ready for a SAR is also the strongest lever that we as government can have to make sure that another market-led, private-led solution is found." Thames Water is struggling under its GBP19 billion debt pile, the FT noted, and has warned that it will run out of cash in March unless the High Court signs off a GBP3 billion loan at a hearing in early February.
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BROKER RATING CHANGES
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Barclays raises Intertek to 'overweight' (underweight) - price target 5,740 (4,750) pence
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HSBC raises Greggs to 'buy' - price target 2,500 pence
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Barclays reinitiates THG with 'equal weight' - price target 74 pence
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COMPANIES - FTSE 100
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A deal worth around GBP9 billion has been struck with Rolls-Royce by the UK government to help power Britain's nuclear submarines. The eight-year contract, dubbed Unity, is aimed at safeguarding 4,000 jobs and creating more than 1,000 others, as well as bolstering national security and the UK economy. Defence Secretary John Healey said the agreement showed that defence can be used as "an engine for growth" and a commitment to Britain's nuclear deterrent as "our ultimate insurance policy in a more dangerous world". The Ministry of Defence said the contract would deliver design, manufacture and support services to nuclear reactors to power the UK's submarines. The ministry estimates it will save more than GBP400 million over the full eight-year period by making delivery more efficient and offering incentives to produce more for no increase in cost, including on work such as the building of powerful Dreadnought Class vessels.
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Severn Trent, in its trading update for the period ended Thursday, said its financial performance for the year remains on track and that it expects to perform in line with guidance. This includes delivering a net outcome delivery incentives reward worth over GBP100 million pre-customer-sharing in FY17/18 prices. This would bring the company's total net ODI reward in 'AMP7' (AMP stands for asset management plan) to around GBP420 million in nominal prices, "reflecting consistent sector-leading performance". Severn Trent also said its "totex allowance" of GBP14.9 billion would generate 45% regulatory capital value growth, and that it will "deliver this step change in investment while maintaining the second lowest bill in England and supporting around 1 in 6 customers with their bills through a GBP575 million affordability package". Finally, the company expects to pay a dividend of 126.02p for financial 2026, up from the previous year's final dividend of 121.71p.
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AstraZeneca announced a USD570 million investment in Canada, creating more than 700 jobs, across all areas of the business. The Cambridge-based pharmaceuticals company said the investment will contribute to its global ambition to achieve USD80 billion in total revenue and to bring 20 new medicines to patients around the world by 2030 of which eight new medicines have been delivered to date. The company also expects seven first Phase III clinical trial data readouts in 2025. Chief Executive Pascal Soriot said: "This investment is a reflection of our growing clinical pipeline, our strong belief in Canada's potential as a global hub for life sciences innovation, and the value of public-private collaboration with the Ontario government. We believe the diverse talent pool together with the network of world-class universities, hospitals, and research centres will help us bring new medicines to Canadians and patients worldwide."
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COMPANIES - FTSE 250
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Burberry reported a 7% reduction in retail revenue for the 13 weeks ended December 28, the third quarter of financial 2025, to GBP659 million from GBP706 million. Americas store sales grew 4% but those for Asia Pacific declined 9%. Sales of outerwear and scarves "continued to outperform globally". Looking ahead, Burberry believes it is "more likely our second-half results will broadly offset the first-half adjusted operating loss, notwithstanding the uncertain macroeconomic environment". "As previously communicated, we are acting with urgency to stabilise the business and position the brand for a return to sustainable, profitable growth, supported by strong cash generation and balance sheet strength," the retailer said. "We are confident that our strategic plan will improve our performance and drive long-term value creation." Burberry will release its results for the financial year ending March 29 on May 14.
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Paragon Banking said its trading performance for the first quarter ended December 31 was in line with the board's expectations. New lending across the business totalled GBP677.4 million compared to GBP610.7 million the year before. Buy-to-let lending increased to GBP423.2 million from GBP336.3 million. However Commercial Lending advances decreased to GBP254.2 million from GBP274.4 million, "primarily" due to "timing differences". At December 31, Paragon's buy-to-let pipeline totalled GBP691.9 million, up 24% from GBP559.6 million one year prior. The company's full-year outlook "for net interest margin, new business volumes, operating costs and RoTE" remains unchanged, but "margins are currently running ahead of expectations".
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OTHER COMPANIES
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TheWorks.co.uk reported a narrowed pretax loss of GBP6.9 million for its first half year, against GBP16.5 million the year before. Revenue has increased 1.3% to GBP124.2 million from GBP122.6 million. Sales declined 0.8% on a like for like basis, but TheWorks said this was in line with expectations and ahead of the wider non-food retail sector. As in the previous year, TheWorks has not proposed an interim dividend. Looking ahead, the retailer expects modest sales growth in its second half despite "fragile" consumer confidence, and said it is on track to deliver the market consensus estimate of GBP8.5 million in adjusted earnings before interest, tax, depreciation and amortisation for the full year. Also, it said current trading for the 11 weeks ended 19 January 2025 is in line with expectations, with the "strong end to Christmas trading [having] continued into January".
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By Emma Curzon, Alliance News reporter
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