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Stocks climb, Wall Street expected to open higher

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June 12, 2023June 12, 2023
Stocks climb, Wall Street expected to open higher

1.02pm: US futures point to firm restart on Wall Street

The main US stock indexes are expected to start higher on Monday, extending last week’s gains as investors look ahead to the latest inflation data and the key Federal Reserve policy decision due this week.

In pre-market trading, Dow Jones Industrial Average (DJIA) futures were up 0.1%, while those for the S&P 500 added 0.3%, and contracts for the Nasdaq 100 futures rose 0.5%.

Investors are coming off a positive week for markets, with the S&P 500 posting its fourth straight week of gains, and brushing its highest point since August. On Friday, the broader market index added 0.1%, while the DJIA also rose 0.1%, and the Nasdaq Composite gained 0.2%.

With little on the corporate or economic agenda on Monday, investors will be eyeing Tuesday’s consumer price index (CPI) report for signs of easing inflation which could encourage the Fed to pause its recent string of interest rate hikes.

The latest two-day Federal Open Market Committee (FOMC) meeting will then conclude on Wednesday. According to the CME FedWatch Tool, the likelihood that the Fed will pause rate hikes at its June meeting currently stands at about 70%.

TickMill Group’s market analyst Patrick Munnelly commented: “Recent US data has presented a mixed picture, with monthly payroll data indicating a tight employment market, but other indicators suggesting a softening economy as previous interest rate hikes take effect.

As a result, it is anticipated that the Fed will likely take a pause and maintain rates at the range of 5.00-5.25%.”

12.34pm: Santander withdraws mortgage products

Santander has withdrawn nearly all of its mortgage deals as it reassesses the market ahead of more expected interest rate increases by the Bank of England.

The lender said it would remove all new business rates at 7.30pm tonight, with a new range launched on Wednesday.

A Santander spokesman said: “Due to current market conditions, we’re temporarily withdrawing all our new business residential and Buy to Let fixed and tracker rates at 7.30pm on Monday June 12.”

“Our product transfer range will still be available. We’re relaunching our full new business range on Wednesday June 14.

Late Thursday, HSBC made a similar move as high street lenders reappraise the market.

It comes as the Bank of England is forecast to raise interest rates to 5.5% by the end of the year, as policymakers battle to bring down stbborn inflation.

Bank of England official Jonathan Haskel, a member of the Monetary Policy Committee, said that further increases cannot be ruled out because prices are still rising faster than the BoE’s 2%.

“We are monitoring indicators of inflation momentum and persistence closely,” he wrote in the Scotsman newspaper.

“My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out.”

12.15pn: No UK rate cut this year, ING predicts

Back in the markets and the FTSE 100 has settled aound its opening levels, losing its early shine.

Investors are looking ahead to interest rate calls in the US, Europe and Japan this week with the Bank of England decision the week after.

ING thinks those hoping for a cut in the UK this year are likely to be disappointed.

“We’ve pencilled in the first cut for around this time next year, though eventually, we do expect a series of rate cuts that take Bank Rate down to the 3% area – some distance further than markets are currently pricing,” economists at ING said.

“We still think we’re closer to the peak in interest rates than markets are assuming.” ING added.

ING suggested a 25bp rate hike in June could easily be the last – if not, in August – and it will depend on how many more CPI surprises we get through the summer.

“Either way, a slow downtrend in wage growth would suggest that rate cuts are unlikely to be a story for this year and are likely to come some time after the Federal Reserve begins easing.”

11.49am: Nasdaq buys software firm for US$10.5bn

Across the pond now, and Nasdaq is to acquire financial software maker Adenza in a $10.5bn cash and stock deal, the biggest-ever transaction for the tech-focused company.

The deal would “significantly” enhance Nasdaq’s offerings in regulatory technology, compliance, and risk management, the companies said. Nasdaq will buy Adenza from investment company Thoma Bravo.

“This is an exceptional opportunity to acquire a leading software company that enhances Nasdaq’s position at the heart of the global financial system,” said Adena Friedman, Nasdaq’s chair and chief executive.

Adenza has expected revenues of US$590mln in 2023, with organic revenue growth of about 15%. Nasdaq expects US$80mln in cost savings from the deal.

Nasdaq said the deal was an excellent strategic fit and expects it to grow Nasdaq’s annual recurring revenue as a percentage of 2023 pro forma total revenue to 60% from 56%.

It expects to achieve US$80mln in run-rate net expense synergies by the end of year two through functional alignment, product rationalization, location optimization, and consolidation of vendors and real estate.

11.35am: Homeowners face “grim reality” of rising bills

London homeowners face soaring mortgage bills as they look to remortgage at a time of rising interest rates.

The Centre for Economics and Business Research (CEBR) estimates bills in the capital could climb by as much as £7,300, while 3.5mln borrowers across the UK are facing higher payments as the Bank of England continues to jack up interest rates to deal with stubborn inflation.

Nationally, homeowners will have to spend nearly an extra £9bn in interest over 2023 and 2024 as they are forced to refinance at rates that are double what they are used to, the CEBR said,

In total, 2.5mln homeowners will come to the end of fixed rate deals across 2023 and 2024 while a further 1mln are on variable rate deals.

The CEBR has forecast that mortgage rates, across all deposit sizes, will average 5.1% across 2023 and 4.6% in 2024.

According to Moneyfacts, a buyer taking out a two-year fix in June 2021 paid an average rate of 2.59%. This means the annual cost of taking out a typical £200,000 loan has jumped by more than £5,000.

Benjamin Trevis, of CEBR, warned that homeowners coming to the end of fixed rate deals face a “grim reality” as the cost of refinancing strains their incomes.

Trevis said: “While the Bank’s tightening cycle might be nearing its end, the impact on households is only just beginning.”

The average UK homeowner will have to pay £3,900 a year more in interest when they refinance this year compared to their previous deal. This means their monthly mortgage bills will jump by £325.

Homeowners in London, where house prices are the highest, will see the biggest increases. A London homeowner coming to the end of a fixed rate deal this year will have to pay an extra £608 per month when they remortgage.

Homeowners in the South East will have to pay an extra £450 per month when they remortgage in 2023.

Mortgage rates have followed interest rates higher as the Bank of England has tried to stem stubborn inflation. Interest rates are now expected to peak at 5.5%, compared to around 4.5%, a few months ago.

Bank of England official Jonathan Haskel, a member of the Monetary Policy Committee, said that further increases cannot be ruled out because prices are still rising faster than the BoE’s 2%.

“We are monitoring indicators of inflation momentum and persistence closely,” he wrote in the Scotsman newspaper.

“My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out.”

Elsewhere, HSBC’s UK boss today warned that mortgage costs have further to rise but it is “trying to limit the pain”.

Ian Stuart told Sky’s Ian King Live it had 300,000 customers coming off fixed rate deals this year and admitted they faced a shock in the current market.

“If you took a mortgage maybe two years ago or five years ago, myself included, you will come off a mortgage rate of around 1.5% and your new mortgage is going to cost something closer to 5%.”

10.58am: PM highlights benefits of AI, “moment of huge opportunity”

The Prime Minister Rishi Sunak claimed we are at a “moment of huge opportunity,” with the “technonic plates of technology” shifting.

Speaking at London Tech Week, Sunak said: “We must act, and act quickly, if we want not only to retain our position as one of the world’s tech capitals, but to go even further and make this the best place in the world to start, grow and invest in tech businesses.”

He suggested artificial intelligence could surpass the industrial revolution in the speed and breadth of the changes it will bring, as he pitched for the UK to become the home of AI regulation.

The PM said the technology will be useful across the economy, with “every job essentially having AI as the co-pilot”.

He added: “In health we are already seeing the promise of what AI can do, whether it’s new drug discovery, or helping doctors do surgery more accurately and faster, or indeed detect cancers and other things much earlier than they otherwise would.”

And he said its potential in education “is the thing that I’m most excited about.”

“The power of AI to reduce teachers’ workloads and burdens, lesson planning, marking, but also to provide personalised learning for each individual – which we know when it comes to tutoring is so powerful.”

“Technology holds out the promise of every pupil, every student, having a personalised tutor. I think that potentially is just extraordinary in terms of the good it can do.”

Sunak announced the launch of HSBC Innovation Banking, following the rescue of tech-focused lender Silicon Valley Bank earlier this year.

The new unit will focus on banking services to the startup, investor, and wider tech community.

10.17am: Frasers move for AO stake has “some logic”

Russ Mould at AJ Bell thinks while Frasers’ purchase of a 18.9% stake in AO initially seems an odd move “there is some logic to it.”

He pointed out it has traditionally focused on fashion-related investments as a way of expanding its empire of predominantly sports and athleisure brands.

But, “in recent years it has aspired to get more money from its customer base and a natural extension has been to focus on things that make people look and feel good beyond simply the clothes on their back.”

“That explains its push into beauty, handbags and sofas through such brands as Flannels, House of Fraser and Sofa(.com),” he noted.

“If it has dressed people and partially furnished their homes, it makes sense to think about other ways to get these customers to part with more cash,” he reckoned.

With a shift to having sports equipment at home, Mould felt there was merit in finding ways of getting these bulky items to the doorstep in a more efficient manner – “which is where AO’s expertise might come in handy.”

“Frasers is always one to spot a bargain and the big sell-off in AO’s share price – from above 400p in 2021 to sub-40p last summer – will not have gone unnoticed,” he pointed out.

Mould did find thing odd about the deal.

“Logistics services are a commodity – it doesn’t need to spend £75mln on buying nearly a fifth of a business when it could talk to any number of delivery companies for help.”

He noted talk that Tuffnells is about to go into administration “might even present an opportunity if it wanted to own a logistics firm.”

9.53am: Oil price falls despite denial of Iranian nuclear pact, Goldman cuts forecast

Oil prices slipped on reports from Iran that the country was open to reviving the 2015 nuclear deal and as Goldman Sachs (NYSE:GS) lowered its oil price forecasts.

Fiona Cincotta at City Index said: “Should a nuclear deal be agreed upon, sanctions on Iranian oil could be lifted, with oil flooding back into the market.”

However, the White House played down the rumours. “This report is false and misleading,” said a spokesperson for the White House National Security Council, referring to an article on the London-based Middle East Eye website. “Any reports of an interim deal are false.”

Iran’s mission to the United Nations also cast doubt on the report, saying: “Our comment is the same as the White House comment.”

Separately, Goldman Sachs (NYSE:GS) has slashed its oil price forecast by almost 10% on the back of whey they see as increasing supply and slower demand for crude.

According to a report, reported by CNBC, the US investment bank lowered its Brent outlook for December to US$86 a barrel, down from US$95 a barrel. In the same report, Goldman also revised down its WTI forecast for December from US$89 per barrel to US$81.

The revised projection marks Goldman’s third downward revision in six months, and comes in spite of last week’s announcement that Saudi Arabia is cutting production by another 1mln barrels per day, from July

“Significant supply beats from Iran and Russia have driven speculative positioning to near record-lows,” Goldman analysts led by the bank’s Global Head of Commodities Research Jeffrey Currie said in the research report.

Brent crude fell 2.6% to US$72.84 and WTI prices sank 2.5% to US$68.40.

Shares in oil majors BP PLC (LSE:BP.) and Shell PLC (LSE:SHEL, NYSE:SHEL) both eased 0.9% limiting the gains in the FTSE 100 which now stands 16 points higher at 7,578.

9.28am: UK to swerve recession but problems remain

The UK will escape a recession but economic problems will remain, according to two surveys today.

A new report by the accountancy firm KPMG has found that the economy has enjoyed a better start to the year than it had thought, and is now expected to grow by 0.3% this year, compared with its previous prediction of an uplift of just 0.1%.

“We’ve seen a slightly stronger momentum for the UK economy,” said Yael Selfin, chief economist at KPMG UK.

“The UK economy has so far avoided a technical recession. But risks are still elevated. A stickier inflation will see monetary policy tightening even further, increasing the risk of unwelcome side effects, among other potential headwinds.”

While numbers crunchers at the CBI reckon the economy will expand 0.4% this year and 1.8% next year, compared with its previous forecast for a 0.4% contraction followed by growth of 1.6% in 2024.

Falling energy prices, the reopening of China’s economy from COVID-19 restrictions and easing supply chain disruptions were the main reasons for the upgrade, the CBI said.

“While encouraging, there’s no getting away from the fact that this year will be another tough one for both businesses and households,” CBI lead economist Alpesh Paleja said, noting that the Bank of England looks likely to raise interest rates to a peak of 5% by August from 4.5% now.

“It’s also concerning that the UK is underperforming on many of the areas crucial to our long-term prosperity, such as business investment and trade intensity,” he said.

8.58am: FTSE 100 holds modest gains

The FTSE 100 remains in the green, although a touch below earlier highs, now up 18 points at 7.580.

Victoria Scholar interactive investor said: “Markets are in an upbeat mood in anticipation that the Federal Reserve will hold off from another hike this week.”

Croda PLC rallied 2% after falling sharply on Friday after a profits warning. Jefferies reiterated a buy rating but cut its price target to 7,000p.

The broker said management at the chemicals company said the new guidance represents a “floor.”

“While we would tend to agree we expect most will wait for further evidence at H1 results,” Jefferies said.

Shares in Darktrace PLC rose 1.9% after it launched new artificial intelligence risk and compliance models to address the threat of intellectual property loss and data leakage.

The Cambridge, England-based artificial intelligence cybersecurity developer said these models for Darktrace Detect and Respond will make it easier for its 8,400 customers to respond to activity and protect their IP.

Great Portland Estates (LSE:GPOR) fell 2.8% as Goldman Sachs (NYSE:GS) downgraded to sell from neutral with a reduced price target of 440p, down from 470p.

8.40am: Glencore makes move for Teck Resources’ coal business

Glencore PLC (LSE:GLEN) has made an alternative pitch to win over Teck Resources, offering to buy its steelmaking coal business.

The FTSE 100-listed miner, which has already expressed in buying the whole of Teck, said under the new plan  it would buy Teck’s steelmaking coal business and then demerge the business unit together with its own energy coal assets 1-2 years after the deal closed.

Glencore said it was committed that any deal would “benefit Canada.”

Glencore said that it remained “willing to pursue” its offer to buy the whole of Teck after first making an unsolicited US$23bn offer for the Canadian group in April.

Its attempts have been rebuffed so far. Teck instead has wanted to pursue its own separation plans, though last month it pulled a shareholder vote on them, after receiving investor feedback.

Glencore’s coal exposure has been seen as a problem for some Teck investors. In April, Glencore then added a cash portion to its takeover bid, in an effort to get a deal over the line while at the same time aiming to ease investor concerns about coal.

8.12am: FTSE 100 makes bright start

The FTSE 100 started the week on the front foot ahead of a busy week of central bank meetings as the battle to tame inflation continues.

At 8.15am, London’s lead index was up 24.98 points, or 0.3%, at 7,587.34 while the FTSE 250 advanced to 19,130.79, up 39.13 points, or 0.20%.

Susannah Streeter at Hargreaves Lansdown said: “’To pause or not to pause – is the big question investors are mulling about the intentions of Fed policymakers ahead of the crunch meeting this week.”

“They’ve taken up arms against a rising sea of inflation by hiking rates at the fastest pace in 40 years, but with signs that the economy is shuffling off into a potential recession, the expectation is that they are likely to keep rates on hold.”

The Federal Reserve, ECB and Bank of Japan meet this week with the Bank of England’s Monetary Policy Meeting gathering the week after.

A top Bank of England official thinks more rate rises will be needed in the UK to deal with stubborn inflation.

Jonathan Haskel, a member of the Monetary Policy Committee said: ““My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out.”

Shares in AO World PLC (LSE:AO.) rose 4.3% after Mike Ashley’s Frasers Group PLC (LSE:FRAS) took a 18.9% stake in the online retailer.

AO said the move came after two years of talks and forms part of a strategic partnership between the two firms.

Shares in Frasers climbed 1.5%.

Shore Capital analyst Clive Black said it marked “a solid vote of confidence in AO’s pivot to profitability story.”

7.54am: BoE’s Haskel warns of further rate rises

A rate setter at the Bank of England thinks further rate rises might be needed to tackle stubborn inflationary pressures.

Jonathan Haskel, a member of the Monetary Policy Committee, said that further increases cannot be ruled out because prices are still rising faster than the BoE’s 2% target.

“We are monitoring indicators of inflation momentum and persistence closely,” he wrote in the Scotsman newspaper.

“My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out.”

The remarks back up expectations that the Bank of England is likely to increase borrowing costs again this month and probably through the summer.

The MPC has hiked rates from near zero at the end of 2021 to 4.5%, and markets anticipate a peak around 5.5% later this year.

The US Federal Reserve is expected to pause its series of interest rate increases at its meeting this week while the ECB is likely to raises rates at its meeting on Thursday. The Bank of England will reveal its monetary policy call the following week.

7.42am: CVC pulls out of the running for Network International

The battle to buy Network International Holdings PLC (LSE:NETW) is down to one after CVC Advisers Limited pulled out of the running.

CVC and Francisco Partners Management made an initial 387p per share for Network International in April before being trumped by a higher bid from Canada’s Brookfield Asset Management (TSX:BAM.A).

Brookfield firmed up its proposal Friday last, making a 400p per share offer, which Network International has accepted.

Network said it considered the terms “fair and reasonable” and will recommend shareholders accept the offer, while Brookfield said it considers Network to be a strong strategic fit.

Brookfield is a leading global alternative asset manager with more than US$825bn of assets under management across real estate, infrastructure, renewable power, private equity and credit.

7.20am: Frasers swoops for 18.9% stake in AO World

Frasers Group PLC (LSE:FRAS) has taken a hefty stake in, and agreed a strategic partnership with, online electricals retailer, AO World PLC (LSE:AO.).

Frasers, owned by Mike Ashley and run by his son-in-law Michael Murray, paid £75mln for an 18.9% stake in AO which it said it had long admired.

AO said the “investment is the culmination of productive talks over the last two years about establishing a strategic partnership.”

Michael Murray CEO of Frasers Group said: “Frasers has long admired what John and the AO team have built, and we are delighted to have the opportunity to form a supportive, strategic partnership.”

“AO is a fantastic business with a clear strategy which is leading the market in online-only electricals.”

He said Frasers would benefit from AO’s valuable know-how in electricals and two-man delivery to help drive growth in its bulk equipment and homeware ranges.

John Roberts Founder and CEO of AO said: “This is great news for AO and a fantastic endorsement for our business.”

It is the latest expansion of Ashley’s empire, after investments in Asos and Hugo Boss.

7.00am: FTSE 100 set to start the week on the front foot

The FTSE 100 is expected to make a bright start to the week ahead of key US inflation figures and central bank announcements later in the week.

Spread betting companies are calling London’s lead index up by around 30 points.

“This week’s central bank decisions could go a long way in determining how much further central banks are prepared to go before they can offer any insight into when they expect to stop raising rates,” said Michael Hewson, chief market analyst at CMC Markets.

The Federal Reserve, ECB and Bank of Japan are al set to give their latest interest rate calls this week.

Markets expect the Fed to leave rates unchanged although a hot inflation reading on Tuesday could upset those predictions.

In Asia, markets were mixed. The Nikkei 225 index in Tokyo was up 0.5%. In China, the Shanghai Composite was down 0.1%, while the Hang Seng index in Hong Kong was down 0.2%.