FTSE 100 Live: Inflation at 9.4% adds to BoE pressure, Netflix upbeat

·9-min read
 (Evening Standard)
(Evening Standard)

Surging fuel and food prices drove the UK inflation rate to 9.4% in June, the highest level in more than 40 years.

The consumer price index reading was higher than the 9.3% forecast, adding to pressure on the Bank of England to hike interest rates by 0.5% at its next meeting in August.

The prices of materials and fuels used by manufacturers jumped by a record 24% in the year to June, pushing up the cost of goods leaving UK factories.

Read more on today’s UK inflation release

FTSE 100 Live Wednesday

  • Rates pressure grows after Inflation hits 9.4%

  • Royal Mail reports loss, ponders break up

  • Netflix shares rally after update

US stocks drop as corporate earnings fail to excite

14:53 , Simon Hunt

US stocks fell in the opening minutes of trading in New York as corporate earnings releases fail to spark investor optimism.

Tech firms made small gains after Netflix posted a drop in subscriber numbers that was lower than original forecasts suggested. The company said it expected to return to growth in the third quarter.

Shares in Meta rose 0.8%, while shares in Snap shot up 7% after the company launched a web version of its social media platfrom Snapchat.

The dollar fell 0.3% against the pound.

Morses Club shares plummet 40% after warning over future

13:02 , Simon Hunt

Shares in doorstep subprime lender Morses Club’s collapsed 40% in early trading this morning as it announced it could enter a scheme of arrangement to address customer compensation claims that “could jeopardise the group’s future”.

It said a key objective of the potential scheme identified by the Financial Conduct Authority (FCA) would be to treat all customers equitably and “settle eligible redress claims” arising from complaints.

It is understood that an additional £45 million is expected to be set aside in its accounts for the 2022 financial year as an exceptional item to address those potential claims.

The Nottingham-based AIM-listed company flagged an increase in customer complaints only last month that caused its shares to dip by 20%.

Insisting that it had “adequate liquidity for the immediate future” Morses Club and that it would offer “fair settlement” for eligible customers that had made legitimate complaints about the lender’s service.

The lender said it would explore alternative options to the scheme but that it was unlikely the alternative options would result in those with redress claims receiving considerably lower amounts than they would under the proposed scheme of arrangement.

Premier and Finsbury benefit from UK shoppers’ sweet tooth

12:18 , Simon Hunt

British shoppers’ love affair with cake shows no sign of waning with Premier Foods — the maker of Mr Kipling and Cadbury cakes — and baked goods giant Finsbury Foods both enjoying strong sales growth.

Finsbury’s sales were up by 13.9% to £356.8 million for the financial year to July, driven by a strong return in the company’s core divisions.

UK bakery products were up 12.1% while Finsbury’s overseas division grew 26.6%.

John Duffy, CEO of Finsbury Food Group, said: “ Our retail business performed well, we continued to see a bounce back in foodservice, and our overseas division continued to see strong growth.

Meanwhile Premier Foods saw sales increase 6% in the 13 weeks to July 2 2022 to top £141 million, with revenues from sweet treats up 5.1%, led by resilient sales of Mr Kipling cakes. Sales of non-branded goods grew more than four times as fast as branded products.

Finsbury Foods shares went up 4.5%.

Just Eat shares soar after company cuts 390 jobs in France

11:30 , Simon Hunt

Shares in food delivery service Just East Takeaway have surged 10% after the company announced it would be laying off as many as 390 staff in France due to “challenging market dynamics.”

A company spokesperson said in an emailed statement to Reuters: "The strategic restructuring will consist of redundancies of staff in the Paris office and changes in the operations of our delivery business."

Just Eat is the third largest food delivery operator in France, behind Uber Eats and Deliveroo.

Gas pipeline hopes lift markets, Haleon rebounds

10:24 , Graeme Evans

Speculation that Russia will resume gas exports to Europe helped calm the nerves of traders today as the FTSE 100 index extended its rally to a fourth straight session.

The Nord Stream 1 pipeline, which carries more than a third of Russia’s gas exports to the EU, has been closed for maintenance since 11 July. According to Reuters, operations are scheduled to resume on Thursday but at a reduced capacity.

This allayed initial fears that the pipeline would stay offline for longer in a potential major blow to Europe’s economy. However, UBS warned the headwinds are still considerable, particularly if a reduction of flows means Germany and other nations are unable to build up enough storage for the winter.

Other factors driving stock market momentum today included the softening of US interest rate rise expectations and a flurry of robust earnings on Wall Street.

This continued last night when streaming giant Netflix reported the loss of 970,000 subscribers in the second quarter, much better than the two million it had forecast when shares tumbled in April. The stock rallied 8% In extended trading last night.

The next big landmark in the US earnings season will be Tesla after tonight’s closing Wall Street bell, followed by Twitter on Friday.

The S&P 500 jumped more than 2.5% yesterday and set the tone for the FTSE 100 index to rise another 0.3% or 20.14 points to 7316.42.

A three-day rally for oil prices meant BP featured on the FTSE 100 risers board, while growth stocks were higher after the Netflix update. Risers included Ocado and Scottish Mortgage Investment Trust with gains of 5% and 2% respectively,

There was also a rebound for Haleon, which lifted 4% or 13.2p to 314.2p after a difficult first two sessions since the Panadol-to-Sensodyne firm’s demerger from GSK. Sentiment was boosted by Bank of America opting for a “buy” recommendation and 385p target price, with Goldman Sachs at 350p.

The FTSE 250 index was 68.52 points higher at 19,351.1, led by Aston Martin Lagonda after a gain of 6% or 31.2p to 550.4p.

Royal Mail ponders break up

10:06 , Simon English

ROYAL MAIL plunged to a dramatic loss and embarked on another corporate rebrand as it headed into a summer of strikes by unhappy workers.

It is threatening a break up of the business which can trace its history back to 1516.

Postal workers, among the feted heroes of the Covid crisis, voted yesterday for industrial action after refusing a 5.5% pay rise.

Today the business said it had lost £92 million in the quarter to June – about £1 million a day.

Booming demand for parcel deliveries and Covid testing kits during lockdown has faded and the letters business remains in something close to terminal decline.

Twenty years ago, in an attempt to modernise, Royal Mail embarked on an expensive rebrand under the name Consignia.

This was ditched after 18 months to some embarrassment amid general bafflement from customers.

Today it said the holding company would be renamed International Distributions Services to give “clearer financial separation” between Royal Mail and GLS, the more successful parcels business.

read more here

Inflation hits 9.4%, peak of 12% seen in October

08:58 , Graeme Evans

One of the biggest factors in today’s inflation print of 9.4% came from a larger than-expected rise in food price inflation, from 8.5% in May to a 13-year high of 9.8%.

Core inflation, which excludes food, energy, alcohol and tobacco, was softer than expected after dipping to 5.8% rather than hitting the 6% forecast.

Paul Dales, chief UK economist at Capital Economics, said: “There are some encouraging signs that the upward pressure on underlying inflation from global factors has started to ease.”

“But as it is being replaced by stronger upward pressure from domestic factors and as CPI inflation will probably still rise from 9.4% in June to 12% in October, we still think the Bank of England will raise interest rates from 1.25% to 3% even when the economy is in recession.”

FTSE 100 higher, Royal Mail down 5%

08:44 , Graeme Evans

The FTSE 100 index is 38.81 points higher at 7,335.09, reflecting speculation that Russia will resume gas exports to Europe via Nord Stream 1.

The pipeline, which carries more than a third of Russia’s gas exports to the EU, has been closed for maintenance since 11 July.

Operations are expected to resume on Thursday but at a reduced capacity, allaying initial fears that it would stay offline for longer in a major blow to Europe’s hopes of avoiding recession.

Big risers in the FTSE 100 included BP, which lifted 2% or 7.6p to 393.2p.

The FTSE 250 index rose 82.36 points to 19,364.95, although the pressure on Royal Mail increased after yesterday’s strike vote.

Shares fell 5% to 271.2p today after a first quarter trading update revealed an operating loss of £92 million for the UK-focused mail and parcels delivery business.

The company is planning to change the name of its holding company to International Distributions Services, reflecting the importance of international arm GLS to the group.

Wall Street rallies, Netflix upbeat

07:47 , Graeme Evans

Stronger-than-expected earnings and a weaker dollar lifted the mood on Wall Street yesterday as the Dow Jones Industrial Average rallied 2.5% and Nasdaq rose 3%.

Futures markets in New York are also pointing to a stronger start later after Netflix shares rose 8% in extended trading following its second quarter results last night.

The streaming service reported the loss of 970,000 subscribers in the quarter, but this was better than the two million it had forecast when shares tumbled in April.

Despite the improvement, Hargreaves Lansdown Sophie Lund-Yates said rising costs were a big concern after tech and development spending lifted by a third.

She added: “Netflix is still the biggest streaming platform, which is reflected in the subscriber beat and the fact subscriptions are expected to start growing again next quarter.

“Being big makes you stickier and harder to leave, the concern had been whether this giant was losing its edge, which means the benefits of scale start to slip away.”

The next big landmark in the US earnings season will be Tesla after tonight’s closing bell, followed by Twitter on Friday.

As well as encouragement from recent earnings, the performance on Wall Street reflects hopes that the Federal Reserve will hike its funds rate by 75 basis points rather than the one percentage point thought last week.

The dollar has fallen as a result, having recently hit a two-decade high against a basket of six major currencies.

Sterling held its position above $1.20 after last night’s Mansion House dinner, when Bank of England governor Andrew Bailey said a 0.5% rise in interest rates was one of the options for policymakers at their meeting next month.

CMC Markets expects the FTSE 100 index to open 34 points higher at 7330.