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FTSE 100 Live: Fed rates rise, Lloyds and GSK lift 2022 guidance

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

The US Federal Reserve has increased benchmark borrowing costs by 0.75% for the second time in a row, in the latest sign of the stronger measures being taken by central banks to try and tame runaway inflation.

Lloyds Banking Group and drugs giant GSK have raised their 2022 guidance after publishing robust half-year results today.

The UK’s biggest lender reported “continued business momentum” and said asset quality was strong despite the cost of living pressures. Profits were lower at £2.8 billion due to comparisons with last year’s release of pandemic impairment provisions.

GSK’s first set of results since the demerger of its consumer healthcare business revealed that it now expects sales growth of between 6% and 8%, compared with 5% and 7% previously.

FTSE 100 Live Wednesday

  • Lloyds Banking Group upgrades 2022 guidance

  • Fed raises interest rates 0.75%

  • Alphabet reassures on advertising revenues

US consumer stocks fight back after Fed's 0.75% rate rise stops talk of 1% hike

19:58 , Simon Hunt

Wall Street retail stocks were stronger after the Fed hike, with some relief that policymakers did not opt for an even larger increase.

Before the 0.75% rise, there had been talk of a 1% move. Consumer stocks including retailers made gains, recovering from a hit taken by the sector after a profit warning this week from Walmart, one of its biggest names, which warned of faltering spending power amid soaring inflation.

The S&P index tracking consumer discretionary stocks was up 2.8%, compared with a 1.5% gain for the broader S%P 500.

Marcus Brookes, chief investment officer at Quilter Investors, said: “We are seeing clear evidence of a consumer slowdown with Walmart yesterday warning on Q2 and full year earnings due to pressure on general merchandise sales as consumers adjust to the squeeze on disposable incomes. A large part of the US economy is consumption and there is still a feeling that the US may be raising into a slowdown.

“That said the US may end up as the ‘least dirty shirt’ compared to the rest of the global economy as the Fed has a reputation for reversing course quickly if needed.”

Federal Reserve ups US interest rates by 0.75% again as global central banks intensify inflation fight

19:03 , Michael Hunter

The US Federal Reserve has increased benchmark borrowing costs by 0.75% for the second time in a row, in the latest sign of the stronger measures being taken by central banks to try and tame runaway inflation.

The move takes the Fed funds benchmark rate to a range of 2.25% to 2.50%, in line with City and Wall Street forecasts. The Federal Open Markets Committee has been increasing rates since March. It voted for a 0.50% rise in May and the first 0.75% raise came last month, the first of its size since 1994. The FOMC voted unanimously for tonight’s move.

Tech stocks make gains as investors brace for interest rate rise

15:09 , Simon Hunt

Tech stocks led the gains in the opening minutes of trading in New York after upbeat results from Google owner Alphabet, Spotify and Microsoft which surpassed analyst expectations. The Nasdaq-100 technology sector index climbed 2.5%.

All eyes will now turn to the US Federal Reserve as it makes a decision on how high interest rates will rise to tackle soaring inflation. A 75 basis point rise forecast by analysts would represent the fastest two-month rate rise since the 1980s.

Investors will also be keeping an eye out for earnings from social media firm Meta to see if advertising revenue slows after lacklustre earnings from rivals Twitter and Snap last week.

Spotify shares jump on boost in subscriber numbers

14:34 , Simon Hunt

Spotify shares shot up 11.9% in opening trading in New York after the music streaming service reported a 14% jump in paying subscribers.

The company posted revenues of 2.98 billion euros, up 23% on the previous year and surpassing analyst expectations.

The strong results were damped by a second-quarter loss of 194 million euros.

The streaming service now has a total of 433 million monthly users, the majority of whom are not paying subscribers. Non-paying subscriber numbers grew faster than paid subscribers as consumers make tricky choices about which subscriptions to hold on to amid mounting cost of living pressures.

Unite Students eyes London expansion

13:55 , Simon Hunt

Student accommodation provider Unite is eyeing the London market as it ramps up expansion plans.

The business posted a more than doubling of pre-tax profits to £334 million after students returned to campuses following the lifting of coronavirus restrictions. The company announced a dividend of 11p per share.

Unite boss Richard Smith told the Standard: “London is a really important market for us – it’s probably the most under-supplied market in the UK.

“A large part of our development pipeline is for London.”

Smith said debt had been the biggest cost increase to the firm amid rising interest rates. 25% of the company’s debt is not set at fixed rates.

Unite’s shares fell 5.7% after market is opened this morning.

Reckitt records leap in revenues as brands thrive

13:49 , Simon Hunt

Reckitt Benckiser, the global consumer goods business that is home to brands such as Dettol, Cillit Bang and Durex, has posted a leap in first-half revenue as people shop to reflect that Covid has become part of everyday life.

The business said it had introduced cost-cutting measures of £370 million that had helped it become a “stronger, more resilient business” during the first half of the year and said that its brands that were “less sensitive to the impact” of the coronavirus pandemic had also delivered double-digit growth in “extremely challenging circumstances”.

Reckitt said it had driven revenue growth and market share momentum across its product range in extraordinary conditions including inflationary pressures and supply chain failures.

“We have built a stronger, more resilient business around our portfolio of trusted brands in growth categories. Despite challenging conditions, we are confident about the rest of the year, we are already delivering sustainable mid-single digit net revenue growth,” said Reckitt. boss Laxman Narasimhan.

It made a profit of £1.7 billion compared with a £1.9 billion loss a year ago. The divi is held at 73p. Revenue was up 8.6%

Reckitt shares climbed 3% this morning to 6,570p.

Vimto maker counts on summer thirst

13:21 , Simon Hunt

A sunny outlook for summer sales at UK theme parks and holiday resorts means the maker of Vimto is optimistic that it can build on improved sales, which were lifted by return of thirsty commuters.

“If people stay in the country and the sun shines, that’s good news for soft drinks producers,” said Andrew Milne, CEO of Vimto’s parent Nichols. “The weather we have seen in the last few weeks is very welcome.”

The end of Covid restrictions helped its first-half profit before tax reach just above over £10 million, up 17%. It hopes for a boost from the football World Cup in November and December.

Nichols share price dropped 2.6% after markets opened this morning.

Airport chaos sends Wizz Air diving to deficit of £240m

13:00 , Simon Hunt

Wizz Air today became the latest airline to reveal turbulent losses due to disruption at airports.

The low-cost easyJet rival plunged to an €285 million (£240 million) deficit for the last three months alone. Across the industry, carriers have lost billions as they fight soaring fuel costs, cancelled flights and increasingly irate customers.

Chief executive József Váradi noted: “Fuel prices for the quarter were double pre-pandemic levels. Lingering restrictions from Covid-19 remained, particularly during April and May, while the war in Ukraine and supply chain disruptions affecting air traffic control, security and ground operation resources have impacted our utilisation.”

Wizz Air is likely to cut its summer flying schedule further due to a staff squeeze that seems to have affected all airlines apart from Ryanair.

The shares have halved this year but rose 109p to 2073p today, valuing the business at £2.1 billion.

Rio earnings hit by costs rise and falling commodity prices

12:20 , Simon Hunt

A blend of falling commodity prices and rising costs squeezed profits at iron ore producer Rio Tinto, where earnings fell by almost $4 billion in the first half.

The Anglo-American mining giant relies on global economic growth to create demand for the metals it produces. It has previously warned of the impact of Russia’s invasion of Ukraine and the subsequent global tightening of monetary policy to control the wave of inflation as war began.

Underlying earnings of $8.6 billion for the six months to the end of June were lower than the $12.2 billion the previous year. Rio announced plans to pay out $4.3 billion in interim dividends, in what it called its “second highest” such payout ever.

The mining industry has also been struggling with labour shortages. Rio said its production in the period was “largely flat”. In the run-up to today’s results, Rio warned of “supply bottlenecks” in the eurozone, with “energy security” key for the area.

CEO Jakob Stausholm, said the “market environment has become more challenging” toward the end of the first half of the year.

Shares fell almost 4% to 4646p.

Marston’s sees sales dip as Brits shun roast dinners

11:00 , Simon Hunt

Pub chain Marston’s reported a drop in sales amid rising cost pressures for hospitality firms.

The group saw revenues fall 2% in the 42 weeks to July 23 compared with pre-pandemic levels, as pub-goers ditched roast dinners in favour of cool drinks as the sweltering summer heat reached record temperatures.

“Drink sales have held up but food sales have slumped…people have stopped going to carveries,” boss Andrew Andrea said.

The pub chain reported a doubling in electricity costs since its last contract ran out in March, leading to a £2 million hit to the business.

Food costs have also soared, led by sharp rises in the cost of chicken and white fish.

Labour costs have risen too after the company raised hourly wage rates for staff ahead of the minimum wage as hospitality firms battle for workers amid ongoing labour shortages.

Marston’s shares grew 1.3% to 47.6p in early trading.

Recession fears grow after Lloyds Bank bad debts rise

10:36 , Simon English

FEARS about the UK tumbling into recession grew today when the UK’s biggest domestic bank set aside hundreds of millions of pounds to cover loan defaults.

Lloyds Banking Group still made profits of £3.7 billion in the first half of the year, a result that beat City expectations.

But the change in tone from a year ago when the bank saw its balance sheet boosted from the return of cash it had set aside for Covid-losses was palpable.

Last time it returned £734 million to its own coffers as, thanks to furlough, the economy was seen to cope with the pandemic better than many had feared. Today it said it needed £377 million to cover future bad debts.

That’s a £1.1 billion turn around in fortunes.

Lloyds is widely seen as a bellwether for the UK economy since it holds so many of the nation’s mortgages and savings accounts.

read more here

Traders await another big US rates rise

10:35 , Graeme Evans

Traders were today braced for more currency and stock market volatility as the US Federal Reserve prepares to reveal its latest move on fighting inflation.

Another hike in US interest rates of at least 0.75% to between 2.25% and 2.5% appears certain tonight, but it will be the messaging from policymakers that will have the potential to sway markets.

The latest rates meeting comes with the Fed between a rock and a hard place, with inflation far too hot at a 40-year high and growth showing signs of weakening significantly.

Any suggestion from Federal Reserve chairman Jerome Powell that another 75 basis points is being considered for September at a time of slowing economic growth is likely to end the uneasy calm that has descended over markets in recent days.

Last week, the S&P 500 index had its best week since June as the Vix gauge of volatility retreated from recent highs. Currency markets have also steadied, with the pound holding firm today at just above $1.20.

August’s Jackson Hole economic symposium and two sets of inflation and payroll reports mean there’s much that can happen before the next policy meeting.

UBS said today: “We expect Powell to continue to drive home the message that inflation is unacceptably high and that the Fed is solely focused on getting it under control.”

European markets were steady ahead of the meeting, with the FTSE 100 index up 32.08 points to 7338.6 after a busy session of corporate earnings drove several stocks higher.

Lloyds Banking Group and Reckitt Benckiser were up 4% and 5% respectively after upgrading full-year guidance, just behind Smurfit Kappa after the Dublin-based packaging firm reported an 86% jump in half-year profits.

Despite sharply higher input costs and supply chain pressures, Smurfit upped its dividend by 8% in a reflection of its confidence in prospects. Shares lifted 146p to 2848p.

GSK rose 10p to 1765p as chief executive Emma Walmsley bolstered sales growth expectations for the drugs business to as much as 8%. GSK’s former consumer healthcare business Haleon also raised guidance, sending its shares 8.8p higher to 317.7p.

The FTSE 250 index improved 64.72 points to 19,633.51, led by a rebound of 7% for Wizz Air after its first quarter trading update.

FTSE 100 higher, Reckitt Benckiser surges 6%

08:52 , Graeme Evans

Reckitt Benckiser, Lloyds Banking Group and packaging firm Smurfit Kappa lead the FTSE 100 index after today’s better-than-expected half-year results.

Lloyds improved 4% and Smurfit by 5%, while Nurofen-to-Clearasil business Reckitt jumped 6% or 376p to 6750p as it followed other major consumer goods groups in increasing its revenues guidance for 2022.

Fellow healthcare business Haleon, which last week demerged from GSK, also upgraded expectations in an update that sent its shares 2% or 6.2p higher to 315.1p.

In a busy session for blue-chip updates, GSK’s shares were 3p lower at 1752p despite chief executive Emma Walmsley lifting annual sales growth guidance to as much as 8%.

Rio Tinto fell 3% after reporting a 29% decline in profits alongside a much-reduced half-year dividend, but the FTSE 100 index still rose 31.61 points to 7337.89. The FTSE 250 index lifted 37.38 points to 19,606.17.

Lloyds shares surge after results boost

08:18 , Graeme Evans

Lloyds Banking Group is seeing “continued business momentum”, with half-year profits excluding impairment provisions up 34% to £4.1 billion.

Net income for the six months increased by 12%, including a second quarter contribution of £4.3 billion against an expected £4.1 billion.

A provision for impairments of £377 million compared with a release of £734 million the previous year, meaning bottom-line profits fell to £2.8 billion.

Chief executive Charlie Nunn said: “Our strong financial performance demonstrates the resilience of our business model and customer relationships, and has enabled us to enhance guidance for 2022.”

Shares rose 5% to 45.5p, although they remain 9% lower over the year.

Richard Hunter, head of markets at Interactive Investor, said: “Despite an increasingly challenging economic backdrop in the UK, Lloyds has made an impressive start to the year on most metrics.”

Alphabet reassures, focus on Federal Reserve decision

07:56 , Graeme Evans

Google and YouTube business Alphabet has set the tone for an improved session on Wall Street, having delivered a reassuring update after last night’s closing bell.

Its second quarter figures, which included a 16% rise in revenues to $69.7 billion, eased anxiety over advertising demand since a warning from Snapchat owner Snap.

Alphabet’s shares rose 5% in extended trading and Microsoft also improved 4% after its results included solid forward sales guidance.

Their performances mean the tech-heavy Nasdaq is set to rebound by more than 1% later today, having fallen by 1.9% yesterday due to ongoing recession fears.

Tuesday’s sell-off also reflected jitters ahead of tonight’s US Federal Reserve rates decision and press conference. A further 75 basis points increase is seen as a certainty, with the focus now on whether a similar hike is in the pipeline for September’s meeting.

However, August’s Jackson Hole gathering of central bankers and two sets of inflation and payroll reports mean there’s much that can happen before the next meeting.

For now, Michael Hewson of CMC Markets thinks the Fed will stick to the narrative that it needs to get inflation under control even if it pushes headline unemployment higher.

He added: “Anyone thinking that in light of recent data that the Fed is likely to soften its tone is probably going to be disappointed.”

In Europe, investors are focused on the threat of recession after EU members agreed to cut gas demand by 15% in response to Nord Stream 1 being at 20% of pipeline capacity.

Yesterday’s session also saw consumer stocks under pressure after a warning over slower general merchandise spend at US giant Walmart. CMC expects the FTSE 100 index to open 25 points higher at 7311.

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