FTSE 100 Live 11 May: US inflation dips, Covid update boosts Asia markets

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Reaction to hotter-than-expected US inflation print

Here’s what City commentators are saying about the higher than expected US inflation number.

Dan Boardman-Weston, CEO at BRI Wealth Management, said: “The current conflict in Ukraine and the covid induced lockdowns in China are putting further upward pressure on the rate of inflation and we’re likely to see high readings over the coming months until growth starts to slow and supply pressures ease.

“The significant increases in the cost of living and the interest rate increases will start to have a detrimental impact on the growth outlook for the American economy, which is likely to bring inflation meaningfully lower over the coming year.

“The Fed has a tricky task ahead of them trying to ensure that inflation expectations don’t become entrenched but they are likely to continue tightening policy into a slowing economy. The ‘softish’ landing they are hoping for may not be so soft.”

Sarah Giarrusso, Investment Strategist at Tilney Smith & Williamson, said: “Even with these signs of peaking inflation further hikes are likely for the remainder of the year given comments from Fed Chair Powell reiterating that the Fed is “highly attentive to inflation risks”.

“The US equity market is still adjusting to a hawkish Fed as growth stocks, which are more sensitive to rising interest rates, continue to underperform their value counterparts. The course for interest rates is likely to continue on an upward trajectory and therefore we remain in favour of value over growth in equity markets.”

Richard Carter, head of fixed interest research at Quilter Cheviot, said: “The drop in US CPI to 8.3% last month may be welcomed by markets with investors beginning to hope that the peak in inflation is behind us.

“However, the numbers were still worse than expected and it is far too early to declare victory with inflation likely to remain high for some time to come while energy prices could also rise further if the Ukraine war escalates. Furthermore, while it is hoped US inflation has peaked, other countries cannot say the same thing and this has become a global problem.”

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US inflation dips in April

Inflation has dipped slighting in the US, though still come in higher than economists had forecasts.

New data shows consumer prices increased at an annual rate of 8.3% in the US in April, down from 8.5% in March. Economists had been expecting a reading of 8.1%.

“Increases in the indexes for shelter, food, airline fares, and new vehicles were the largest contributors to the seasonally adjusted all items increase,” the US Bureau of Labour Statistics said. “The food index rose 0.9 percent over the month as the food at home index rose 1.0 percent.

“The energy index declined in April after rising in recent months. The index for gasoline fell 6.1 percent over the month, offsetting increases in the indexes for natural gas and electricity.”

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Decline of Covid deaths dents Dignity

Funeral provider Dignity has posted a sharp decline in both revenues and profits as widespread Covid-19 vaccine uptake leads to a decline in deaths.

Dignity’s underlying operating profits fell 67% to £9 million in the first quarter and revenues dropped 22% to £73.9 million.

The company attributed its troubled performance to the lower number of deaths and lower average revenues per funeral, following a move to more competitive pricing in September 2021. The number of deaths across the UK dropped by 19% to 166,000 in the first three months of the year.

Read more.

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Toyota and Tesla grapple with supply chain problems

Inflation and supply chain issues continue to hit carmakers, with Toyota and Tesla both sounding the alarm.

Japan’s Toyota warned today that “soaring material prices” will hit its profits, while Tesla CEO Elon Musk has hinted his company may put the brakes on accepting new orders.

Toyota forecast a 21% drop in profits this year, blaming “unprecedented increases in materials and logistics costs.”

Separately, Musk said at a conference that supply chain problems could prompt Tesla to stop taking new orders.

“We are actually probably going to stop taking orders beyond a certain period of time because some of the timing is a year away,” he said.

Read the full story.

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ITV stands by streaming plans despite Netflix woes

ITV has doubled down on plans for its new streaming service despite signs of a slowdown in the market.

CEO Carolyn McCall said ITV was on track to launch its new Netflix competitor, ITVX, later this year and is still “confident that we will deliver at least £750 million of digital revenue by 2026,” McCall said. The new platform will make money from both subscriptions and advertising, using a tiered model similar to Spotify.

Netflix’s recent woes have prompted concerns that the streaming boom could be over, with soaring inflation prompting many viewers to review their subscriptions.

Read the full story.

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China optimism lifts markets, Aston Martin 3% higher

Hopes for an end to China’s Covid disruption prompted a flight back to Prudential, Burberry and other Asia-focused shares today.

Speculation that growth-sapping lockdown restrictions might finally be loosened came when the tech hub city of Shanghai reported a 51% fall in new cases for yesterday.

The country’s attempts at a zero-Covid policy and closure of the Hong Kong border have particularly hampered Prudential, which last year offloaded its US operation in order to focus on faster-growing savings and investment markets in Asia.

Having fallen by more than a quarter in 2022, Pru’s shares today lifted 5% or 42.6p to 925.6p amid the optimism from the world’s second largest economy.

Burberry, whose recovery from the pandemic has been delayed by the recent spike in Covid cases in its key mainland China market, added 3% or 48.5p to 1530.5p.

Hopes for a revival in construction demand cheered commodity stocks as iron ore-focused Rio Tinto surged 4% and Glencore improved 3%. There were also gains of 2% for BP and Shell after the Brent crude price reversed recent falls to stand at near $106 a barrel.

The FTSE 100 index improved more than 1%, or 87.12 points to 7330.34, as European markets showed further signs of stabilisation after the recent US-led sell-off. Other stocks moving sharply higher included British Airways owner IAG, which lifted 3.7p to 126.7p.

The improved China outlook also meant shares in Aston Martin Lagonda rallied 3% as the FTSE 250 index improved 182.63 points to 19,567.59.

Other second-tier stocks on the front foot included City broker TP ICAP, which lifted 4.9p to 118.6p after the return of market volatility helped quarterly revenues rise 15%.

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Virgin Media O2 promises jobs for Ukrainian refugees

Broadband and mobile provider Virgin Media O2 is to fast-track applications for refugees fleeing the war in Ukraine.

The promise came as Virgin Media O2 reported a first quarter profit of £91.9 million, up 5.3% compared to the same period last year,

The company added a total of 478,000 mobile customers during the period but lost 8,000 from its 5.8 million subscriber base as customers navigate the cost of living crisis. The company invested £473 million in its broadband infrastructure.

The company said it would actively hire for a “diverse mix of more than 1,000 roles” located across the UK for those escaping the conflict.

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Tui predicts return to profit as bookings stay strong

The outbreak of war in Ukraine has not dulled Brits’ appetite for travel, the world’s biggest travel agent said today, with bookings now running ahead of pre-pandemic levels.

German holiday giant Tui today predicted a return to profit “after two years of turbulence” thanks to soaring bookings in markets like the UK.

11 million trips and excursions were booked through Tui in the six months to the end of March, including 5 million bookings in the second half of the period.

“The UK market in particular remains the most advanced booked, with bookings up 11% versus Summer 2019,” the company said.

“Bookings across our key markets UK, Germany and Benelux have been largely unaffected by the war in Ukraine, with only the Nordics and Poland subdued.”

Read more about the holiday company’s first half performance.

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China hopes lift FTSE 100, Prudential up 4%

The FTSE 100 is up 21 points to 7264 ahead of this afternoon’s US inflation figure and after Asia-focused stocks received a boost from hopes that China may soon be able to ease lockdown restrictions.

Figures showing a decline in Covid cases in Shanghai meant shares in Prudential and Burberry improved 4% and 2% respectively, while a potential pick-up in construction demand boosted shares in iron ore-focused Rio Tinto by 2%.

The FTSE 250 index improved 75 points to 19,460, with Rolex retailer Watches of Switzerland and Aston Martin Lagonda among the stocks 4% higher.

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Caterer Compass surges as revenues rebound

Shares in catering giant Compass are up 10% in the FTSE 100 index after it reported revenues at pre-Covid levels.

The company, which serves 5.5 billion meals every year in 44 countries, also raised its full-year guidance for revenues growth to 30% from 20%-25% forecast previously.

In today’s half-year results, chief executive Dominic Blakemore said: “We have seen a notable improvement in business & industry and education as employees return to the office and students to in-person learning.”

Compass shares were 150p higher at 1727.5p as operating margin guidance of over 6% was left unchanged despite inflationary pressures.

The interim dividend has been reinstated with the payment of 9.4p a share and the company is also planning to complete a £500 million share buyback during this year.

Hargreaves Lansdown analyst Matt Britzman said: “The rising cost of food means more businesses are looking to outsource, and with sporting events back on the table Compass Group’s revenue has made a near complete recovery to pre-pandemic levels.”

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